The other day one of our finest guests tried to tell me that the Republicans screaming and pushing for deregulation of everything under the sun is not the reason that we are witnessing the meltdown of America’s financial core, not to mention potentially even the conclusion of its economic supremacy in the world. Yes, Matilda, it is that bad.
Everybody knows that something needs to be done by the government. Everybody knows that unless some money flows soon, we are going to watch the markets freeze. Even tried and true devotees of Republican fiscal policies (as if there are any such things, we’ve watched as the Republicans have betrayed their small government/small spending mantras so severely that stunned Democrats are red-faced with jealousy) such as Paulson and Bernanke are begging Congress to do something.
Well, noises started coming out of some feisty Republicans in the past day that indicated a lack of cohesion in the Republican party’s view on this “bailout.” They gave the usual hypocritical reasons about big government and fiscal irresponsibility. Some spoke about how it’s unfair to the little people if you bail out the rich folks over in New York.
Bwhahahahahahahahahahahahahaha.
Republicans complaining about saving the rich folks over the rest of us.
Republicans complaining about the fruit of deregulation.
Bwahahahahahahahahahahaahaha.
All we can do is laugh.
So anyway, let’s all wish our economy all the best.
Why?
“We’re in a serious economic crisis,†Mr. Bush told reporters as the meeting began shortly before 4 p.m. in the Cabinet Room, adding, “My hope is we can reach an agreement very shortly.â€
But once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.
Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.
The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling news conferences and interviews rife with partisan finger-pointing.
In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up†by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.
“I didn’t know you were Catholic,†Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.â€
Mr. Paulson sighed. “I know. I know.â€
That’s the Republican Treasury Secretary and one of the most successful NY bankers of his generation talking.
Oh, and Washington Mutual, one of the largest banks in the US, was forced to sell itself to JP Morgan today in order to avoid closure of the bank.
I’ve never claimed to be. CNN and wolf blitzer believe they are in the middle too. 🙂
Middle –
You still have not connected the dots: how do we get from deregulation to the current financial crisis?
Derivative financial products and repackaged debt have been around for decades, if not generations. The risks are well known – and there is no way secondary, derivative products can cause a crisis like this if the fundamentals of the market are still strong.
The difference in this case is that bad debt was packaged and sold to the securities market as something that it wasn’t – the veneer of government backing was used to make the debt seem less risky than it was. And government meddling virtually required banks to make these riskier loans.
In other words, the fundamentals of the market were distorted by socialist policy.
Which is why so many people are following the trail back to the Community Reinvestment Act – which is when Dems first distorted the free-market standards for assessing debt.
They then used the government’s position in Fannie and Freddie to present this debt as less risky than it actually was.
Could you please describe the “deregulation caused this” scenario in more detail, showing cause and effect?
Yes Alex, you are the epitome of balance.
I love how this conversation is going:
Middle/MUL: It’s the Republicans. It’s all their fault.
Others: It’s not that simple, it’s many parties fault, not even necessarily partisan.
Middle/MUL: It’s the Republicans. It’s all their fault.
Very objective approach.
And here’s one more, highly partisan (ha!) analysis. Ladies and Gentlemen, I present to you Paul O’Neill:
So why is the president and his administration pushing so hard for this plan?â€I think it’s because they’re in a panic and they haven’t thought about it very well,†O’Neill said.
Does O’Neill wish he was still in office?
“I wish I was there two years ago became I think I would have blown the whistle on these unbelievable loan practices and we would never gotten to today,” he said. “That might be wishful thinking. It’s not possible to really know that. But I’m a detail guy and I think I would have been paying enough attention to the details that I would have stopped the music.”
O’Neill has been asked by the Obama campaign “on several occasions” to take part in conversations with the candidate on the economy with the understanding that his participation doesn’t represent an endorsement. He said he would be willing to offer the same help to McCain but hasn’t been asked.
——————————————————-
Paul O’Neill, Ladies and Gentlemen. Just another of many casualties in the Bush-Cheney-Rove quest for ideology and power at the cost of all common sense and, as someone else put it, “the national interest”.
Of course, to some people, his being utterly ignored and shut-out by Bush, despite his expertise and prescience on this matter specifically, is all Clinton’s fault.
