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Congress has been most adept
at avoiding the blame for the recession which
crippled our nation’s economic health. While it
easy to blame it on the previous Administration,
which was by no means blameless, it ignores the
real foundations of the problems. Congressmen,
Senators and Presidents, both Republican and
Democrat, participated in passing various pieces
of legislation that contributed to the
recession.
 Under Franklin Roosevelt,
the Congress passed the Glass-Steagall Act in
the early 1030s to control speculation by banks.
It separated commercial banking (deposits,
loans, mortgages) from investment banking which
were more speculative.
Changes in the
laws in the 1990s were the key elements that
created the current recession. Congress, both
Republican and Democratic elected officials,
were responsible.
1.) Community
Reinvestment Act: In 1977 Congress passed the
Community Reinvestment Act (CRA). It became a
real force in the 1990s for community activists.
This Act was used by organizations such as ACORN
to put extreme pressure on banks to increase
lending in low income neighborhoods by lowering
credit and income requirements.
2.)
Repeal of Glass-Steagall: In 1999, Congress
repealed elements of the Glass-Steagall Act.
This permitted banks to use commercial banking
monies to fund speculative instruments including
the infamous “derivatives”.
3.) Commodity
Futures Modernization Act: About the same time,
Congress passed the Commodity Futures
Modernization Act - which exempted derivatives,
including the now-notorious credit-default
swaps, from federal regulation.
The
lowering of credit and income standards
gravitated across the industry, an unintended
consequence, which led to a large number of
mortgages that were vulnerable to an economic
downturn. However many, if not most, of the
failed mortgages were in the low income range
implemented under CRA guidelines.
This
lowering of standards was often done in
conjunction with the investment options (loan
packing, etc) allowed by the repeal of parts of
the Glass-Steagall Act and the Commodity Futures
Modernization Act. This combination of events
allowed banks to increase their leverage to
dangerous levels.
The problem with
increasing leverage is that when it makes money,
it makes a lot of money, but when it loses money
such as in an economic downturn, it loses a lot
of money. Hence the failures of AIG and many
large banks.
This was not a Bush or
Republican recession, it was a Congressional
recession with active participation by Congress
and President Clinton who signed two of the key
bills. Both parties are to blame.
In
2005, Senator John McCain tried to get the
Senate to correct some of the problems before
they caused damage to our economy, but he was
rebuffed and his bill was never permitted onto
the Senate floor.
As your Congressman, it
will be my duty to look at all bills to ensure
that they minimize the Unintended Consequences
that these 1990s bills caused.
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Bendas
For Congress
