Posted by
Always To The Right on Monday, October 06, 2008 9:40:25 PM
Barney Frank’s latest defense of Congress over the financial meltdown
could be predicted based on the success of Barack Obama’s campaign in
using the same defense. According to Rep. Frank, any attempt to pin
the blame for the collapse of Fannie Mae and Freddie Mac on the
activities of both, as well as Congressional policy that fueled it, is now officially racist. Frank says conservatives want to blame minorities for the collapse
Let’s keep score. Criticizing Obama means we’re racists.
Criticizing Congress means we’re racists. Getting angry at Congress
for pushing Fannie Mae and Freddie Mac into buying bad loans and
infecting the entire financial system with essentially fraudulent paper
— at a cost of up to $700 billion in taxpayer money and potentially
trillions in lost investments — means we’re racists.
The CRA was only a small part of the cause of the collapse. It
affected loans only at the margins. The Clinton administration opted
for more aggressive enforcement, and “community organizers” like ACORN
used that to file nuisance complaints that could keep banks from
merging and acquiring other banks. That may have pushed lenders into
lowering standards on a handful of loans, but only to enough of an
extent to avoid government sanctions.
In that sense, the CRA is a bit of a red herring. The real cause of
the collapse was the Congressional push for Fannie and Freddie to
support subprime lending by purchasing the paper from lenders, which is
related to the same policies that generated the CRA but isn’t the CRA
itself. Lenders make money one of two ways: keeping the paper
themselves and getting the interest over the term of the loan, or
selling the paper to someone else for a guaranteed short-term profit.
When Fannie and Freddie began buying all of this paper, they created a
huge demand for subprime loans — and lenders responded by offering easy
money to almost anyone who applied. They threw out income requirements
and equity thresholds (such as down payments) and generated tremendous
short-term profits for themselves … while Fannie and Freddie assumed
all the long-term risk.
Had the risk remained at Fannie and Freddie, the problem would never
have gone beyond their collapse. Unfortunately, Congress also pushed
the GSEs to securitize the debt in order to spread the risk. Investors
considered those mortgage-backed securities a safe bet, backed by the
US government. That’s the direct cause of the financial collapse,
along with the collapse of housing prices that resulted from the sudden
deflation of demand.
Congress — and specifically Frank himself — had plenty of warning
that this would happen. The anger generated from that information has
nothing to do with racism, and everything to do with the breach of
trust between Congress and its constituents. Frank, Chris Dodd, and
others like Lacy Clay and Maxine Waters tried the racist meme out on
regulators who tried to warn Congress of the pending collapse. They
have to smear their critics. They certainly can’t admit that Congress
failed spectacularly. Racism is the last refuge of scoundrels in
2008, and not surprisingly, we find most of those scoundrels in the
Democratic Party.