Well, if you read the WaPo editorial by Spitzer, then it’s impossible to conclude that there wasn’t some serious malice aforethought in the administration’s role in this, Muffti. Clinton wanted to help poor people, Bush wanted to prevent the states attorneys general (all f*&^in’ 50 of ’em!) from cracking down on lending practices that were much more dubious from a legally acceptable point of view. Since Tom won’t respond to the article (he doesn’t even think Bush should be responsible for governing or policy until the country’s already in crisis, evidently), allow me to quote the rest of the article. Emphasis added:
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
The writer is governor of New York.
Then they decided to bring him down.
As of yet, Tom Morrissey has no response to this. Playing politics is something lawyers excel at, but other professions don’t have the choice to buck responsibility this egregiously. To blame it on Clinton is to accede to the fact that not only did Bush not feel compelled to protect the consumer, they either didn’t have the foresight to protect a severe threat to the economy or worse, actively agitated against even the most modest measures to that effect for the sake of political gain.
If that isn’t a decent illustration of a contrast as stark as the one between Hippocrates and Mengele then I don’t know what is.
Of course, by Tom’s reasoning, the regime they unprecedentedly invoked began in 1863, laying blame at the feet of fellow Republican Abraham Lincoln!
They are no longer dealing in reality.
Middle, you just don’t understand. Clinton was a Democrat. He wanted to help poor people. Ergo, he’s to blame for what happens over 10 years later!
Republicans bear no responsibility for anything related to policies that Democrats implemented over 10 years ago (although, with the help of a Republican congress). Except when it comes to all those pesky executive orders Clinton signed that Bush rolled back within his first year in office. Maybe Bush didn’t really do that! Hmmm… cognitive dissonance takes it’s toll.
It would be anathema to the Conservative True Believers of today (with the exception of George Will, David Frum, Ross Douthat, etc. etc. etc. and anyone serious) to acknowledge the passage of time. If they did then they couldn’t blame every facet of the state of the world today on Carter, LBJ, JFK, Truman (but usually conservatives like Truman) or FDR – regardless of any actions undertaken by Republican presidents or congresses since. Because Republicans do no wrong. Ever. If they did (or if they were ever honest enough to admit it) then they would lose the authoritarian constituency, and they can’t afford to do that.
Middle concedes Clinton actually had something to do with this, being, after all, the president and everything. Progress.
Oh, Presidents? So, 8 years of Reagan who loved deregulation, 4 years of Papa Bush and 7.5 years of Shrub plus 12 solid years of controlling the House with large majorities is meaningless? The Gramm bill passed in 1999. Are you denying the weakness of the WH and the Dems at that time?
Being in the middle, Middle, involves cognitive dissonance from time to time. It’ll be OK, trust me.
I usually am in the middle. Heck, I even support some Republican positions. But in this matter, it is unequivocally the fault of this insane push to deregulate everything. It’s not okay to blame both parties equally when one has taken the leading role.
And, btw, if this is all the Republicans’ fault and they bear it like the mark of Cain, how does Livni do under such an analysis? Does she bear blame for the terror states at Israel’s border, or is she– wait a minute!– a maverick who can be distinguished from her former boss?
Who cares? What does Livni have to do with it? She may be just as responsible for Lebanon II as Olmert – she sat in on most of the key meetings.
MUL, muffti doesn’t know if that’s true but he loves the analogy!
Tom, maybe I’m not understanding you. Is it your contention that Bush is obligated to continue every policy started under any one of his predecessors (but especially Clinton, cause it’s really fun to blame things on him) regardless of how much conditions change? I just want to make sure I understand your philosophy of the responsibilities of elected officials.
How many jobs have you had or have you managed in which it would be acceptable for you to blame the foul-ups that occur on the current watch on either your or their predecessors?
I know. I suggest you don’t go into any of those real jobs either.
Clinton had about as much to do with this as the Hippocrates had to do with Joseph Mengele.
It’s funny how people who are obsessed with the socialism and communism that they fled or outlived don’t seem to have a clue what to make of a slightly less mundane concept: corporate welfare.
But what do we Americans know? We only created the largest and most sophisticated economy in the world. That’s obviously no match for a boiled-down oversimplification of the crisis into the “socialist” vs. “anti-socialist” camps, right? Boo-Ya!
I’ve heard more realistic analyses from Ali G.
Of course, none of any of this matters because McCAIN WON THE DEBATE!
You know, the debate he couldn’t have because he was too busy saving the economy from his own party (except when he failed to do that – despite bravely riding into Washington and declaring his heroism) and then decided that he would participate in after all. The debate that won’t even be held until tonight. Yeah, that one.
