Update #2: Money Meltdown Timeline by: TXsharon
Mon Sep 22, 2008 at 15:20:45 PM CDT
1982 John McCain enters senate
Garn-St. Germain Depository Institutions Act
initiative of Reagan administration
authored largely by lobbyists for S&L Industry
allowed S&Ls to compete with banks without banking regulationsReal Estate Boom - fueled by greed, S&L's cheap mortgages and risky investments
1985 Federal Home Loan Bank Board sees potential for disaster due to deregulation and sets rules to limit amount & type of investments S&L's could carry. Alan Greenspan argues against rules Many S&L's ignore rules including a company run by Charles Keating, Lincoln Savings & Loan Association of Irvine, CA
Reagan appoints Keating pal to loan board
McCain & 4 other senators meet with loan board and management at Lincoln
McCain and Greenspan enable Lincoln to continue business as usual1987 Charles Keating company, Lincoln Savings and Loan Association fails.
21,000 investors, mainly elderly and retired lose life savings
John McCain and Charles Keating were close friends for many years. They vacationed together on Keating's private Caribbean property and traveled on Keating's private jet. The Keating 5 Maverick failed to report these trips until he was already under investigation. Keating and members of his company contributed $112,000 to McCain's campaign.
1989 Resolution Trust Company formed to cover debt of Lincoln and 746 other S&L's
$125 billion bill was passed on to taxpayers
Budget deficit causes cuts in other programs
Real estate boom crashes1999 Phil Gramm the "economic guru of Keating 5 Maverick" authors Gramm-Leach-Billey Act which repealed important protections in 1933 Glass-Steagall Act. (Glass-Steagall Act controlled rampant speculation that enabled the banking collapse at the beginning of the Great Depression)
Removed regulations from banks allowing them to become directly involved in:
Stock market
bonds
insurance
Promotes bank buyouts and mergers allowing financial institutions to become:TOO BIG TO FAIL 2000 Phil Gramm the "economic guru of Keating 5 Maverick" authors Commodity Futures Moderinization Act (CFMA). Large parts written by industry lobbyists expands scope of futures trading
creates new speculation vehicles
shelters certain investments from regulation including Credit Default Swaps includes Enron Loophole (written by Phil Gramm and Enron lobbyists) which exempts energy trading from regulation
Credit Default Swaps - were sheltered by CFMA. "A kind of insurance one bank could exchange with another, credit default swaps supposedly made it safe for banks to take on ever riskier forms of debt." CFMA placed credit default swaps "in a state where they were not only unregulated but almost perfectly opaque. No one could determine their worth.
Greenspan said credit default swaps would be the salvation of the industry because they spread the risks around. For a more thorough explanation, see Sup Prime Primer
banks accept lower and lower down payment on homes
credit check, salary check and asset checks are skipped Even dead people get loans (23 in Ohio)
market is flooded with easy credit
Real estate market booms2003 Bush Administration recommends regulatory overhaul of housing finance industry.
This recommendation later was exposed to be a push to privatize regulation which essentially provides no regulation at all. (see legislation below that never made it out of the Republican controlled Congress)
2005 S. 190 [109th]:
Federal Housing Enterprise Regulatory Reform Act of 2005. Sponsor: Sen. Charles Hagel [R-NE]; Co Sponsors: Sen. Elizabeth Dole [R-NC], Sen. John McCain (Keating 5 Maverick) [R-AZ], Sen. John Sununu [R-NH]
"Federal Housing Enterprise Regulatory Reform Act of 2005 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish:
(1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac);" The bill died at the end of the 109th Republican controlled Congress
NOTE: This bill was transferring any remaining oversight FROM the government TO an INDEPENDENT Agency! That meant it had NO FEDERAL OVERSIGHT AT ALL! Hat Tip to txag007 for calling my attention to this ah hmmm...oversight
Late 2005-Early 2006 (the following is an assist from McBlogger)
Loan performance begins to decline
Inflation picks up and squeezes consumers who haven't had a pay increase since the 1990's
Consumers bridge with home equity borrowing
2006 - 2007 Subprime lending industry completely breaks down
This is quickly followed by Alt - A lending
2008 All mortgage loans are considered suspect
Collateral weakens
Bear Stearns first to fall
Credit freezes up and spreads between mortgage loans
Other lending institutions fail
US Treasuries widen massively
AIG fails and government bails them out with $85bn loan
AIG Executive to be Sentenced for Fraud Conviction
Bush administration proposes $700bn bailout package
http://www.texaskaos.com/showDiary.do?diaryId=5397
