“By 2007Banks owned $700 billion in abandoned houses and with no money to lend. ”
Bill Clinton was President during an historic economic period known as the dot-com era that occurred between 1997 and 2001. Adaptation of the Internet by businesses and consumers created a period of excessive speculation and extreme growth. The combination of rapidly increasing stock prices, market confidence and speculation in stocks by individuals resulted in many investors willing to overlook traditional cautions.
Venture capitalists were throwing money at any and all dot-coms to help them build market share whether they could ever be profitable or not. It was a brave new era, in which more than a dozen fledgling dot-coms that nobody had ever heard of could pay $2 million of other people's money for a Super Bowl commercial.
When the music stopped, many pioneering dot-coms went out of business. The Dow Jones Index, made up of dot-com blue chips, dropped more than 72 percent as Wall Street darlings saw their stock prices fall more than 99 percent from their highs. What happened next was an almost exact replay of the Great Depression.
In the middle of the economic boom, President Bill Clinton began his National Home Ownership Strategy. It was a program to provide assistance to help everyone attain the American dream of home ownership. To boost low-income and minority-income ownership, Clinton used 100 executive actions to create new "flexible" mortgage underwriting guidelines.
In 1999 by Bill Clinton repealed the Glass-Steagall Act. Glass-Steagall was passed in 1933 to stop the fraud that preceded the Great Depression. Under Glass-Steagall, banks could take deposits and make loans and brokers could underwrite and sell securities. But no firm could do both. From 1933 to 1999 the law worked exactly as intended. The repeal of Glass-Steagall led directly to the mortgage-fueled meltdown and another Great Depression.[1]
In 2000, Clinton's Affordable Housing Act[2] ordered the taxpayer-backed Fannie Mae and Freddie Mac to expand their quotas of risky loans from 30 percent of portfolio to 50 percent as part of a big push to expand homeownership. Banks were forced to expand their quotas of risky loans to 50 percent of their portfolio.
The Federal Reserve[3], responsible for examining banks to evaluate and rate their performance, began giving higher ratings to banks writing loans in "credit-deprived" areas were there was a high risk of defaulting and lower ratings to banks that didn’t comply. Banks that got low ratings lost their ability to expand lending and deposits.
As of 2007 there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Fannie Mae and Freddie Mac owned over $1 trillion of subprime, uninsured, low quality loans. Lower-income folks, who really could not afford their mortgages, suffered mass foreclosures and bankruptcies. Banks owned $700 billion in abandoned houses with no money to lend.
The hard-earned lessons of the Great Depression had been lost by the arrogance of 1999 and consequential repeal of the 1933 Glass-Steagall Act.
The collapse of many startup internet companies, along with several interest rate increases by the Federal Reserve, led to an economic recession precipitated by a rapid decline in the NASDAQ. Three years later the taxpayers had to write a check for $187 billion to rescue the insolvent Fannie and Freddie. This was the largest bailout in history. It's a perfect example of liberals using government allegedly to help the poor, but the ultimate consequences were disastrous for them.
And yet, while Hillary Clinton was running for Senator of New York, she was taking contributions from Fannie Mae and Freddie Mac foundations. The Washington Times investigators reported, “Freddie Mac and Fannie Mae’s political action committee and individuals linked to the companies donated $75,500 to Mrs. Clinton’s senatorial campaign — making her the fourth-largest recipient in Congress of the mortgage firms’ total donations in the years 1989 to 2008 behind Mr. Obama, Mr. Kerry, and Mr. Dodd...”
References
[1] 10 Years Later, Looking at Repeal of Glass-Steagall
[2] Housing and Community Development Act
[3] Federal Reserve System