He already won it!
Or so his campaign claims.
Just more evidence of that party’s obsession with message – no matter how disingenuous, and of McCain’s selfish obsession with drama, stubborness and temper tantrums.
Middle concedes Clinton actually had something to do with this, being, after all, the president and everything. Progress.
Being in the middle, Middle, involves cognitive dissonance from time to time. It’ll be OK, trust me.
And, btw, if this is all the Republicans’ fault and they bear it like the mark of Cain, how does Livni do under such an analysis? Does she bear blame for the terror states at Israel’s border, or is she– wait a minute!– a maverick who can be distinguished from her former boss?
You don’t understand, Middle. For some people, responsibility doesn’t begin or end with their term(s) in office or with their party’s control of both branches of government. It begins and ends with whenever their last political opponent (especially if he was a Democrat) was in any office. Amazing the degree to which people will go to avoid any responsibility for anything. Amazing but not unpredictable.
Wait. How is it that I’m not paying attention? What am I supposedly not paying attention to? That was a pretty long series of posts I uploaded. Spitzer was almost surely brought down for wanting to crack down on predatory lending. Are you going to say that that means he was secretly in favor of lending based on poor credit risks? The two ways of looking at it might be similar or linked, but they are not identical. Are they? In any event, you haven’t refuted a thing Spitzer alleged, and was brought down for alleging.
And what I’m paying attention to goes beyond policy that Bush and the Dems might (loosely) agree on. It goes to Republicans who also agree with the plan, or said they did earlier, before subsequently realizing that they are either too weak-willed or too weak politically (which is Bush’s fault) to endorse it. That’s not Pelosi’s fault. Nor will she or her party go down allowing people to believe that it somehow is – no matter how much anyone feels they can twist it.
Of course I’m paying attention. There’s nothing I’m refusing to address. Can you say the same? The attorneys general of 50 states might beg to differ if you say that so far you do, Tom.
ALL 50 STATES!!! And still the spinning continues.
Address the substance for once. We’ll see who makes off of it politically. But address the substance.
Blowjobs cause many crises. But sure, the entire political weakness foisted upon Clinton’s WH and the Democratic party because of Whitewater, the endless investigations that followed, the blowjob melodrama with the Republicans impeaching Clinton all played a significant role in weakening Clinton and the Dems. When Gore ran in 2000, he did everything in his power to disassociate himself from Clinton (big mistake).
Oh by the way, Dem talking points today are pointing out that the Republicans couldn’t get a bill offering reform of Fannie Mae and other government bodies involved in the housing market out of committee. This was in 2005, so those were solid Republican days. They didn’t even get it out of committee.
http://thomas.loc.gov/cgi-bin/bdquery/z?d109:SN00190:@@@L&summ2=m&
Middle said:
Middle, are you really saying that blowjobs caused the present crises? Say ain’t so!
Um, Ben David, in 2003 Republicans controlled everything. The House and the White House. Solidly. They could have brought Fannie Mae under control if they were worried about it.
The gist of the Republican fans here is that this is all Fannie Mae and Freddie Mac. That’s cute, but they are only one aspect of what happened here. The reason for the meltdown isn’t sub-prime mortgages, it’s sophisticated financial instruments such as the bundling and securitization of mortgages and other credit lines without properly evaluating underlying values.
All of your articles and explanation prove my point about why the Dems should not give the Republicans a Get Out of Jail card by unilaterally voting through the Treasury Dept.’s plan. No matter what they do, they will end up losing unless the Republicans are solidly aboard.
So we have a financial meltdown that stems from sophisticated financial deals gone wrong – derivatives, credit swaps and other complex instruments that none of us could explain if our lives depended on it – and according to the Republican talking points (I notice you are all repeating the same arguments more or less), it’s the Dems letting the poor people get access to mortgages that’s the problem. It’s not the aggressive lenders, mortgage brokers and banks, it’s the poor people that Fannie Mae was supposed to help.
Apparently, Fannie Mae, according to this new rewritten history – this sham and shameful coverup by the Republican Party that held the House from ’94 to ’06 and the White House from ’00 to present – sat in on all those mortgage interviews for the folks who got sub-prime mortgages and said “yes, give it to them.” Or was it that banks – strangely deregulated thanks to a Republican bill passed in a Republican House – took advantage of loose regulations pushed and sponsored by Republicans to fleece ordinary citizens without any concern because they didn’t even keep the mortgages on the books but then flipped them to the New York and other banks which promptly used all their fancy instruments to flip them, bundled this time, yet again, but only after playing around with their special algorithms to make money from thin air on the basis of nothing more than hope.
