Three decades and one year ago in the dysfunctional Jimmy Carter galaxy, Congress passed the Community Reinvestment Act to “encourage” depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, and to discourage “redlining,” which didn’t provide equal access to credit for business or personal use. The CRA was enacted in the name of that great shibboleth, equality of outcome, so revered by those who are closet socialists for all wealth but their own.

It also required that banks be examined by federal bank examiners, aka “regulatory proctologists,” to enforce this law. In other words, Congress created a “social police” enforcement arm to do to the financial industry what the creators of fois gras do to the goose. They wanted to make it public policy to cause the time-tested principles for the extension of credit to be relegated to the trash heap. Of course, they won’t say that. What the law didn’t do, though, was sprinkle pixie dust on bad credit risks to cause cash flows to improve, to cause FICO scores or cash savings to rise like yeast in baking bread.

Ta-dah! Ninja loans and liar’s loans became the loans du jour!

After some years it was noted that certain segments of communities were not enjoying increasing home ownership rates or that said rates were not increasing fast enough, so the Clinton administration encouraged the government-sponsored enterprises called Fannie Mae and Freddie Mac to let it be known that they would willingly buy home mortgages which had lower thresholds for qualification, i.e. lower down payments, lower FICO scores and higher debt to income ratios.

But at what cost?

Banks in general were slow learners so the unregulated mortgage lenders like Countrywide Mortgage, Union Mortgage and others of their ilk led the way down this slippery path to financial Armageddon, of course, greasing those skids with preferential loans to big name politicos like Chris Dodd, the senator from Connecticut who chairs the Senate Banking Committee and Sen. Kent Conrad, chair of the Senate Budget Committee. Oh, did we mention that Barney Frank’s mate was employed by Fannie Mae? The GSE lobbyists lathered three politicos with large cash infusions to their re-election accounts. Want to guess who? How about Chris Dodd, Barack Obama and John Kerry. These three were the largest beneficiaries of GSE cash.

So, here we have state-supervised mortgage lenders giving away the store yesterday, and today we have the state attorney general, the former governor, suing said lenders that another state department let get away with this scam.

This is where the banks enter the picture, for they made multimillion-dollar lines of credit, called warehouse lines, available to these mortgage companies so they could fund these “funny money” loans in sufficient volume to satisfy the egregious bonus hurdles needed to pay Franklin Raines, Tim Howard and Jim Johnson those mind-numbing golden parachutes, along with Jamie Gorelick’s bonus that was 55 percent higher than her already inflated salary. These Clinton hangers-on took refuge in this GSE all the while “cooking the books,” misleading the regulators and the public for six years, to fatten their own bank accounts. Guess where these con men are today? In Barack Obama’s cadre of advisers!

When this steamroller was on a roll, some banks, like IndyMac Bank, Washington Mutual and others decided it was time to get on the bandwagon. And did it they did and they did it big — have to get those CRA brownie points — to the point where the losses in those phony loans caused the demise of said financial institutions.

Now come the Darth Vaders of this tale, i.e. the Wall Street investment banks and the institutional departments of the money center banks in the Big Apple. For fat fees the fat cats bundled these “affirmative action program loans to unqualified buyers” into collateralized debt obligations (CDOs). Credit Default Swaps (CDSs) were sold to make these Potemkin Village bonds look attractive. Never mind analyzing the underlying creditworthiness of the grab-bag collage of Ninja loans. Then the credit rating agencies like Moody’s and Standard & Poors and Fitch joined this parade of shame and added the final layer of respectability with acceptable ratings, putting lipstick on these pigs. Alan Greenspan, the immediate predecessor to Ben Bernanke as chairman of the Federal Reserve, in May 2006 opined that “the credit default swap is probably the most important instrument in finance....for what they did was lay off all the risk of highly leveraged institutions, and that’s what banks are, highly leveraged, on stable American and international institutions.” Remember the movie, “The Sting”? We just got stung!

The seers tell us that 2009 will be even worse than what we have seen so far. Doesn’t that warm the cockles of your 401(k) and IRA account hearts?

In summary, we have a congressional politician-created financial meltdown of gigantic proportions being solved by the politicians who created the problem to begin with.

The perfect circle jerk.

Can’t we see that when government inserts itself into what it sees as a problem the likely result is escalation of the problem, not the solving of it? Just look at the health care industry, look at the education “industry” and look at energy. Now look at the destruction they have wreaked upon the financial industry, not only in this country but in most industrialized nations around the world.

What industry is next, folks?

Lou Cumming is a retired San Diego banker and former rescuing president of the San Diego Symphony.