Why should anyone blame Democrats for the housing finance crisis? Because they laid virtually all the landmines that would eventually explode in the first place, and then they wouldn’t allow Republicans to reform or even regulate the impending disaster before it occurred, that’s why.
From the New York Times in September 30, 1999:
“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. . . .
”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 subprime 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.” . . .
The LA Times writes on May 31, 1999 that:
It’s one of the hidden success stories of the Clinton era. In the great housing boom of the 1990s, black and Latino homeownership has surged to the highest level ever recorded. The number of African Americans owning their own home is now increasing nearly three times as fast as the number of whites; the number of Latino homeowners is growing nearly five times as fast as that of whites….
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.
Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more. . . . .
Another article in the New York TImes from September 11, 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. . . .
This reform – and another in 2005/06 – were blocked by Democrats who threatened to filibuster the bill in the Senate.
In that 2003 New York Times article, we find the extent of Republicans’ concerns, and of Democrats’ intransigence:
Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.
”The regulator has not only been outmanned, it has been outlobbied,” said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ”Being underfunded does not explain how a glowing report of Freddie’s operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.”
Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”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.”
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.
Democrats such as Watt and Maxine Waters played the race card to label any effort to prevent poor and black families from buying homes they couldn’t afford as racist.
But when the fecal matter hit the rotary oscillator as a direct result of Democrats’ policies, Nancy Pelosi trots and says:
“The — what we have now is a manmade disaster, a disaster that sprang — comes from the Bush failed policies, the failure of the Bush administrations to steward our economy in a responsible way.”
I am telling you, if you vote for Democrats in November, you will be putting the very people who caused this disaster in power, and you will be entrusting the people who created a crisis in charge of averting the very crisis they caused. By putting these irresponsible demagogues in charge of our economy during one of the most vulnerable periods in our nations’ history, you will in effect be saying, “I want the Great Depression. I want my children to suffer.”
Tags: bailout, Baker, Barney Frank, black, Bush, Clinton administration, Democrats, expand, fail, failed policies, Fannie, filibuster, Franklin Raines, Freddie Mac, government-subsidized corporation, homeowners, Latino, legislation, low income, Mae, Maxine Waters, Melvin Watt, Nancy Pelosi, pressure, race card, racist, regulators, risk, Senate Democrats, subprime
Start Thinking Right 
October 1, 2008 at 12:31 pm
Well written and researched post! And you used the liberal media’s own ammo to lock and load your .45 caliber with facts!
October 1, 2008 at 1:20 pm
Okay, blame the Democrats and the poor people for the crisis. Some people may believe you. Most will not believe you. They can see that the credit crisis, and the worsening economy are caused by a lot of things, not just increasing loans to minority groups and to less-well off Americans.
Even if it were true that the Democrats were behind the vast increase in loans to the poor, you would still have to show that it was mainly loans to the poor that caused the crisis, which is not true. The main cause of the crisis was the Real Estate Bubble (remember the bubble, when thousands of people, mainly middle-class people, were “flipping” houses?). During these good times banks and commercial mortgage companies were almost desperate to increase their loans. And the Bush administration also increased loans to the poor, as I will show later.
And it is absurd to imply that because the Clinton Administration amended the CRA by mandating at least a SMALL amount of loans go to minority groups, this caused the vast rise in bad loans. In fact the CRA applies only to banks and savings and loans, and they made only about 25% of the loans during the last three years. The bulk of loans during the period were made by mortgage brokers, who are not subject to the CRA and have little regulation over them at all. It is these mortgage brokers who made the bulk of bad loans, which were taken by such financial houses as Citibank and UBS securities because they thought that they were low-risk, high yield securities. They were very wrong about this. But it is most important to stress that Citibank and Washington Mutual and others (including even the Bank of China) did not buy mortgage-backed securities because of the CRA. They did it to make money.
To be sure, in the recent past, a lot of poor people have defaulted on their mortgages, but they constitute only a small percentage of the defaults (after all, they got fewer loans and smaller loans than the average). And naturally poor people default when they are losing their jobs. But the defaults on second homes and homes-too-big-for-their-budgets by middle class people are also very high. The second homes, and the too-big homes that cannot be afforded when the interest rates rise, that’s a cause too.
Obviously we are talking about something with such massive causes that even if the was good regulation of Fannie Mae and Freddie Mac, the disaster probably would still have occurred. That does not make it right to have voted against legislation that would have tightened up the regulation, but that is hardly the cause of the disaster. Indeed, even if Democrats had supported tighter regulation (along with a lot of Republicans who didn’t back the idea when they were in charge of Congress), Bush would still have had to appoint the regulator. Perhaps he would have picked another “Brownie” (the fellow who ran the federal side of Katrina so well).
The Federal Reserve, the Federal Deposit Insurance Corp., the SEC – all have admitted to missing financial details that, if caught, would have allowed them to stop or slow down the crisis. The SEC in particular admitted it was wrong in allowing Wall Street firms to submit to a “voluntary” regulation program, in which the voluntary aspect allowed the firms to not submit much in the way of financial information when such details were absolutely needed.