And why were they able to do this? Because of a Republican sponsored bill pushed through at a time of great weakness for the Democrats (thanks to, you know, stuff like Whitewater – oops, nothing wrong ever happened there – and the blowjobs).
Now on to specifics. Community Reinvestment Act is on the lips of many a Republican supporter today because, you know, it’s a way to shift blame. Fortunately, we have a cogent analysis with plenty of data points to refute this claim entirely. Enjoy:
http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
So the CRA accusations are false. The study also reveals serious flaws in the Republican suggestions that it’s the loans to the poor people that screwed up the system. Apparently, it’s bad loans made to all types of people by banks that had little community involvement and were far more likely to flip the mortgage than the CRA banks. Banks with looser regulations than pre-1999.
Next, the suggestion that this is all about Fannie Mae and Freddie Mac is cute, especially when Republicans bring up critical reports from 2003 when the House and the WH were owned by Republicans. It’s even funnier to see Greenspan in on it. As I recall, Mr. Greenspan sat in front of cameras and said that anybody who wasn’t getting an ARM (adjustable rate mortgage) was throwing away money. He had to issue a re-statement a couple of days later because all the idiots with the 30 year fixed mortgages got really riled up.
And still, none of the comments above, the ones trying to pin everything on Fannie Mae and poor people who can’t afford mortgages, explain away how Citibank or Lehman Brothers endured tens of billions of losses. Or how a Republican Congress with a clear majority in both Houses from 12 years and a President in place for 7.5 years have FAILED to address these terrible things the Democrats have done.
Right. Because the Republicans wanted it this way. Subsidies to energy companies anyone?
MUL, you’re not paying attention. The Dem leadership is calling on Bush to whip his own troops into line. if you have a problem with Bush or Paulson, you have a problem with Pelosi and Dodd and Frank, ’cause they’re all in bed together on this one. How does it feel to have Bush nuzzling right there next to you?
Alex makes a good riposte to Middle: the subprime mortgage problem isn’t about Republican insistence on the market. It’s on Democrat-led insistence on promoting mortgage lending to poor credit risks.
BTW, from the point-of-view of someone who grew up in a country that has had parallel histories of capitalism and communism, I can tell Alex’ re-posted comment is right on point. The ailing social welfare system of Germany has been suffering not from the many that use(d) its services but from the many more that have abused it. People get used to a sense of entitlement scarily quickly.
Alex, I was looking for it, but couldn’t find it (must have got lost in a major spam sweep-out as we get thousands of spam messages per day), but just retrieved your re-posted comment..
I just reposted it
I’m reposting:
Check out the detail in this article from 1999; at the time, a success piece, but now we can see that it’s more or less evidence of poor policy under Clinton’s tenure:
http://articles.latimes.com/1999/may/31/news/mn-42807
If you don’t have time to parse and add 1 + 1, my favorite blog has a great explanation/run down for you:
http://hotair.com/archives/2008/09/25/a-great-example-of-how-we-got-to-the-credit-market-meltdown/
If you read his analysis, as compared to Middle’s, you’ll see it’s not as simple as Republicans = stupid, evil, hypocrites. But seriously, if you think one party can take all the blame for this economic meltdown, then you are more entrenched and less in “the middle” than you think. 🙂
As I said elsewhere: “Fannie and Freddie: The Affirmative Action of Lending” . This again goes back to Socialist dogma: When everyone is expected and promised everything, in the end, everyone ends up with nothing.
It’s OK, when Obama gets elected and the Dems run both chambers AND the presidency, and can make all of their wildest Utopian and populist dreams come true, I plan on quitting my job, signing up for every entitlement and benefit I feel entitled to, and not work any more than our future government’s mandated hours. In the end, since the Robin Hoods will rob from the rich and give to the poor, also known as generally stealing from the productive people and giving it to the looters, it won’t matter how hard I work. I’ll get my free healthcare, my free college tuition, my free welfare cheese (again), and there will be limits on how much I can make and spend, so I’ll be doing great!
