Originally Posted by valanhb
Laurie, I'm not familiar with the term, but I looked up the Glass Steagall Act on Wikipedia and it wasn't the one I was thinking of. What was the act that was passed under Clinton that mandated that banks lower their standards or make more "high risk" loans with the intention of making home ownership more feasible for lower income families? I've heard it referred to and I would like to know more about it, but I can't remember the name.
I just took a look at the Wikipedia article on Glass Steagall - and it actually has links to the legislation that de-regulated the industries, because most of them stemmed from revisions to various aspects of the original Glass-Steagall Act. But the one you're thinking of, I'm pretty sure, is the Community Reinvestment Act, which was actually established in 1977, was revised under Clinton in 1995, and was revised again by the Bush admin in 2004/5. The Clinton revisions allowed the mergers of a bunch of insurance companies and banks, and enabled the subprime crap and the securitization of the subprime stuff: the revisions made under Bush in 2004/5 basically relaxed the oversight of institutions subject to the CRA.
Glass-Steagall was the 1933 act that established the FDIC and put controls in place to stop the panic back then. It included legislation that prevented banks from owning other financial companies, various financial controls, etc.
That provision that prevented banks, brokerages and insurance companies from being under one ownership roof was repealed in 1999 - that is the Gramm-Leach-Bliley act signed by Clinton 1999. This "opened up competition" between banks, brokerage firms and insurance companies, which then began merging. If you look up the Gramm-Leach-Bliley Act in wikipedia, you'll see it passed by a 54-44 vote, "largely along party lines with Republican support in the Senate, and by a 343-86 vote in the House of Representatives....Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act...."
The Community Reinvestment Act was originally passed into law in 1977 - it was designed to stop redlining (discrimination in lending) and to help create affordable housing. In 1995 (Clinton), the "implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs...." and are "credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans."
It was apparently very controversial, so according to Wikipedia, regulators agreed to revisit the rule after it had been implemented for 7 years. However, in the meantime, it was the Clinton revisions that enabled companies like Countrywide to make loans without having the other side of the business - savings deposits. It created the secondary market for loans, enabling the subprime business, and it also enabled the securitization of CRA loans that contained subprime mortgages.
In 2002, the CRA was revisited as it was supposed to be. "Substantive changes" to the implementation of regulations for CRA for banks were implemented - it had to do with assessment tests for lending standards, and large institutions were subject to more stuff than smaller ones, but that didn't happen until 2004/5.
However, a lot of institutions not even subject to the CRA popped up with the growing demand for subprime loans. But it is notable that the weakening of the CRA in 2004/5 was followed by huge increases in subprime lending.
The Wikipedia description of the whole thing is interesting, from Glass-Steagall Act, the Gramm-Leach-Bliley Act, and the Community Reinvestment Act.
Another notably: A further provision of the original Glass-Steagall Act was repealed in 1982 - the Garn-St. Germain Depository Institutions Act of 1982, which deregulated the Savings and Loan industry. It enabled adjustable rate mortgages - had broad support in congress - and is almost directly responsible for the S&L crisis that occurred a few years later.