Regulation is just what it is, not a perfect barrier against frauds and gigantic financial mistakes. For example, the giant bank Washington Mutual went belly up last week. Its shares were worth $2.03 yesterday. They are worth 16 cents now. But WM was under the regulation of the Federal Reserve system, as are all commercial banks. Why didn’t they spot the problem before it occurred? Why didn’t they insist on WM having stronger ratios? No answer so far.
Along the same lines, what about the regulator of Bear Sterns, Lehman Brothers (and for that matter the late unlamented Enron), the SEC. Why didn’t they catch the off-balance sheet items? Why didn’t the rating agencies like Moody’s and S&P catch the enormous debt that these companies had? For that matter, why did Moody’s and S&P rate some of the mortgage backed securities, that are now nearly worthless as AAA, when they were more like DDD? We don’t know yet, but obviously there is A LOT of blame to go around.
Where this relates to the debate over Democrats and Republicans causing this mess is to remember that NO ONE forced UBS or Deutsche Bank or Bear Sterns or anyone to buy sub-prime mortgages. They did so out of the normal investment motive: They thought that they could make money on the investment. They were mistaken, much like the folks who in September 1929 (one month before the crash) bought stock. They might be blaming their broker for having advised them to buy, or Moody’s and S&P for having missed something. But ultimately it was their decision.
And, the goal of expanding loans to poor areas was shared by the Bush Administration. Indeed, Bush helped expand home ownership among minority groups. Here he is when signing the “American Dream Downpayment Act of 2003.” (Begin quotes)
President Bush Signs American Dream Downpayment Act of 2003
I am here today because we are taking action to bring many thousands of Americans closer to owning a home. Our government is supporting homeownership because it is good for America, it is good for our families, it is good for our economy.
One of the biggest hurdles to homeownership is getting money for a down payment. This administration has recognized that, and so today I’m honored to be here to sign a law that will help many low-income buyers to overcome that hurdle, and to achieve an important part of the American Dream.
This administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country. And this is a good time for the American homeowner. Today we received a report that showed that new home construction last month reached its highest level in nearly 20 years.
The reason that is so is because there is renewed confidence in our economy. Low interest rates help. They have made owning a home more affordable, for those who refinance and for those who buy a home for the first time. Rising home values have added more than $2.5 trillion to the assets of the American family since the start of 2001.
The rate of homeownership in America now stands a record high of 68.4 percent. Yet there is room for improvement. The rate of homeownership amongst minorities is below 50 percent. And that’s not right, and this country needs to do something about it. We need to — (applause.) We need to close the minority homeownership gap in America so more citizens have the satisfaction and mobility that comes from owning your own home, from owning a piece of the future of America.
Last year I set a goal to add 5.5 million new minority homeowners in America by the end of the decade. That is an attainable goal; that is an essential goal. And we’re making progress toward that goal. In the past 18 months, more than 1 million minority families have become homeowners. (Applause.) And there’s more that we can do to achieve the goal. The law I sign today will help us build on this progress in a very practical way.
Many people are able to afford a monthly mortgage payment, but are unable to make the down payment. So this legislation will authorize $200 million per year in down payment assistance to at least 40,000 low-income families. These funds will help American families achieve their goals, and at the same time, strengthen our communities.
End quotes.
In my view this is all to Bush’s credit. He is not a racist, and he wanted to expand ownership in minority areas, just like Democrats. MORE IMPORTANT, though there is a law that requires banks to at least consider making loans in minority areas (the anti-“redlining”, “Community Reinvestment Act”), it does NOT require that banks make loans in any particular case. There is nothing in any law that says to a bank: “You must make a loan to this guy even though he does not have a job and puts nothing down.” If banks made more loans to the poor than might have been prudent, it was not the law that required them to do so.
Why then did they do so? Not because of a desire to be good to the poor, or to fight racism. IT WAS TO MAKE MONEY.
And if done well, minority lending will make money over time, just as lending to the majority will, but combined with vast leverage, and with loans bundled together so that no one knows which securities have the bad loans and which have the good loans, you have a the start of a disaster.
October 1, 2008 at 8:21 pm
smrstrauss,
As my new pal Mac pointed out, it was largely the media who make the point that the problems were largely caused – and the crisis predicted (with Peter Wallison predicting the GSEs dangerous practices would lead to failure nearly ten years ago) – during the Clinton years. And it was the New York Times and the LA Times – hardly right wing – that make the claims.
You are correct that Bush signed his own legislation that increased the bad loans. But the history proves that he merely continued a trend that was begun and set into motion by Democrats. He’s not blameless in this mess, but he’s clearly not the scapegoat, either.
Democrats have been repeatedly and very publicly blaming Republicans for their determination to deregulate. But that is a lie. Republicans – specifically including Bush and McCain – DID try to regulate. And it was Democrats who blocked them. That is a fact.