But I just want to make sure we are all on the same page…. Those who currently live rich lives because they create the jobs, technologies, medicines, etc., or run the companies that employ or lend to “the rest of us” (as if mediocrity is something to brag about) to increase their own capital, aren’t going to take it lying down nor are they going to try as hard. Because without “selfishness and greed” (you guys sneer at that terminology don’t ya?), what’s left to strive for? The “common good”? Doing it for “the rest of us” or the People? Ha! Right! That’s worked brilliantly elsewhere.
Middle or CK, I posted last night but it’s in the spam filter….
Tom, the Democrats have an 8-year history of going along with what they were told the national interest demanded, only to have the people who advised them about it come back to bite them in the ass for it. It won’t work this time.
Predatory Lenders’ Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer
Thursday, February 14, 2008; Page A25
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive “teaser” rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York’s, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye…
It continues and gets even better. Read the whole thing. Remember: this was barely a month before the administration brought down “Client #9”. Spitzer recalls events that began just around 2003, the date of Ben-David’s IBD article.
Don’t entertain the spin, ck. I doubted the administration could have been this corrupt for the longest time. But the levels it seems clear that they’ve stooped to are unprecedented… well, unprecedented since their other party member, Richard Milhous Nixon.
Can’t watch videos at the moment, but what is the obsession with Fannie and Freddie? Clinton (Bill, that is) had the most cogent take on it in a discussion recently with Maria Bartiromo. He didn’t deny that changes made in the nineties are where this might have started or that Greenspan might be somewhat to blame, but that was ten years ago! The current administration had all the chances in the world to do something since. Clinton didn’t stop Bush from doing anything about the economy. Talk about a partisan analysis. Gimme a break!
In any event, read about the fall-out from Elliot Spitzer’s fall from grace. Right before the FBI decided to use their wiretaps to bring him down, he had written a column in the Washington Post about how the administration was preventing all 50 states from going after predatory lending as aggressively as the attorneys general wanted to. He was the fiercest and most ardent critic of that. And then – poof – let’s break the scandal about Client #9, and he’s gone. Nope. Nothing partisan about that.
With analyses like Ben-David’s it’s no wonder that the administration can be in permanent campaign mode. At this point I think they would be willing to risk anything for political gain – a rush to war, the economy, anything. Read about Spitzer and tell me you have a sound basis from which to honestly disagree, Ben-David.
So nu? Who is to blame? So far the McCain folks seem to have the upper hand here. I hate to admit it but it seems true…
Middle, thanks for making my case. I’m not suggesting the Republicans are free from blame– though McCain and others tried to reform FF and FM twice during the Bush years, only to be opposed by Chris Dodd and Barney Frank. But that was then, and this is now.
If the Democrats want to pass Paulson, amended to include payoffs to ACORN and other leftist groups as Frank has proposed– if they truly think the national interest demands it– they should do so. They’ll get a decent number of Republican votes, and Bush will sign it.
They won’t, and it’s because this is all about taking the issue away from McCain by compelling him to cave at the end and support Paulson. Maybe this will work. But to ignore that this is partisan politics at its most transparent and blame it on John Boehner, of all people, just ignores reality.
You can do better than mouth Obama talking points. Where did you spend the summer, at a post-Hillary re-education camp?
Forget the kool-aid part of the video at the end.
Otherwise this is a very good explanation of how it all happened.
And here is an economics professor’s page for his MBA students, discussing the causes of the crisis:
http://newmarksdoor.typepad.com/mainblog/2008/09/for-my-mba-stud.html
Nope, not about deregulation.
It’s about the failure of government-backed monopolies – which is what Freddie and Frannie became.
And now the Dems are promising to make medical care “fair” like they did for housing….
God help us all….
From Investor’s Business Daily:
To hear today’s Democrats, you’d think all this started in the last couple years. But the crisis began much earlier. The Carter-era Community Reinvestment Act forced banks to lend to uncreditworthy borrowers, mostly in minority areas.
Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race.
These well-intended rules were supercharged in the early 1990s by President Clinton. Despite warnings from GOP members of Congress in 1992, Clinton pushed extensive changes to the rules requiring lenders to make questionable loans….
Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called “CRA rating” that graded how diverse their lending portfolio was….
In the name of diversity, banks began making huge numbers of loans that they previously would not have.
Meanwhile, Congress gave Fannie and Freddie the go-ahead to finance it all by buying loans from banks, then repackaging and securitizing them for resale on the open market.
