Posted by
Always To The Right on Thursday, September 25, 2008 5:54:01 PM
Sometimes the greatest blame comes from great praise when viewed in hindsight. The Los Angeles Times
proves that with an article from 1999 heaping praise on the very people
most responsible for the credit-market meltdown. Ronald Brownstein
lauded the Clinton administration for boosting minority ownership by
forcing lenders to offer better terms to marginally-qualified borrowers
— and noted the financial creativity from Fannie Mae and Freddie Mac as
a crucial component of Bill Clinton’s efforts. It also demonstrates
why Congress mandated the failure of the lending system, and why it has
to act to fix it
Most people would agree that higher home-ownership rates are a
positive sign in any community. They indicate investment in a
community and commitment as well. Property owners have more of a stake
in their cities and towns, and also typically support property rights
in general.
But how was this accomplished? Here’s where that praise turns to condemnation (emphases mine):
Under Clinton, bank regulators have breathed the first
real life into enforcement of the Community Reinvestment Act, a
20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws.
The bottom line: Between 1993 and 1997, home loans grew by 72% to
blacks and by 45% to Latinos, far faster than the total growth rate.
Requiring banks to serve their low-income communities.
That’s shorthand for taking on more risk and lowering what had been
standard prerequisites for purchasing homes. Normally, lenders would
have demanded at least 10% down, and preferred 20%, and demonstration
of stable income, of which the mortgage payments would not exceed 30%.
Under threat of prosecution for bigotry, lenders had to start taking
less-qualified borrowers as clients.
Normally, I’d say let the lenders drown. Unfortunately, this isn’t
completely their fault, and we should have known better. Not too many
of us complained about the rapid escalation of our own equity that came
from this housing/lending bubble, and in the end most of us will still
benefit from it, if not quite as much as it seemed a year ago. Three
years ago, Alan Greenspan tried to get Congress to act, and only John
McCain, Chuck Hagel, John Sununu, and Elizabeth Dole responded — while
politicians of both parties made sure to keep the Ponzi scheme in full
swing. And those MBSs were minted at the behest of Congress, the
people’s branch of government. We broke it, and we own it.
Government created this problem, and government will have to provide
at least part of the solution. What we need is a way to make sure that
government doesn’t interfere in lending markets again. We need to
eliminate GSEs entirely and let borrowers and lenders find each other
in the marketplace. If government would quit trying to pick winners
and losers, we wouldn’t find ourselves in this grave financial crisis.