In the current narrative presented by Democratic Party operatives, the banking industry collapse of September 2008 was caused by tax cuts under George W. Bush and supply-side economics tracing back to the era of Ronald Reagan.

The narrative, however, ignores the personal responsibility Barack Obama and Democratic Party operatives played in creating the subprime mortgage market, beginning with the passage of the Community Reinvestment Act of 1977.

The 2008 banking collapse was triggered by a series of failures in the mortgage-backed securities market resulting from massive defaults in the subprime mortgage market and derivatives supporting the mortgage market that caused Lehman Brothers and Bear Stearns to go bankrupt. Financial giants such as Freddie Mac, Fannie Mae, Merrill Lynch and AIG threatened to follow suit, as detailed by the Guardian of London.

As WND reported in May 2009, Obama himself played a role as an activist lawyer in Chicago, representing ACORN in the 1994 case Buycks-Roberson v. Citibank Federal Savings Bank. In the case, ACORN pressed Citibank to make more loans to marginally qualified African-American applicants “in a race neutral way.”

ACORN Housing, then a nationwide organization with offices in more than 30 cities, used the Citibank litigation to push the group’s radical agenda to get subprime homebuyers mortgages under the most favorable terms available.

Community Reinvestment Act of 1977

The Community Reinvestment Act, or CRA, was signed into law by President Jimmy Carter in 1977 with the goal of forcing banks to provide credit to businesses and homeowners with poor credit.

The CRA’s purpose was to stop banks from “red-lining,” or refusing to lend to people in low-income areas because the risk of the loan not being repaid was too high.

Even though lending to people with poor credit is inherently risky, the Carter administration was intent on forcing banks to accept a social responsibility to provide credit to homeowners and businesses in low-income neighborhoods.

The CRA was super-charged during the Clinton administration with a set of new rules that allowed subprime mortgages to be securitized.

Federal Reserve Chairman Ben Bernanke, in a speech to the Community Affairs Research Conference in Washington, D.C., on March 30, 2007, noted a 1992 law passed during the Clinton administration expanded the CRA market by requiring the government-sponsored enterprises Fannie Mae and Freddie Mac to securitize “affordable housing loans,” a euphemism widely understood to mean low-income housing loans.

Clinton expands subprime mortgage market

Securitization of mortgages into bonds, a process that became a multi-trillion-dollar business in the 1990s, increased dramatically the liquidity, or amount of money available, to make new home loans.

Because mortgage originators could sell their mortgages to investment bankers, creating mortgage-backed securities, mortgage originators did not have to hold the mortgage in their portfolio. As a result, mortgage lenders could more easily engage in riskier lending, including lending to less qualified buyers in the subprime market.

By allowing CRA-generated and other subprime mortgages to be included in mortgage-backed securities, the Clinton administration advanced a social agenda to extend homeownership into inner-city poverty, where prospective homeowners were typically not qualified to obtain a mortgage.

By definition, subprime lenders are not credit-worthy under normal lending standards. They typically cannot meet normal lending requirements to verify income and have a history of credit problems.

Gretchen Morgenson and Joshua Rosner, in their 2011 book “Reckless Endangerment,” detailed how the subprime mortgage crisis resulted in the collapse of financial institutions in September 2008. The authors demonstrated, as noted on page 3 of the book, how Clinton’s “calamitous” homeownership strategy developed and “came to blow up the economy.” The authors calls it a “story of greed, good intentions, corporate corruption and government support.”

In the aftermath of the U.S. government takeover of Fannie and Freddie, attention focused on three prominent Democrats who served as Fannie Mae executives: Franklin D. Raines, former Clinton administration budget director; James Johnson, former aide to Democratic Vice President Walter Mondale; and Jamie Gorelick, former Clinton administration deputy attorney general.

All three prominent Democrats earned millions in questionable compensation while serving as top Fannie Mae executives.