That’s how the contagion began.
With those changes, the subprime market took off. From a mere $35 billion in loans in 1994, it soared to $1 trillion by 2008.
Read it all…. and every time you hear the phrase “sub-prime mortgage”, think “affirmative action banking” – because that’s what it was.
http://www.ibdeditorials.com/IBDArticles.aspx?id=306632135350949
From the NY Times – September TWO THOUSAND AND THREE (2003)
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
…
“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,†said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.â€
Democrats want it to pass in a bipartisan fashion, i.e. with Republican support. No way they’re going to continue being seen as the ones unwilling to stand up against Bush. Maybe it matters politically in the grand scheme of things and maybe it doesn’t, but there’s no way you can’t understand the rationale in that, Tom.
The Republicans keep thinking they can paint the Dems as weak-willed when in reality the latter are the ones who’ve been providing all the backbone behind questioning the rationale for every knee-jerk action this administration has committed with the unfettered political support of his party’s intellectual lackeys in Congress.
Somehow or another the Republicans are the ones who will ultimately have to pay for their utter incoherence on economic policy.
I loved wathing Vermont’s Bernie Sanders call Larry Kudlow a socialist the other night. Good times. 😉
More Muddling –
No, middle, this has nothing to do with deregulation.
It has to do with government-style meddling in free markets.
Fannie and Freddie were insulated from their bad decisions because of their government backing.
They grew to be gorillas dominating the mortgage market.
And as Akiva’s article points out – they were then used by the Dems to promote “affirmative action” lending – that is, FORCING banks to give loans to people who would not otherwise have passed credit checks. And offering loans at below market rates – that is, using a virtual government monopoly to artificially make markets.
Doesn’t work. Socialism doesn’t work.
Both Bush and McCain warned of the problematic nature of Freddie and Frannie YEARS AGO – and were shouted down by Dodd, Frank and other Democratic Senators who received generous donations from Frannie/Freddie lobbyists.
This is NOT a story of the failure of free markets.
It’s a cautionary tale about just the sort of socialist mismanagement we can expect from the Dems.
Links:
http://www.youtube.com/watch?v=VgctSIL8Lhs
http://www.youtube.com/watch?v=AHj8-HSi5AA
http://newsbusters.org/blogs/noel-sheppard/2008/09/20/ibd-carter-more-blame-financial-crisis-bush-or-mccain
Here’s an economic professors set of links for his MBA students:
http://newmarksdoor.typepad.com/mainblog/2008/09/for-my-mba-stud.html
From the NY Times – Sept. 2003 – four years ago!
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
…
“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,†said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.â€
I think Middle’s trying to answer Tom’s question but here’s the shorter version:
On NPR today they questioned Mara Liason (sp?) about why the Democrats don’t just pass the bill over the heads of the Republican opposition. The answer is that they don’t want their party to keep reaping the blame for bailing out Bush and Co. for yet another one of their massive fuck-ups.
Otherwise the narrative becomes: Bush messes up economy, weak-willed congressional Democrats bail him out (yet again), but now congressional Republicans stand up for the little guy and market discipline.
They’re trying to regain the respectability of their party’s brand name.
No dice.
Just like when the Republicans forced the government to shut down in the nineties over Clinton’s refusal to go along with their demands, I’ll assume that the Democrats are right to try to stick to their guns (the Republicans suffered politically for it then, as well), but if something doesn’t get done by Monday we’ll be in deeper trouble. Of course, they can obviously wait it out until at least the end of the day so everyone knows who the hypocrites are.
You have no idea how we in the states feel about what is going on.
Here is how we feel about it.
http://tinyurl.com/deacebailoutsept25
“Do you agree that the Republicans, our Reagan Republicans, have been the primary driving force behind deregulation of a variety of industries including the banking and finance industries?”
No.
The current financial crisis is directly traceable to the Fannie Mae/Freddi Mac cooked books scandal about a decade ago…..at which point, the Federal Government, faced with this level of wide-spread financial shenanigans in an FSA (backed supposedly by Federal money) threatened to shut down Fannie/Freddi…..
To save their collective a***s, F&F screamed “but then poor people won’t be able to afford mortgages!”
To which the Feds replied, “Nu, so you don’t help the poor people anyway.”
