Finger-Pointing in the Mortgage Crisis

17 09 2008

The mortgage crisis is fully upon us. And there is plenty of finger-pointing going on in Washington. But no one is addressing the core issue here: greed. Some are greedy for power, others money, or even both. But any way you slice it, it’s greed. 

First, a bit of history so we know how we got here. Nancy Pelosi is insisting that Democrats are faultless in the mortgage crisis. 

House Speaker Nancy Pelosi, when asked Tuesday whether Democrats bear some of the responsibility regarding the current crisis on Wall Street, had a one-word answer: “No.”

Pelosi (D-Calif.) ripped President Bush’s “mismanagement” of the economy and a lack of regulation that led to the current situation.

“I think the American people have had it with this situation where the middle-income people in our country are not protected from the ramifications of the risk-taking and the greed of these financial institutions,” Pelosi told MSNBC.


Barack Obama is towing the party line ignoring facts as well. 

When the White House is hostile to any kind of oversight, corporations cut corners and consumers pay the price.

But the truth is that the Bush administration foresaw the bubble bursting and proposed tighter restrictions on Fannie Mae and Freddie Mac government-subsidized “companies.” Side note: isn’t that an oxymoron? As the NY Times reported in 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.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Gasp! How could all this blame be placed on the Bush administration then? Who was blocking this legislation? We read:

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.

The Bush administration’s mistake was they didn’t treat the problem with enough urgency. If Bush applied the same amount of pressure as he did the War on Terror, he could have gotten more cooperation from Democrats. And he didn’t have any “false intelligence” to worry about. These numbers weren’t lying. 

The Democrats biggest mistake was ignorance for the sake of blame in order to preserve power. 

But the American consumer is not exempt either. Even though the government was willing to loan money to people who had no business borrowing it, we should have exercised better wisdom than simply jumping on the greed train. Especially Christians. 

Christians should know better than to store of treasures on earth. Certainly we need to have a home and God want us to have a nice, clean place to live. But when the average home has increased from 1,600 square feet to 2,200 square feet in the last several years while the average family size has decreased, why do we need more room for less people? This is called greed. Greed is not only unbiblical, but it also effects non-believers as well. When people put their own desires above others, society loses. 

Greed by American consumers. And greed by politicians. A sure fire way to shoot a hole in the housing bubble. This is not solely a financial crisis, it is a moral crisis. I believe that Jesus is Lord over all of life and that His followers, Christians, need to speak biblical truth to the all issues, but most importantly these pressing situations. There is no biblical-secular divide with some areas off limits to Scripture. The earth is the Lord’s and everything in it. The Church needs to speak up here and point a way out of this situation, at least in an emotional, spiritual, and moral sense, if not a financial sense. People are scared in God’s eyes and their jobs are on the line. We’re starting to reap from the greed we’ve sown. We need to call people to put their hope in God.




6 responses

17 09 2008

I don’t find this surprising at all but the thing that pisses me off the most, NONE of this will ever be reported at any level the average voting American will have access to, giving Pelosi a free ride on her “Bush’s fault” train.

I’ve sent several people blaming the Republicans links to prove she’s full of it and ALL of them were beside themselves and extremely pissed off. Good find!

17 09 2008
Jon Strickler

It’s not so much what you say as what you do. The smoking gun in all this is McCain’s relationship to Phil Gramm. Gramm sponsored a series of bills that allowed for this lack of oversight. He was John McCain’s presidential campaign co-chair and his most senior economic adviser from summer 2007 to July 18, 2008.

While advising the McCain campaign, Gramm was being paid by UBS to lobby Congress about the U.S. mortgage crisis. During this time, “the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.”

In a July 9, 2008 interview explaining McCain’s plans in reforming the U.S. economy, Gramm downplayed the idea that the nation was in a recession, stating, “You’ve heard of mental depression; this is a mental recession,” and “We have sort of become a nation of whiners, you just hear this constant whining, complaining about a loss of competitiveness, America in decline.”

Gramm since stepped down from his position with the McCain campaign. However, he often accompanies McCain during the campaign, and continues to be an unofficial adviser on economic and financial matters.

17 09 2008
Truth and Reason

Both Obama and McCain supported the federal buyout of Mae and Mac, much to the dismay of conservatives. Once again, proof that McCain can reach across the aisle and Obama does not.

18 09 2008
Mr. Incredible

And, so, let’s not forget that Obama is third highest recipient of campaign contributions from Fannie and Freddie as they were goin’ down.

Obama, also, had his hand working the inside of those organizations:

This is gonna blow up in his face.

18 09 2008

But wait my friends, you still looking at a far more proximate set of causes!

You touch on one: politicians left unchecked gravitate to the behavior of demagogues.