Raines earned $90 million in his five years as Fannie Mae CEO, from 1999 to 2004; Johnson earned $21 million in just his last year serving as Fannie Mae CEO, serving from 1991 to 1998; and Gorelick earned an estimated $26 million serving as vice chair of Fannie Mae from 1998 to 2003.

All three were subsequently involved in mortgage-related financial scandals concerning their stewardship at Fannie Mae.

Franklin Raines

Franklin Raines’ problems began in 2004, when Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight, or OFHEO, and the Security and Exchange Commission’s top accountant issued reports charging that under Raines’ stewardship Fannie Mae had misstated earnings for three and a half years.

The $9 billion restatement of earnings required by the OFHEO and SEC ended up wiping out 40 percent of Fannie Mae’s originally stated profits from 2001 to mid-2004.

Raines resigned from Fannie Mae in December 2004, with a $19 million severance package.

Raines continued playing the victim until April 2008, when he and two other Fannie Mae top executives were ordered in a civil lawsuit to pay nearly $31.4 million for their roles in what amounted to an Enron-like accounting scandal.

Raines and the other Fannie Mae executives were accused in the civil suit of manipulating Fannie Mae books to manufacture earnings over a six-year period that stretched from 1998 through 2004 to trigger for themselves millions of dollars in otherwise unearned bonuses.

In the final settlement, Raines was also forced to give up Fannie Mae stock options then valued at $15.6 million.

A controversy broke out when the Washington Post noted in July 2008 Raines had taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters.

Republican presidential candidate Sen. John McCain ran a television advertisement using the Post article as a source to claim Raines was an Obama adviser. But Raines issued a denial that he was an adviser to Obama or that he had provided the Obama campaign with advice on housing or economic matters.

In September 2008, as the controversy developed, the Washington Post stood behind its original report, noting Raines statement that month that he never provided Obama’s campaign with advice on housing or economic matters contradicted what he told the newspaper in July 2008.

James Johnson

James Johnson was appointed to head Obama’s vice presidential selection committee until a controversy concerning an alleged $7 millions in questionable real estate loans he received on favorable terms from failed sub-prime mortgage lender Countrywide Financial surfaced and forced him to resign.

The controversy over Johnson began when the Wall Street Journal reported June 7, 2008, that Countrywide had extended to Johnson and Raines millions of dollars in favorable home loans because they were “Friends of Angelo,” or “FoA,” as such preferential borrowers were known in the inner circles of Countrywide.

The Wall Street Journal carefully noted there is nothing illegal about a mortgage firm treating some borrowers better than others.

Yet, when two top Fannie Mae executives received the preferential mortgage treatment, it spelled political trouble for the government-sponsored, shareholder-owned company, as well as for the Democratic Party and the Obama presidential campaign with which Raines and Johnson were connected.

A lawyer for Johnson insisted to the Wall Street Journal that Johnson’s Countrywide home mortgage loans were within industry practice; Raines did not respond to the newspaper’s requests to comment.

Jamie Gorelick

In 1998, Fannie Mae Vice Chairman Jamie S. Gorelick received a bonus of $779,625, despite her alleged involvement in a scandal in which Fannie Mae employees falsified signatures on accounting transactions to manipulate books to meet 1998 earning targets. The targets, in turn, triggered multi-million-dollar bonuses for top executives, including Gorelick.

The 1998 bonus reported for then-Fannie Mae Chairman and CEO James Johnson was $1.932 million. Then-Chairman-designate Raines received $1.11 million.

After leaving Fannie Mae, Gorelick encountered controversy a second time, over an alleged conflict of interest when a 1995 memo she authored as deputy attorney general at the Justice Department during the Clinton administration surfaced while she was a member of the 9/11 commission.

The memo, which outlined a policy that became known as the “Gorelick Wall,” appeared to put in place barriers that barred federal anti-terrorist criminal investigators from accessing various federal records and databases that may have assisted them in their criminal investigations.

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