Feel-good ideology has dealt us a mess. And sadly, it would be hard to find more arrogant, self-serving, ineffective problem solvers than the herd currently grazing Capitol Hill.
Americans are witnessing historic dishonesty and unaccountability. The actions of politicians who created the subprime mortgage fiasco and of those trying to find solutions will determine whether history paints today as a turning point or an inflection in America’s downfall. If integrity prevails, Americans may experience an awakening, one that is past due. If filthy partisanship continues, we may experience a long winter reminiscent of the 1930s, when idealists deployed economic “solutions” only to worsen matters greatly.
While over the past ten years or so, some politicians did indeed warn of the dangers of lending to unqualified borrowers, the homeownership “fairness” lemon turned toxic as even most conservatives lifted not one brain cell to stop the insanity. Republicans intoxicated by their congressional majority grew corrupt. The elephant exuded little integrity.
As has been the case throughout human history, today, very few politicians put country before political survival. In our current crisis, half-hearted bipartisanship occasionally dribbles forth, but vilification of opponents and self-praise follow close behind.
Driven by Carter Administration supporters, 1977’s Community Reinvestment Act (CRA) sought increased credit for “low- and moderate-income neighborhoods and individuals.” But by 1995, the CRA was using an evaluation system that gave big positive points to lenders for lending to higher risk borrowers.
In 1999 The New York Times reported that Fannie Mae, “under increasing pressure from the Clinton Administration…,” pressed lenders to qualify high-risk cases. Chairman Franklin Raines touted “expanded home ownership for millions…” Still, Raines lamented “too many borrowers” with credit “just a notch below” that needed for lower rates. Fannie was pressured to take on “significantly more risk.” A senior fellow with the American Enterprise Institute warned that “the government will have to step up and bail them out…” Really?
In 2000, Clinton’s Treasury Department called the Financial Modernization Act (FMA) which he’d signed in 1999 “the most sweeping revision to this nation’s financial laws of the post-War era.” The FMA beefed up the CRA. Regulators pressed institutions to lend to high-risk borrowers. Republican Representative Richard Baker tried to strengthen oversight of Fannie and Freddie, but Democrat Representative Barney Frank called any concerns “overblown.”
Curious, it is, that Democrats Barack Obama, Chris Dodd, and Barney Frank received Fannie’s highest campaign contributions. Dodd heads the Senate Banking, Housing, and Urban Affairs Committee and Frank heads the House Financial Services Committee. Republicans accepted much less of Fannie’s money, but both parties and the Bush Administration advocated that less-qualified borrowers receive loans.
Fairness-mongering ideologues and vote-pandering politicos abounded, with not a clear thinker in sight.
Republicans leveled “heavy assault[s]” at Fannie and Freddie. But The New York Times assured high-risk borrowers and special interests that the new Democrat Senate majority supplied “important political allies.” Representative Frank reiterated “no federal liability.” In 2002 Frank declared Fan and Fred non-issues, adding reassurance in 2003 after Bush’s chairman of the Council of Economic Advisers warned of problems. Even when Freddie’s fraudulent accounting surfaced, Frank dismissed the possibility of “any kind of a crisis.”
In 2004, Fannie Mae revealed her own multibillion-dollar “misstatement.” The Office of Federal Housing Enterprise Oversight said “…Fannie Mae’s senior management deliberately and intentionally manipulated accounting methodologies to hit earnings targets and help executives maximize their bonuses.” No prosecutions followed, despite the Fannie Mae malfeasance mirroring the Enron debacle. Again Frank downplayed concerns, opining that if Fannie and Freddie nosedive, “Wall Street will get over it.”
After biting the dust for Fannie’s “irregularities,” Franklin Raines eventually ended up advising Barack Obama on “mortgage and housing policy.” Having Raines set policy for a U.S. President will be great.
During the burgeoning subprime crisis, Democrats pushed for “Partnership Offices,” directing loans to districts in which politicians supported the Affirmative Action agenda: getting money to low/no income borrowers. Corrupt groups like ACORN—Association of Community Organizations for Reform Now—cleaned up. It is quite telling that Democrats tried to sneak money for ACORN and other ideological soul mates into the current $700-billion recovery package.
Reason to suspect that risky lending was filling a lead balloon existed back in 2000. The Treasury found that in only five years, 1993 to 1998, nearly half-a-trillion dollars in high-risk loans were made. Absurdly inadvisable loans rose 45 percent compared to a 27 percent overall lending increase. In high-risk neighborhoods, lenders increased home loans by half. Refinancing loans to risky borrowers in risky areas rose fifteen times faster than loans made to strong applicants.
And feel-good politicians smiled.
In 2007, Representative Barney Frank took over the House Financial Services Committee. He found religion, sought reform and slammed “conservative fundamentalists in the Bush Administration” who supposedly blocked the “reform.” But the truth names Frank a liar.
Frank’s smugness was topped by Democrat House Speaker Nancy Pelosi after the subprime mortgage bomb detonated. Pelosi’s September 29, 2008 pep talk before the $700-billion recovery vote sprayed venomous, self-serving, politicized attacks on Republicans. Restraint names Pelosi a stranger. Common sense marks her absent.
Liberal doctrine built the subprime bomb. Conservative weakness and bipartisan corruption primed it. Finger-pointing, credit-grabbing, and ideological warfare hinder the clean-up. “Progressives” addicted to lending money to anyone who wants money and a media dedicated to Barack Obama’s election guarantee that the information which Americans find in articles such as the current one by yours truly won’t find the eyes and ears of most people.
But clear thinkers will understand Congress’s “solution.” Clear thinkers will comprehend that what has happened here is that romantics’ fierce desire to feel good about themselves has produced another failure. Deep longing, and often anger, radiate from these romantics. Well-intended humanitarians confuse temporary relief from their relentless search for feel-good with genuine fulfillment that arises from doing things that cause lasting human progress. The feel-good that “progressives” get from giving loans to unqualified borrowers comes at the price of disaster for those borrowers and all Americans.
The cost of financing liberals’ thirst for “self-actualization,” or whatever it is that these lost souls stalk, should not have to be borne as a burden by all people.
Hand car keys to an unemployed stranger with no driving experience or license. Ask for nothing up front and expect him to appear each month with a wad of greenbacks.
Responsible, clear-thinking people have better sense.