My Turn: Everything you need to know about the current mortgage and banking crises
October 14, 2008
Democrats are obviously devout advocates of unlimited government interference in our capital markets and most support the massive bailout just passed by congress. Many of these same Democrats blame the recent problems at Fannie Mae and Freddie Mac on too little government involvement; not enough regulation. In fact however, pro-market economists have long warned that government was giving dangerous privileges to Fannie and Freddie.
In 2001 economist Jay Cochran of George Mason University and Catherine England, senior policy analyst at the Cato institute published just such a warning: “These privileges do more than just give (Fannie and Freddie) a funding cost advantage; they also reinforce the perception of a federal guarantee on (Fannie and Freddie) debt obligations. In order to avoid a federal bailout, policymakers may want to consider a variety of alternatives including (total) privatization of (Fannie and Freddie).” Obviously, that warning was ignored.
President Franklin Roosevelt created Fannie Mae in 1938 with the basic idea of allowing people who couldn’t afford to buy a house to buy one anyway, a laudable if questionable goal. Freddie Mac was the brainchild of Democratic politicians in 1970 with the goal of expanding the secondary mortgage market.
There is little doubt that Fannie Mae and Freddie Mac have made a positive contribution to what is the most dynamic mortgage market of any country. America’s home ownership rates are at record highs and are among the highest in the world. Significantly however, over recent decades, Fannie and Freddie have grown at rates two to three times the total mortgage market. Again and again, the Democrats in congress have fought off regular Republican efforts to force sound banking practices and meaningful oversight on Fannie and Freddie. If you were paying attention you could have witnessed Chuck Schumer, Chris Dodd, and Barney Frank with the help of Harry Reid and Nancy Pelosi fighting off Republican efforts to make these organizations accountable. These Democrat leaders were so determined to block “change” they were willing to resort to the filibuster back when the Republicans controlled congress and were attempting to legislate reforms. One can’t help but admire congressmen who not only manage to avoid blame for the consequences of their actions but attack their political opponents as if the opponents were totally responsible.
President Bill Clinton put his crony, Franklin Raines in charge of Fannie Mae. Raines earned $90 million and walked away with $52 million when serious questions arose regarding his management practices. Raines was one of Barak Obama’s top economic advisers until disclosure of his role at Fannie Mae prompted Obama to throw Raines “under the bus” along with Bill Ayres and Reverend Wright. I wonder what sort of “change” Raines was preaching to candidate Obama?
Andy Cuomo, another Clinton crony, at The Department of Housing and Urban Development instituted the policy that 50 percent of mortgages must be for “affordable” housing, up from 42 percent. Minority lending has long been a major priority for congressional Democrats and was during the Clinton administration. According to one estimate, 48 percent of home mortgages currently in default are held by minorities. On TV earlier this week, Colorado Congressman Tom Tancredo pointed out that literally hundreds of thousands of now defaulted mortgages were given to illegal aliens. Bob Rubin, who Bill Clinton called “the greatest Treasury Secretary since Alexander Hamilton” was a huge promoter of sub prime adjustable mortgages, which of course are at the root of the current foreclosure crisis and financial breakdown. All of this was in support of the Democrat party’s longtime policy of creating home ownership among those who could not afford to buy a house but were likely to be voting Democrat. Now we are witnessing the resulting mortgage meltdown, the inevitable consequence of encouraging lenders; or actually pressuring lenders to extend credit to millions of potential home buyers who unfortunately are not deserving of any credit.
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When asked for solutions recently on National Public Radio, an economist commented that, “even my six year old daughter knows not to lend money to someone with little or no ability to pay it back.”