Posted by
Andrews on Wednesday, October 08, 2008 3:52:47 PM
I wrote earlier about the Democrat's efforts to excuse the mortgage bungling they did under Clinton and after, the way their policies of easy credit for unqualified individuals created the crisis we are now reaping. I now see there is another individual,
Thomas Frank, trying to do the same in the Wall Street Journal editorial pages.
I
won't go into his whole argument. Basically he says that Fannie and
Freddie didn't originate the loans, individual lenders did, so Fannie
and Freddie aren't to blame. He completely ignores that individual
lenders did so under threat of investigation by EHOC and other groups,
by threats of lawsuits by ACORN and other groups, and in accord with
government guidelines, or guidelines from quasi-government groups like
the Fed. By saying "lenders did it" he avoids all this difficult facts.
There is one statement which is particularly amusing:
There is no way to measure the number of people who took out mortgages
they knew they couldn't afford, of course, but for what it's worth, a
2007 report by the Mortgage Bankers Association reports that the FBI
estimates "80 percent of all reported fraud losses arise from fraud for
profit schemes that involve industry insiders." That means the lenders,
not the borrowers.
Great, fraud is by lenders. So what?
No one is blaming this on fraud, except for Democrats desperate to avoid blame. The allegation is that people took loans they could not afford, and lenders lent to groups who were too irresponsible to repay. People with low income, people with inconsistent income, people with unverifiable income, they were given loans. It was not fraud, but bad lending practices.
So, who cares who originated any frauds? Frauds were but a tiny part of this crisis. Bad ideas form Washington were to blame for almost all of the problem.
And that is why I laugh at efforts to blame lenders. Lenders do not make money on bad loans. As I wrote in "
Greed" and "
Greed Part 2", lenders in this case are left holding non-performing loans or properties worth less than the balance. How does that make anyone rich? And as far as fraud is concerned, there is only one way to fraudulently generate money, that is puff up estimates and then make a loan, hoping to sell it off for more than it is worth., But that would be a foolish enterprise, as what if the buyers looked into the true worth of loans? The whole scheme would fall apart, and you would be stuck with a loan that lacked anything approaching adequate capital. Yes, there is some fraud, but this whole crisis, loans worth hundreds of billions, are not part of some fraud scheme, they are part of a consistent policy.
And that is where the left's defense falls apart. No business is making money by giving loans to people who will not repay on overvalued property. If they did, banks would not have performed credit checks in the past. Creditworthiness as a requirement existed precisely because it protected the bank's profits. Circumventing it did not help banks.
It helped community activists and politicians appear to help the poor though.
Look at the facts. If banks wanted to give loans to bad credit risks, they could have done that any time they wanted. Nothing required they make only good loans. That they did not, and that they started giving loans to risky borrowers only when Washington bullied them to do so suggests, no proves, this is not a case of Wall Street greed, but of politicians' insistence that economic laws can be ignored with impunity.