09/17/2008 (4:53 pm)
With Apologies, the Blame Game
Today’s flood of information is about who’s to blame for the financial crash that began early this week. Must we play the Blame Game? I’m afraid we must, because the Democrats’ first words were to blame the President, and the Obama campaign’s announcement blamed McCain. Ok, game on.
The short version is that the President and a number of conservative commentators tried pretty hard to draw attention to these problems over the last 5 years, but were stymied by powerful Democrats in Congress who happen to have received a lot of donations from lobbyists employed by companies in the home mortgage business. Is this the whole story? Probably not; one comment I read plausibly tied at least some of the current problems to the extraordinarily low interest rates posted by the Fed in 2002 in their attempt to counteract the depression caused by the 9/11 attacks. However, the flood of sub-prime loans is definitely the result of Democrats’ well-meaning attempts to provide mortgage money to marginal borrowers couched in the language of civil rights, there’s definitely some sort of symbiosis between powerful Democratic Congressmen and mortgage industry lobbyists, and the Republicans definitely attempted several times to bring the mortgage industry under greater scrutiny.
The most egregious part is the appointment by the Clinton administration of individuals with zero experience in the mortgage business to head Fannie Mae, who proceeded to cook the books in order to make sure they received their full bonuses for hitting Earnings Per Share targets — and whose actions were shielded by Rep Barney Frank (D, MA), Sen. Charles Schumer (D, NY), Sen. Christopher Dodd (D, CT), and others. These folks — including Frank Raines, James Johnson, Jamie Gorelick (she of the infamous Wall from the 9/11 Commission), and Deval Patrick — made off with millions. There’s no defensible difference between what happened at Fannie Mae and what happened at Enron. Where are the investigations?
The best articles I found were at JustOneMinute.com regarding the role Congressional Democrats played in quashing reasonable attempts to prevent this crisis, at Right Voices discussing Sen. Chris Dodd’s (D, CT) connection to the scandal, and a quick note at Open Market regarding the role Massachusetts Gov. Deval Patrick played.
I also caught some pretty interesting conversation at Hot Air, some of which I’ll share below, and some which I may post later after editing a bit. This came from a commenter calling himself rvastar. After explaining that he thinks Democrats have been cooperative in attempts to rescue the financial companies because they’re afraid that too much public scrutiny will expose their role in causing the problem, he brings up the Community Reinvestment Act:
…a sane person may understand the FACT that the subprime/adjustable rate mortgage crisis can be traced to the MID 90’s, at which time LEFTISTS, using their favorite tactics of screaming “Racists!” and threatening lawsuits, began pressuring mortgage lenders into extending loans to low income/bad credit borrowers (aka SUBPRIME BORROWERS) by threatening said lenders with being sued for not complying with the Community Reinvestment Act (CRA) of 1977.
What is the CRA?
The CRA basically states that banks have an obligation to provide access to credit to the lower income people in the communities in which they operate – e.g. providing credit for buying homes. To ensure that a bank is complying, regulators examine the bank’s records whenever there’s a proposal for opening new branches or for merging with other banks. If the bank is found wanting in it’s “outreach” efforts, it’s request for a new branch/merger can be denied.
So what did lenders do in response? They created the SUBPRIME MORTGAGE, then, it’s b@stard son, the ARM loan.
Oh, and just for sh!ts-n-giggles, anyone care to take a guess at which party led a failed effort to repeal the CRA in 1996…precisely because the CRA was being used to force lenders to make inherently risky loans that opened the institutions up to the risk of significant losses and even complete failure?
Here’s a clue: starts with an “R”.
It matters to whom we fix the blame, because we need to understand how to prevent such problems in the future. This is another instance of well-meaning (or at least noble-sounding) attempts to produce politically correct utopian goals by forcing businesses to act in a manner that makes no economic sense. Such efforts always produce disasters commensurate with the size of the incentives. Also, the connections between lobbyists and powerful Congressmen needs to be addressed, and I think the situation would be improved by term limits, which would limit the impact of dollars on Congressmen generally.
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2 Comments »
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[...] Cody Willard went off on Warren Buffett who stands to profit handsomely from the bailout. Plumb Bob goes on brilliantly about why we MUST discover and assign blame. And dear, sweet, demure Rachel Lucas has a great rundown of the issues, and the BEST BLOG POST [...]
Comment by Marv
“shielded by Rep Barney Frank (D, MA), Sen. Charles Schumer (D, NY), Sen. Christopher Dodd (D, CT), and others. These folks — including Frank Raines, James Johnson, Jamie Gorelick (she of the infamous Wall from the 9/11 Commission), and Deval Patrick — made off with millions.”
I have heard this and would like to know why you say that these people were “shielded” by Dodd, Schumer, and Frank
Do you have supporting material? I am not arguing the point, it’s just that I am so pissed and would like to get some background.
You can email me if you like….
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