HOME OWNERSHIP PUSH RENEWED

The 1990s are ushered in with a new technological explosion-- the internet and
dot.com craze, as well as a continued push for home ownership. In 1992, George
Bush, Sr. signs the Housing & Community Development Act to facilitate the
financing of affordable housing for low and moderate-income families.
In July of 1997, The U.S. Congress passes the Taxpayer Relief Act. The Act
encourages people to buy more expensive homes and second homes. It lowers the
Federal long term capital gains tax rate from 28% - 20%. Capital gains are profits
that result from investments like stocks, bonds, real estate, goodwill, etc., as
opposed to ordinary income such as salary. Profits or income can be either
"active" (you were actively engaged in generating that profit/income, usually with
20+ hours per week devoted to that generation) or "passive" (you benefitted
chiefly through the efforts of others). Long term capital gains are assets that are
held for at least one year. So ask yourself this question. If you are able to buy an
asset and hold it for a year, then sell it for a profit, why should that profit be taxed
at a lower rate than anyone’s salary for a year? At the risk of stating the obvious,
capital gains sources of income represent a large chunk of income for the wealthy.
Also under The Act, the first $250K ($500K for couples) of gain on a personal
residence sold is exempted, so long as it has been lived in for two years. In
addition, The Act raised the estate tax exemption from $600K to $1 million,
phased in over 10 years.
In September of 1999, Fannie Mae eased the credit requirements for the underlying
loans it bought from banks and other lenders. The goal, again, was to increase
home ownership among minorities and low-income consumers. The credit easing,
encouraged banks to extend mortgages to below credit-worthy people, who simply
could not qualify for conventional loans.
In November 1999, on the eve of the new millennium, The U.S. Congress passed
The Gramm-Leach-Bliley Act, repealing The Glass-Steagall Acts. It is signed into
law by then President Bill Clinton. It was passed under the theory that banks
should be able to diversify to be able to reduce their risk. The Act effectively
removed any distinction between Wall Street investment banks and ordinary
depository banks. In other words, banks that were insured by the FDIC could now
speculate with depositor's money. Case in point, banks were allowed to engage in
underwriting-- raising capital from investors on behalf of an issuer of securities.
The new millennium begins with the bursting of the dot com bubble in March,
2000.
Now it’s time to explore subprime loans and mortgage-backed securities, collateral
debt obligations, credit default swaps and Armageddon.