Oh those greedy Republicans and their fat cat buddies who are plundering the nation’s financial systems. Right? That’s what we’re told anyway.
But what if I told you that history paints a different picture. What if I told you that the current crisis, which has its root cause in mortgages extended to those who couldn’t afford them and then packaged on Wall Street as investment vehicles, began in the Clinton administration?
Here’s a New York Times headline from September 1999: “Fannie Mae Eases Credit To Aid Mortgage Lending”.
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 subprime 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.
Hindsight is 20/20, but this gave me the chills. Meanwhile, conservatives were the ones giving warnings about the disaster that befell us:
“From the perspective of many people, including me, this is another [savings & loan] 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 [savings & loan] industry.”
Wherever Peter Wallison is now, he’s entitled to a big “I told you so.”(He’s referring to the savings & loan crisis in the 1980s that required a government bailout similar to the one being proposed now.)
Even after the new looser lending practices went into effect, conservatives were warning about the coming disaster. In 2001, the Bush administration warned Congress that Fannie Mae and Freddie Mac were “potential problems” because a problem with either one would “cause strong repercussions in the financial markets.” In 2003, the White House warned that there was systemic risk that could go beyond the housing sector. So Bush proposed stronger regulations of the congressionally chartered public companies.
Yet Democrats, including Rep. Barney Frank of Massachusetts, now chairman of the House Financial Services Committee, pooh-poohed the Bush administration concerns. He said Fannie Mae and Freddie Mac were not in a crisis; that in fact the federal government should be encouraging to expand their lending practices to give mortgages to even more low-income, high-risk borrowers. He said, “The more people, in my judgment, exaggerate the threat of safety and soundness, the more people conjure up the threat of serious financial losses to the Treasury, which I do not see, I think see entities that are fundamentally sound financially … then the less we in terms of affordable housing.”
How affordable is all that housing now, Barney?
Let’s keep our priorities straight: We need to fix this crisis first, but when November rolls around and we’re deciding which party is going to have control and oversight of this country’s economy, we would do well to remember history and to remember which party had a Pollyanna attitude about the crisis we got hit with.
Here is a link to the YouTube video of a Fox News Special on the current financial crisis from which the information on the Bush warnings and Frank’s response came.
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