The stock market tanked today, the Dow Industrials are down over 500 points, nearly 5%. Lehman Brothers is in Chapter 11 bankruptcy and Merrell Lynch has sold out to Bank of America. In addition, the biggest insurer in the U.S., a firm called American International Group, or AIG, is having serious difficulties.
You've heard that the problem with the financial institutions has been something called "subprime loans or mortgages." That is, mortgages made to borrowers who don't have good enough credit or enough down payment to get a usual mortgage. What the mainstream media has assidulously NOT been telling you is that these came about as a result of government policy, promulgated during the Clinton administration.
The Clintonians wanted to spread the benefits of home ownership to individuals who, because of bad credit or low income, didn't qualify for normal home loans. So they pushed Fanny and Freddie to make iffy loans, and other lenders too. It came under the heading of "equal opportunity lender" where firms had to keep track of how many loans they made to minorities and other individuals with shaky credit.
In order to meet quotas, or goals, firms made shaky loans, loans they would not otherwise have made. Of course, what we are now learning is that their previous, tough credit standards were the right ones after all.
People with low incomes or bad credit often cannot maintain the payments on a home, because they live close to the edge financially. An illness, a layoff, an expensive auto repair, or a marital split can easily push such individuals into default.
Add in an economic downturn, which naturally occurs in our market economy, and you get a wave of foreclosures and loan defaults. If a lender made too many of these, it won't survive. So...when somebody tries to tell you the troubles in the financial markets are Bush's fault, tell them no, it was Big, Bad Bubba Bill being big-hearted with other people's money.
