The Continuing Lie That Bush And The GOP Policies Created the Great Recession

If there's one thing that Democrats have gleaned from World War II Nazis, it's their firm belief in those famous words of Nazi propagandist Joseph Goebbels: "If you tell a lie big enough and keep repeating it, people will eventually come to believe it."  Nothing can be more true to that statement  than President Obama and his surrogates blaming Bush and the GOP for the economic mess we find ourselves in today.    

The fact is, that the 2007 Recession had its genesis in something that the Democrat-controlled Congress and Jimmy Carter passed into law in 1977.  That something was the Community Reinvestment Act or CRA.  Under the law, banks were forced to provide a certain percentage of their loans to low-income families within the community they served.  If not, they would lose Federal support for their banking operations such as FDIC or federally-provided loans in something called overnight lending.  Failure to meet the law also put banks into a position where they wouldn't get federal approval for expansions or mergers.  So, the bottom line was that banks were being forced to take on risky loans. 

When Clinton took office, he went even further with the CRA; requiring banks to provide even more community-centered low income loans.   But, while the original requirements of the law were doable, the new Clinton mandates were almost impossible because most people in that low-income category didn't have any savings; leastwise, enough savings to put 20% down on a home so that they could qualify for a mortgage.  So, one of the first things mortgage lenders did to meet the stricter guidelines of the CRA was to lessen the down payment requirements.  Eventually, that morphed into the no-money down loans that resulted in home ownership in the U.S. rising from 68% in 1993 to almost 94% by the time the housing bubble broke in 2007. 

In giving out all these low income mortgages with no-money down, the banks knew they were putting themselves at extreme risk.  To offset that risk, they bundled loans into trade-able securities and in investment products called Credit Default Swaps.  And we can thank Bill Clinton, again, for the banks ability to do that.  That's because in 1999, Clinton signed into law the Gramm–Leach–Bliley Act which gave banks the ability to create marketable securities and act as insurance companies and stock brokers; all under one roof. Unfortunately, the banks, themselves, now acting as stock brokers, were dumb enough to buy these risky investments from each other.  So, in 2007, when the housing bubble broke, the banks found themselves with a lot of worthless securities and the whole banking system was in trouble and had to be bailed out with programs like TARP.

Now, to be fair, the Gramm–Leach–Bliley Act was a Republican led initiative. But, usually presidents get the blame for something because they're the  one's who sign bills into law and who have the right to veto any bad law that Congress comes up with.  Clinton had no such reservations on that law and, subsequently, he is clearly responsible for its enactment.

Now, I'm sure that those on the left would point to Bush's push for increased home ownership.  But, Bush didn't pass any laws or relax any requirements that forced banks into providing more loans.   If anything, he is to blame for not taking the actions that would have stopped the low-income mortgage debacle.

Lastly, the housing collapse and banking failure had many more peripheral causes and players than noted above.  However, rather than make things complex I purposely drilled down on the CRA as the primary reason for the Great Recession.  As I have clearly shown, Democrats are easily to blame; not the GOP  and certainly not George W. Bush.  But, the lie continues.