However, related to that is the second point that also infuses much of the thinking that supports such actions. Many in all walks of life seek to build a god they know, they understand, and they can manipulate. One of the most common forms of such devotion is known as government. More derisively, we call the thinking this inspires “big government,” “the ‘nanny state’,” in addition to the range of political science terms that describes their mechanism: socialism, communism, fascism, etc.

Even in a less philosphical bent, the roots of today’s problems may be found in the rise and fall and rise of the central bank as envisioned by Alexander Hamilton and like-minded autocrats. Fannie Mae, Freddie Mac and other pseudo-governmental entities that work in the markets have their roots in such thinking. Of course, FDR rework of the American political psyche help codify this and weak wills and self-seekers help to perpetuate and extend it.

Even more recently, one must look at the work of the amiable but mypoic Jimmy Carter who helped bring about the legislative and administrative law modifcations that moved “housing welfare” from the existing domain of public housing, etc. ala FDR and LBJ.

Come with me as we turn the pages back to 1977. In that year, the Democrats in Congress joined with Carter to pass another piece of socialistic legislation entitled the Community Reinvestment Act (CRA). (Remember: In the wake of Watergate, the dems were riding high and held a majority in both houses of Congress.) Despite his outsider persona and down-home manners, the Carter era represented a major retrenchment of liberal Democrat and their ideals. Along this line, the CRA opened the door for some individuals to gain mortgages even if their economic conditions militated against it. That’s right folks…Step right up and get your mortgage even if you’re a credit risk. Why? Because you deserve and the government wants you to have what you deserve.

However, much of the potential within this movement remained dormant until 1999 when Clinton and his allies in Congress pushed through a poiece of legislation that gave the CRA a steroid boost. But wait, the GOP dominated both houses! How could this have happened?

Despite an effort by the GOP (led by Sen. Phil Gramm as chairman of the Senate Banking Committee) to eliminate the CRA requirement to provide more opportunities for marginal mortgages, the Financial Services Modernization Act, FSMA) was ultimately modified to avoid a Clinton veot. Though some elements of government control of private financial institutions made it though, the CRA related portions grew with a vengeance. However, this growth would take years to show its true nature.

Clinton wanted an expanded CRA-like provision. He wanted more people who had no financial basis to take out a loan to have one regardless. He also wanted the government and related institutions to pay their way when they failed to make their house payments. As one major news organ intoned during this legislative battle:

“Administration officials say the President would veto the Senate version because it would dilute requirements that banks make loans to minorities, farmers and others who have had little access to credit.”

But privately, the groundwork had been laid for a Clinton approved compromise. In the spirit of compromise, Gramm, McCain and others threw their support behind the Clinton version of the bill. This version extended the requirement to more lending insitutions to provide sub-prime loans. Administrative law efforts followed from the Clinton White House to further extend the reach and regulation of this. The SEC was empowered to fine or even suspend banking rights to those who failed to comply.

So who’s responsible in this case? The diligent Clinton most certainly but also the Democratic and Repulican rank and file who voted for this financial abortion.
Richard Shelby was the only GOP senator to vote no on this legislation. McCain abstained.

What was at the heart of the Dems interest in this legislative change? As one author writes:

The primary rules to prevent the collapse of banking are (1) not to lend money to unqualified borrowers … and (2) to maintain a sufficiently high cash reserve that people who need to draw out all their money can do so … But those rules make it more difficult for the poor (disproportionately minorities and Democrats) to obtain housing loans: They’re restricted to much smaller mortgages for a smaller percentage of the total cost of the house; and because the bank can’t lend out every penny, it must pick and choose to whom to lend.

Why would they do this? First, because Democrats have long been getting huge campaign donations from banks and other mortgage lenders; in fact, the top two recipients of such money are Sens. Chris Dodd (D-CT, 95%) and Barack Obama. Both subsequently encouraged exactly the sort of loan speculation they now decry, an act that reeks of corruption. In addition, many former members of the Clinton administration, including Franklin Delano Raines, former Commerce Secretary William Daley, and Deputy Attorney General Jamie Gorelick (of “Gorelick’s wall” infamy), ended up running Fannie and Freddie or lobbying for them… and incidentally raking off tens of millions of dollars for themselves.

Why would the GOP cave to such pressure and pass the law with such provisions? Though they might say progress, this ignores the truth that good sense is seldom supported by constant compromise. Many within the GOP had their own agenda working in the remaining portions of the FSMA. Further, most within the GOP had adjusted their viewpoint — Big government was still bad but slightly bigger government was OK, especially when it provided what they wanted.

Yes friends. The roots of this are ancient in philosophy but recent in specifics. Demagoguery contiues to rule in the political domain. It’s only a matter of looking behind the stage of political theater to see it.

18 09 2008
Truth and Reason

Great history lesson, sir. Thank your for sharing.

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