It’s Not as Though Anyone Saw It Comingby
Vin Suprynowicz Who’s to blame for the current meltdown of the financial sector, caused by the dependence of so many corporate balance sheets on defaulting home mortgages? Since the White house has been occupied by a Republican – and one with low approval ratings, at that – for the past eight years, many may be inclined to agree with Democratic House Speaker Nancy Pelosi that the fault lies with “failed Republican do-nothing policies.” (She would have said “laissez-faire,” but she knows her constituents would assume she was referring to a kinky new sex club.) In fact, the Community Reinvestment Act of 1977 was enacted by a Democratic Congress and signed by Democrat Jimmy Carter, and it was under Democrat Bill Clinton in 1995 that the real regulatory pressure began to build on America’s banks to meet regulatory quotas for loan-making to unqualified buyers in low-income communities – well-meaning social policy (home ownership is nice; it may even be a “right”) enforced by requiring bankers to take the very billion-dollar risks which have now come home to roost. There were plenty of warnings that too much of this bad debt was piling up – especially at mortgage giants Fannie Mae and Freddie Mac. But the Wall Street Journal reports that in the year 2000, when Rep. Richard Baker proposed Fannie Mae and Freddie Mac reform, powerful Democrat Barney Frank dismissed it as unnecessary. The New York Times reports that a Bush administration proposal in 2003 to reform Fannie Mae and Freddie Mac found Rep. Frank insisting “I do not believe that we’re facing any kind of crisis.” Warned in April of 2004 that Fannie Mae and Freddie Mac could collapse, Rep. Barney Frank replied “I think Wall Street will get over it.” Over in the Senate, the biggest recipients of financial largesse from employees and political action committees of Fannie Mae and Freddie Mac over their careers have been not George Bush and John McCain, but Democratic Senate Banking Committee Chairman Chris Dodd ($165,000) and Democratic presidential nominee Barack Obama ($125,000), followed by Hillary Clinton and John Kerry, Democrats. WHO are the friends of the fat-cat bankers? (Note last week’s original bailout plan included tens of billions of dollars for non-profit “affordable housing advocacy” outfits including Sen. Obama’s longtime patron, “Acorn.” And that Sen. Obama’s advisor on banking and mortgage matters is Franklin Raines, former head of Fannie Mae.) Yet at the same time Sen. Obama was pocketing money from these institutions, some far-sighted Republicans including John McCain (yes, I was surprised, too) were fighting to reform them. “One of the major government privileges granted to GSEs is a line of credit with the United States Treasury,” Republican Congressman Ron Paul of Texas warned the House Financial Services Committee in September of 2003. “According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. “Thus, the line of credit distorts the allocation of capital,” Rep. Paul continued. “More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.” Sen. McCain was another leading advocate of reform of the “Government-Sponsored Entities” (GSEs) – back when there was still time. “For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac … and the sheer magnitude of these companies and the role they play in the housing market, …” Sen. McCain said on the Senate floor on May 25, 2006. “The GSEs need to be reformed without delay. … “This week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were ‘illusions deliberately and systematically created’ by the company’s senior management, which resulted in a $10.6 billion accounting scandal,” Sen. McCain continued. “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.” That was three years ago. But the well-paid Democrats refused to listen, back when there was still time. And so the Federal Housing Enterprise Regulatory Reform Act of 2005 – co-sponsored by Sen. McCain – went nowhere. Yes, plenty of Sen. McCain’s fellow Republicans share the blame. Porker Team “B” has controlled either the White House or the Congress or both for much of the past eight years. Even faced with Democratic foot-dragging, why didn’t Republicans act to repeal the Democratic mandates that encouraged and even required these risky loans? For that matter, even today – with near unanimity that the nation faces a “crisis” – why hasn’t Congress done the equivalent of plugging the leaks before starting to bail the boat? Why haven’t they repealed the poisonous Community Reinvestment Act of 1977, along with all the ancillary banking regulations piled on under Bill Clinton in the late 1990s, which not merely allowed but actually REQUIRED banks to demonstrate to government regulators that they’d extended credit to a “sufficient” number of minority borrowers, even if that meant allowing those borrowers to use their welfare and unemployment checks to “qualify” for a loan? Perhaps for the same reason we should not believe Mr. Obama (in the Sept. 26 debate) or any other Washington politician who currently promises the taxpayers can expect to get a “return” on their bailout “investment.”
Black home ownership rates increased nicely from the 1920s through the 1950s – up until the birth of the current welfare state, in the 1960s. It was only at that point that liberals decided the only way blacks would ever afford homes was if their oh-so-well-intentioned patrons arm-twisted the banks into give them loans they couldn’t really afford. How has that worked out? October 6, 2008 Vin Suprynowicz [send him mail] is assistant editorial page editor of the daily Las Vegas Review-Journal and author of The Black Arrow. Copyright © 2008 Vin Suprynowicz
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