When Nancy Pelosi uttered in her incredibly irresponsible speech prior to the House vote on the bailout package, she said it was “failed Bush policies” that created this disaster.
My argument is that if you are going to blame one party, you need to blame the Democrats. And I have written half a dozen articles or more to document that.
October 3, 2008 at 10:02 am
Smrstrauss missed the point by talking about the background to the crisis and the reasons for it whereas your article dealt only with the failed policies of the Democrats.
But you handled it correctly in your reply and I also think she made a valuable contribution with her detailed examination of the origins to the crisis. It shows you how important it is to have adult debate on this kind of issue, and that public inset is necessary. In what she says, she confirms my view and yours that the whole debacle stems from greed and mismanagement [read the latter as corruption and/or fraud]. I take heart from the fact that even Time seems to have got the message at last. I think that also vindicates your concentration on the theme.
October 3, 2008 at 12:27 pm
I could have been more acerbic to Smrstrauss given her opening sentence. But she was trying to intelligently argue and present facts. Facts are good; it’s spin I can’t stand.
It’s not that Bush and the Republicans should be absolved. They shouldn’t. But they DID try to do something that would have prevented this, and Dems in lock-step prevented them from doing it. Republicans also passed legisltion that helped allow this debacle; but their biggest failure was for not standing up to Democrats and demanding accountability.
The saddest thing of all is that the bailout that passed today does virtually nothing to correct the corruption, abuses, mismanagement, or bad philosophy that led to it in the first place.
October 4, 2008 at 7:46 am
smrstrauss, you make a number of points in your comments. A number of factors were involved, but the primary factor was a lack of regulation over the years. And that single failure, led ultimately to the meltdown.
And Barney Frank was at the front of the herd stomping on any regulatory attempts. Now, did you know that Barney Frank is gay? Did you know that his partner from 1987-1998 was Herb Moses, Fannie’s assistant director for product initiatives who worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie. Did you know that? Everyone in the media has tap-danced around Barney Frank and Herb Moses to avoid being labeled as a gay basher by the media. But, fair is fair!
This is a direct quote from a Foxnews report (http://www.foxnews.com/story/0,2933,432501,00.html):
“Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants. In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.
Three years later, President Clinton’s Department of Housing and Urban Development tried to impose a new regulation on Fannie, but was thwarted by Frank. Clinton now blames such Democrats for planting the seeds of today’s economic crisis.
“I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac,” Clinton said recently.”
October 4, 2008 at 4:14 pm
Excellent points, Mac. There is so much crap on these Democrats that it’s hard to keep track of it all. I didn’t know about Barney’s boyfriend.
Appreciate the Fox news link.
I added AlaskaMac to my blog roll, so you can get there from here to get more good stuff.
January 23, 2009 at 2:17 am
I read and agree with everything that was written about the causes of the financial crises. Our government is corrupt; that is plain enough!
My husband and I worked many years to save money, we did it by buying stocks ourselves. We bought good stocks too. We didn’t buy big TVs, go on trips or foolishly spend money. Now we are ready to retire and at least 1/2 of all of our money is gone. I feel as if we have been robbed by our government. This might sound silly but no sillier than What is being done now. These so called leaders (Barney Frank and his crowd) should make us whole again, right back to the date when we lost our stock, instead of giving money to the banks and to their friends. I want justice, I sure don’t want Barney and his gang to get elected and be in charge of anything at all; they should not be rewarded for what they did to all of us. Where is the justice? How can we get it? We can not start our lives again and build our money back to where it was. We were not taking a chance with the stocks we owned, again they were good stocks. I am ashamed of our leaders, especially the democrats. I would vote for either party depending on who it was that was running so it isn’t that we are just Republicans. How can we fight this Barney Frank? Can we sue him and his gang?
January 23, 2009 at 2:30 am
Carol,
I’m genuinely sorry that as a retiree you – more than anyone – have to bear the result of this incredible debacle.
There’s blame to go around. But no one bears more responsibility than Barney Frank and the officials at Fannie and Freddie. They played so many games with the books and took so many risks that it was unreal.
I share your anger. Media propaganda is near total. And the media put all the blame on Bush (who TWICE tried to regulate the housing market financial entities when doing so would have done some good) and ignored all the responsibilities of Democrats. Charles Schumer caused a rush that closed down the first of the big banking institutions out of sheer political calculus. And it worked. And as a result Democrats get to be the foxes put in charge of the hen house.
http://latimesblogs.latimes.com/laland/2008/07/feds-cite-schum.html
I’m sorry to say this, but you won’t find justice this side of heaven. Justice is largely gone now. And there’s going to be less and less of it going forward.
I hope something goes truly right for you and your husband. Win the lottery. Something good that will restore your savings. I myself am considering moving out of the country within a couple of years – because I believe we may completely collapse and I don’t want to be around when it happens. There’s a lot of places in the world where the costs of living isn’t as high as they are here (particularly California where I live).