The Creature(s) From Capitol Hill

[David Atlee]

Only government can create a problem, blame someone else, then make new legislation granting themselves more power in the name of protecting Americans. It is truly an uncanny display of blatant crony politics. How many times have we heard Obama and the Democrats claim “the policies of Republicans are what got us into this mess”. “Greedy banks got us into this mess.” “Free markets don’t work, this financial crisis is proof.” Sadly, a lot of Americans have no clue that they are being suckered. What truly caused this current financial meltdown, and why does Washington not have any credibility passing this new “financial reform” bill?

We can trace the beginnings of this fiasco to the signing of the Community Reinvestment Act by Jimmy Carter in 1977. Up until that point, Congress charged that banks were “redlining” areas that were loaded with people who had bad credit. But the real crime according to Congress? You guessed it. Racism. Since minorities overwhelmingly populated the neighborhoods that banks refused to lend to due to poor credit scores, it was time for Congress to step in and do something. Another interesting tidbit about the CRA comes from the Ludwig von Mises Institute:

“Under the CRA, if a bank wants to make virtually any change in its business operations — merging, opening up a new branch, getting into a new line of business — it must first prove to regulators that it has made “enough” loans to the government’s preferred borrowers. The (partially) tax-funded “community groups” like ACORN (Association of Community Organizations for Reform Now) can file petitions with regulators that stop the bank’s activities in their tracks, perhaps defeating them altogether. The banks routinely buy off ACORN and other “community groups” by giving them millions of dollars as well as promising to make even more dubious loans.”

Fastforward almost 20 years after banks began making loans they would never consider were it not for government interference. Bill Clinton, through HUD (Housing and Urban Development), implemented the National Home-Ownership Strategy in 1994. On June 5, 1995, Bill Clinton gave a speech at the White House regarding this initiative. Here are a few quotes that need some special attention.

“You want to reinforce family values in America, encourage two-parent households, get people to stay home? Make it easy for people to own their own homes and enjoy the rewards of family life and see their work rewarded. This is a big deal. This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we’re going to have.”

Now first off, I can agree that in order to restore family values there must be a return to two-parent households. But that is a different issue for a different time. However, notice how he said home-ownership needs to be made easy and it’s about “more than money”. Apparently, owning your home is more of a right than an earned privilege. But this is the mentality of so many people in Washington regardless of party affiliation. Everything should be affordable so everyone can get a piece of the pie. Yet, never do they explain who will pick up the rest of the tab. Do you want proof of this accusation? Read this next quote from the same speech:

“We have to remember that there are millions of people just like them who believe that home ownership is out of reach. They may be paying monthly rents that could cover a mortgage payment. They may scrape to save, but a downpayment is still out of reach. They are locked out by rigid restrictions or by a home-buying system just, as Jean said, too difficult or too frightening. And that is not right.”

“This is America! People should not be scraping by to make payments! Buying a home is frightening for those folks who don’t make enough money to purchase one!” I don’t have enough money to buy a home, so I rent. There are a lot of things that I simply do not have the money for so I make the difficult decision: I don’t purchase items I can’t afford. Again, Clinton showing his belief that owning a home in America was a right, not a privilege.

Fast-forward now to 1999. Steven Holmes published a now-famous article in the NY Times detailing Fannie Mae’s ambitious new strategy for home-ownership. In September of that year, Fannie announced that it would ease their lending standards in order to “increase home-ownership rates for minorities and low income consumers”. What is so important about Fannie loosening it’s standards? Well, they needed other parties to join in order to make this strategy become reality. Holmes reported that “24 banks in 15 markets…..will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.” What did people like Holmes think could happen due to this massive new strategy of encouraging home ownership to people who could not afford homes under normal circumstances?

“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.”

Hook, line, and sinker. According to an article published by Bloomberg in June earlier this year, “Fannie Mae and Freddie Mac own 53% of the nation’s mortgages.” Adding insult to injury, the two GSE’s have already swallowed $145 Billion in bailout money with $1 Trillion total looming in the future. So far, this program has worked to perfection. Bill Clinton, however, does not deserve all the blame. Who else was involved?

George Bush has plenty of blame on his hands. In 2002, Bush announced his goal to increase minority home-ownership by 5.5 million towards the end of the decade. This quote was from Bush in March of 2004, reported by the Boston Globe:

“Not enough minorities own their own homes,” the president said during a stop at a carpenters’ training center in Phoenix, which followed a talk about home ownership at the New Mexico State Fairgrounds in Albuquerque. “And it seems to me it makes sense to encourage all to own homes.” – In this same speech, Bush touted a woman by the name of Lori Benavidez who was able to own her home through Bush’s Sector 8 Housing Voucher program. That’s worth bragging about. The taxpayers subsidized someone in order to buy their own home.

This brings us now to Barney Frank. This is a man who was in bed (literally) with Fannie Mae. Frank has now been long considered the architect of the Fannie Mae/Freddie Mac sub-prime mortgage bubble and explosion. An article posted by the Wall Street Journal back in October of 2008 highlighted the infamous House Services Financial Committee hearing of September 10, 2003. If you ever wondered why the term “roll the dice” gets associated with Barney Frank, here is why:

“ I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. “

Paying no attention to what happened in the Savings and Loans Crisis of the early 80s, Frank was all in favor of loading the books of Fannie Mae with sub-prime loans. In 2006, Frank was interviewed by PBS’s Paul Kangas and was asked what his thoughts on gaining jurisdiction of the housing sector were: “ We have a terrible housing crisis in this country and I think we now understand that housing is not simply a social good, but it’s an economic practice.” Well, the housing bubble had not burst yet, so what crisis was he referring to? “If you are African- American or Hispanic, you have less chance of getting a mortgage. And if you get one, you have a high chance of paying more even with other factors being equal for some reason. I think that has got to be a very high priority.” Liberals truly do love that race card. But here again, you have another Washington politician claiming home ownership is a right, not a privilege.

So this brings us to the final argument. Here you have Barney Frank who was heavily involved in encouraging Fannie Mae and Freddie Mac, who needed help from those evil Wall Street Banks, to go on a rampage encouraging people who could not afford a home to purchase one anyways. Many of these people purchased homes with zero money down. I repeat, zero money down. Barney Frank’s response along with the help of Chris Dodd? How about a 2,500 page bill creating hundreds of new government regulations and bureaucracies. Because this bill is so massive, it would be impossible for me to analyze everything it has in relation to this article. However, the context is still easily interpreted. Washington is attempting to fix a problem it created using the same methodology that created the crisis to begin with. Don’t believe me? Ask yourself this question. Due to the obvious fact on how entangled Fannie Mae and Freddie Mac (government sponsored enterprises mind you) are with the financial crisis, why are they excluded from the financial reform bill? Washington has turned America into a children’s horror story. We know there is a monster in the room, but we have the sheets pulled over our head because we don’t want to know how horrible it looks.