Spread the wealth how? Look at his past. Obama in this video, addressing his work with ACORN litigation against the banks and relating to the Community Reinvestment Act and the failure of Freddie Mac and Fannie Mae, as they relate to the current real estate and financial crisis, states that, and I quote:
"Subprime lending started out as a good idea, helping Americans buy homes who previously could not afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories, and spread them out among investors and around the country, as well as around the world. In theory, this should have allowed mortgage lending to be less risky, and more diversified."
"The original idea was a good one, which was, lets see if we can distribute risk more broadly, and make it easier to provide loans to people who otherwise might not be able to get one."
Listen for yourself. You cannot dispute the mans on words recorded live:
http://www.youtube.com/watch?v=Lr1M1T2Y314&feature=related
Obama in this second video is campaigning at a convention of Acorn and I believe two other Community Activist's organizations. Ask if he will be their ally if he becomes President, Obama says, quote:
"Yes, but let me say that before I even get inaugurated, during the transition we are going to be calling all of you in to help us shape the agenda."
See and hear it for yourself. Obama promised that Acorn and other groups like it will setting his agenda if elected:
http://www.youtube.com/watch?v=8vJcVgJhNaU
Below is a link to C-SPAN video clips of the Congressional hearings at roughly the time McCains attempt at S.190. to fix Fannie and Freddie. See for yourself who said what.
http://www.youtube.com/watch?v=_MGT_cSi7Rs
See also
http://www.newsweek.com/id/164732 from this web site. (oops!) stating that Freddie Mac was spending tax payer money to target Republicans in 2005 who were trying to regulate Fannie and Freddies fraud. Democrats were not targeted, as the were all in the tank with Fannie and Freddie to kill the regulations. Hear that, the article admits that Republicans were trying to regulate Freddie and Fannie, and Democrats were trying to stop it from happening as a means to facilitate the Community Reinvestment Act.
See also: http://www.newsweek.com/id/164972
Stating that Gramm-Leach-Bliley Act wasn't what caused the meltdown, and noting that "economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been."
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Why The Banks All Fell Down
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But perhaps more important is the role of government. The instability here was not caused by a lack of regulation. It was caused instead by the wrong regulation at exactly the wrong time.
This isn't the first cycle of instability that we've seen in recent financial history. Indeed, it is the eighth in 25 years. After each collapse, regulators scramble to understand what went wrong. When there's no consensus about cause, the regulators push the safest response: a requirement, as Persaud explains, that banks adopt the "best practices" of their competitors, which can have a fatally sterilizing effect upon the ecology of competition. For instance, a rule requiring banks to hold assets that do not fall below a certain credit rating might seem like a good idea. But when ratings fell as a result of the deterioration of the subprime-mortgage market, everyone was forced to sell at the same time, driving prices down and forcing rating agencies to consider further downgrades. As competitive diversity is lost, responses to trouble become identical. A single virus acting on a monoculture of banks can destroy liquidity, and thus wipe out whole markets.
The answer is not to abolish bank regulation. Rather, it is for regulators, as Persaud puts it, "to recognize that their job is not to tell bankers how to do banking." It is instead to "focus on what bankers, centuries over, have failed to do well: manage risk through the economic cycle." Credit requirements designed with cycles in mind, for example, could induce banks to forgo hefty bonuses in good times so that they're prepared for the bad. And rules that restored the natural diversity of individual savers and borrowers could ensure a more resilient financial environment during both good and bad times.
Perhaps the most important lesson is a recognition by both government and industry of a certain humility about the machine. The urge to cede responsibility to brilliant souls running technology calibrated in milli-whatevers is understandable. But as Dr. Forbin tried to explain, the machine has its limits. When we bind ourselves to the machine, we bind our fate to those limits.
Lessig is a professor of law at Stanford Law School and founder of its Center for Internet and Society. His latest book is “Remix” (Penguin Press).
© 2008
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