“But we will, we will!” F&F promised–and so they did. Sub-prime mortgages until then were a rarity–only 8% of the mortgages nationwide. After F&F changed the rules in demand to Congressional demands to “help the poor find affordable housing,” F&F peddled sub-prime and Alt-A mortgages like candy—and the subprime mortgage debt grew to 20% (that ONE FIFTH) of the mortgages nationwide.
Lending and investment institutions got into the game, seeing that these FSAs were backing the subprime market and began offering easy credit terms, virtually no real credit checks, and allowing people, poor and otherwise, to amass housing debt beyond their means.
Everyone in these institutions made loads of money, and F&F got to stay in business and protect their turf.
Until now.
Alan Greenspan and the usually-all-for-the-free-market-Republicans (of all folks) started to get alarmed and proposed MORE stringent oversight of F&F, curbs on easy money/easy credit, and stricter credit requirements — this was made into legislation which the DEMOCRATS refused to pass for fear that their constituencies would be angered over the tightening of mortgage prerequisites.
I’m an Independent, and am furious at both parties for letting this slide but I’m not going to sit here and listen to someone blame the wrong political party for ITS failure just a few years ago to stop this mess.
Sounds simple, but….
September 30, 1999 – NY Times
Fannie Mae Eases Credit To Aid Mortgage Lending By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called sub prime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.”
Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called sub prime market.”Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the sub prime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”
From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”…
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Ouch, it was a Clinton administration change in policy that started it. I’ll grant that as it was piling up to ridiculous levels, the Bush administration should have stepped in much much sooner.
Hmm…
Let’s take this one step at a time.
Do you agree that the Republicans, our Reagan Republicans, have been the primary driving force behind deregulation of a variety of industries including the banking and finance industries? What’s the name of that bill again? You know, the one that removed all those systemic protections that were put in place because of what the US experienced thanks to Wall Street in the late ’20s and ’30s? It’s named after a couple of good ol’ boys from the Republican party and that ain’t a simple historical accident. We’re talking about an ideology that speaks about removing government from “interfering” with commerce. That’s not a Democratic ideology and never was.
Next, why shouldn’t the Democratic leadership saddle McCain with what he’s already saddled with? Why should he get off without any bruises when he’s a huge proponent of deregulation? You mean the Democrats should unilaterally let him walk away as a savior when he’s been pushing this type of bullshit for decades?
Third, why should the Democrats go it alone? Republicans get the country into the mess and then expect Democrats to save the day? Sure they do. If things go well, the Republican Administration takes credit. If things go poorly, Republican politicians hammer Democrats for many elections to come as irresponsible, big government, spendthrifts. As Clinton once said, “No unilateral moves.”
Fourth, adding to my third point, Congress has a majority of Democrats, but it’s only 30 or so votes. If 30 congresspeople feel that their re-election will be jeopardized by the guilty Republicans in the way I suggest in my third point, they will be hesitant to vote for the deal. Why should the Democrats commit hara kiri over Republican ideology?
Fifth, in the Senate the situation is even tougher. 49 Republican votes plus two independent votes, one fairly conservative and the other bordering on Socialist. If the Republicans want to stop or delay this bill, they can do so easily…which is why they’re giving us the power play.
So yes, sure, it’s all the Democrats’ fault. Except that it isn’t. This one is on the Republicans.
…And obviously– obviously, right?– the Democratic leadership wants to saddle McCain with whatever emerges here, so that (a) McCain can’t use the bailout, disdained by Americans across the board, against Obama, and (b) McCain will get in trouble with the ‘base’ and lose a few hard-right votes.
Let’s be real. Reid and Pelosi can do whatever they want, and are playing politics.
Middle, you’re being an immoderate goof. If the Democrats wanted to pass this thing, they could do so any time they want. John Boehner and his group of 50ish Republicans aren’t needed. So who’s playing politics here? Who’s responsible?
Harry Reid and Nancy Pelosi, who are placing their need for political cover over the national interest.
To repeat: you’re blaming this fiddling-while-Wall-St. burns on 50 rogue Republicans?
Not to worry, however. We’ll have a deal today. Not before some fireworks at the open, however.
The ecomony is collapsing as the result of telemarketing (selling loans), easy credit and the shopping chanels.
In the olden days you bought with cash or checks which couldn’t bounce. Now credit rules. You don’t need the collatoral of old.
Republicans, democrats, all the same, all guilty, all innocent. This time it’s not the fault of the politicians.
I think I saved something of yours from there but not from this discussion.
spam filter again