Tuesday, September 16, 2008

The Mess Dems Made

Here’s a safe bet in a troubled market: Rep. Charlie Rangal, the convicted felons Tony Rezko and Kwame Fitzpartick, and Sen. Chris Dodd, all staunch Obama supporters, were also staunch supporters, along with Obama, of the policies and laws that led to the current financial mess markets are now working through.

Now excerpts from Investor’s Business Daily with comments below the star line.

IBD starts out reminding us - - -

… [It] was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making.

It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street.

But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck. (emphasis added)

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.
As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late.

Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists , resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets.

In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road. …

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

The entire Investor's Business Daily editorial is here.


The person who sent me the link to the Investor's Business Daily editorial knows a thing or two about business.

He commented:

The editorial presents some good arguments that over regulation and cronyism during the Clinton years were the main causes for the recent problems with banks and other financial institutions.The Obama campaign continues to incorrectly blame Bush's policies for these problems and everything else that goes wrong.

Note in particular the reference to Jamie Gorelick's being paid lots of money while she was at Fannie Mae. As you know Gorelick was a member of Clinton's administration and is the lead attorney for Duke in the civil suits brought by the lacrosse players.

In my opinion, more government regulation is not necessarily the right solution to our country's current financial problems --- that would be an example of the cure being worse than the disease.
Why would anyone support Obama’s “more government” policy.

Because Obama’s cronies such as Rengal and Dodd will be the ones “fixing things” with help, of course, from people like former Clinton Deputy Attorney General Jamie Gorelick.

That would be very good for President Obama and the “community leaders” who are shelling out millions to put him in The White House.

But it wouldn't be good for America.


Anonymous said...

OMG!! Say it isn't so! Jamie Gorelick padding her pockets? Why she's just as pure as the driven snow, one of those courageous barristers defending the honor of Brodhead and his gang of slugs. Why am I not surprised?
And speaking of the lacrosse frame-up, what will Durham do when it turns out that AIG is bankrupt and can't pay on its policy?? When the judgement comes, where, oh where will the money come from? I guess it would be out of the question to have Duke cover the good city fathers of Durham...
Tarheel Hawkeye

Anonymous said...

John -

To add a little texture to what you quoted from IBD let me note the following: what led the Clinton Administration to put the "Community Reinvestment Act on steroids" was a series of article written at the Boston Federal Reserve Bank at the end of the 80s and beginning of the 90s. The articles purported to show that American of African descent were being discriminated against. Because Americans of African descent tend to live together, it looked like their neighborhoods were being redlined. Articles written later in other journals debunked the Boston Fed articles. They showed that reason for the apparent redlining was inability of people in those so-called redlined areas to keep up with the mortgage payments because they were too poor. A debunked theory, though, never stopped a good populist (or Liberal Fascist, to use H.G. Well's term [via Jonah Goldberg]), and so the Democrats were off to the races. Over time, banks, to avoid (needless) prosecution, created sub-prime mortgages so they could have a mechanism to lend to poor people. Simultaneously, someone hit on the idea of packaging the sub-primes with other better mortgages. In 1999, the probability theory was seemingly worked out to be able to package the mortgages with other better mortgages to reduce the risk of holding just sub-primes. (The theory was correct; on the other hand, the probability distribution that was used was too optimistic, as time would tell.) The packaged mortgages were termed call Collateralized Debt Obligations (CDOs). Added to this little witch's brew was that the CDOs were incorrectly rated by the main ratings agencies: S&P, Moody's & Fitch. The net result of all those mistakes was that the interest rates on the CDOs were too low (or the price was too high). That led an explosion of the CDO market by making it too easy to lend to sub-primes which occupied the lowest "tranche" of the CDOs. Consequently, underwriting standards went to hell in the proverbial handbasket. By the end of 2005, or 2006, the recent sub-prime cohorts starting defaulting, prices on homes starting falling and suddenly there were a lot of unsold new homes on the market. With default rates going up, private lenders began withdrawing from the mortgage market. That was when HUD stepped in and told Fannie & Freddie to take up the slack in the mortgage market, which they did, and the rest is history.

It may be true that Clinton appointees can be blamed, but the Bush Administration (I am sad to say) shares part of that blame. It should never have pushed Fannie & Freddit to take up the slack in the sub-prime market which is what ultimately did them in.

Jack in Silver Spring

Pressed Rat and Wart Hog said...

The IBD article conveniently forgets to mention that David Mudd, Republican and successor to Raines was far more responsible for flooding FNM with subprime debt than Raines. As we know subprime financing didn't really take off untill 2005, which is after Raines left FNM in 2004.

Then of course there is the history of the Gramm-Leach-Bliley Act, passed by a 2/3 majority of a Republican Congress during the Clinton years that many feel provided the mechanisms for this disaster in the fist place. Gramm "Recession is Mental" has been and still is an economic policy mentor for Mr. McCain.