Posted by
Andrews on Wednesday, October 08, 2008 10:02:08 AM
My wife forwarded me
an article from Slate* trying to exonerate the Community Reinvestment Act and Bill Clinton by some sleight of hand. It is a valiant effort, but a moment's thought will show how absurd the whole defense is.
First, the author tries to show that it wasn't ONLY subprime lenders who failed, a condo builder for the affluent in Florida failed too. Well, that's fine. It isn't only IV drug users and those who have promiscuous sex who get AIDS, but that doesn't mean they aren't risk factors. I am sure other lenders failed, lenders fail from time to time, and that one coincided with this crisis means nothing. First, the housing bubble bursting precipitated the subprime crisis, so there would be failures from the bursting bubble as well as the subprime crisis. That doesn't mean that the subprime crisis was not caused by the CRI and Clinton's policies, it only shows there were two crises at once. Second, and more important, I don't know what other investments this builder made. If they invested outside of their immediate area of interest, say bought up bundled Fannie Mae or Freddie Mac products, they could be failing because of the subprime crisis even if thye don't directly deal in that market. In other words, this failure means nothing.
His next effort is to show that "targeted microlending" works around the world, so why would lending to the poor be a bad idea? The problem is, the CRI and especially the Clinton rules weren't about lending to the poor, but lending to the poor with inadequate safeguards. Most "microlending" programs around the world are based on personal knowledge of the character of borrowers (such as many micro loans to start businesses in the third world, administered by locals themselves who judge the reliability of the applicants), or else are based upon some sort of "sweat equity" or other measure of creditworthiness in the US. The problem isn't that the loans were to the poor, but the loans went to the poor indiscriminately, without the normal criteria being observed. So he is attacking a strawman here.
The final problem is that eh fails to address the central question. If this is not a problem of the CRI and Clinton's policies, why are Fannie and Freddie the hardest hit? If it is not related to the CRI, then have Fannie and Freddie been buying up a lot of high end mortgages?
The real problem is former heads of the organizations have previously admitted they were forced by politicians to buy up subprime loans. The
Boston Herald writes the following:
The Fed published a guide in 1993 for banks on equal
opportunity lending, with a foreword written by Syron. The guide
recommended changes to mortgage underwriting standards and practices
that, according to Liebowitz, is where we find the seeds of today's
mortgage meltdown. . . .
Syron left the Boston Fed in 1994 and wound up as CEO and
chairman of the Federal Home Loan Corp., or Freddie Mac, in 2003. As
head of Freddie Mac, Syron has said he faced increasing pressure to buy
up more and more risky mortgages, some of which the Boston Fed's guide
had, in effect, served to legitimize.
When too many of the mortgages went bad, the federal
government stepped in last month to take over Freddie Mac and another
government-supported enterprise, the Federal National Mortgage
Association, or Fannie Mae. Syron and Fannie Mae chief Daniel Mudd were
ousted.
So, unless the head of Freddie Mac was deluded about his own organization, he seems a pretty strong argument in favor of the argument that the problem originated in improperly granted subprime loans.
Nor is he alone, a Democrat,
Artur Davis says the following:
Like a lot of my Democratic colleagues I was too slow to appreciate the
recklessness of Fannie and Freddie. I defended their efforts to
encourage affordable homeownership when in retrospect I should have
heeded the concerns raised by their regulator in 2004. Frankly, I wish
my Democratic colleagues would admit when it comes to Fannie and
Freddie, we were wrong.
So, if Democrats agree that Fannie and Freddie were the problem, and a former head of Freddie says he was forced to buy up risky loans, then on what does this author base his argument? The failure of one mortgage company?
Sorry, not buying the excuses.
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* My wife always forwards me
Slate articles as she knows I can't stomach reading it.
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POSTSCRIPT
Thanks to Best of the Web for the quotes I used. When I steal from them I attribute, even if they shamelessly steal my topics without attribution... (Kidding, kidding...)