Key to the White House

If McCain cannot accomplish the simple task of explaining to the public just how his effort along with that of some of his colleagues through proposed legislation in 2005 would have prevented the present crisis, then he certainly does not deserve to be president. There is no shading here, no nuance, no argument even - just black and white. Stop the stupid complaints about greed; stop the persecution of Cox. Make it simple.

Our readers know that the financial crisis was birthed in Washington by 1) politicians who wanted to increase home ownership and 2) Greenspan’s enabling behavior. From Charles Calomiris, professor of economics and finance at Columbia, "How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of ‘affordable housing.’ They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse."

One of the several reasons so many of these risky loans were originated is that Barack Obama’s celebrated community organizers made their careers out of forcing banks to do so. ACORN, for which Obama worked, is one of many left-wing organizations - shake down artists really - that spent decades pressuring banks and bank regulators to do more to make mortgages available to people without much in the way of income, assets, or credit. The result was the Community Reinvestment Act. The CRA empowered the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama’s fellow community organizers would like. Banks were required to keep extensive records of their minority lending practices. Those that didn't pass muster could be denied the right to expand their branches, merge with other banks, or boost lending in new markets.

Lenders cannot blame the CRA entirely; they made a lot of bad bets on rising home prices. But the CRA did influence lending standards across the banking industry, even in those institutions that are not strictly liable to its jurisdiction. The subprime debacle is in no small part the result of lending decisions in which political extortion trumped businesses’ normal bottom-line concerns.

As explained in an earlier post, Fannie & Freddie, forsaking FDR’s intent, strayed into speculation themselves (and implicitly putting on taxpayers the risks of their business while the rewards were enjoyed, and to the tune of hundreds of millions of dollars, by largely Democratic political opportunists, who then gave generously to Democrats, the top recipients of their largesse being: Chris Dodd, Hillary Rodham Clinton, John Kerry, and Barack Obama) Both became a profit center in their own right because of incentive deals to Raines and others and as part of that accumulated sub-par mortgages on speculation. Their increased risk taking was not a problem they told Congress because Wall St took them out of the stuff by inventing ways to package/combine the junk paper with prime debt, then peddle the whole lot to institutional investors by representing it as safe. Watch out.

In 2005 the Bush administration pushed for reforms. Those efforts were rebuffed by Congress with Barney Frank and Chris Dodd in the lead. Fannie and Freddie had not spent millions on campaign contributions to these clowns and their pals for nothing!. Still, for the first time a serious Fannie and Freddie reform bill actually passed a Senate committee. It would have required these two GSE’s to eliminate their investments in risky assets. If that bill would have become law today’s world would be different. McCain co-sponsored this legislation (S-190) to thwart what he called ‘the enormous risk that Fannie and Freddie pose to the housing market, the overall financial system and the economy as a whole." All the Republicans on the Committee supported the bill; all the Democrats voted against it. Obama, like all other Democrats, remained silent. Peter Wallison of the AEI wrote at the time, "The Democrats who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

The roadblock built by Senate Democrats is unforgivable. There has been a lot of talk about who is to blame for this crisis, especially from our good friends from the left. They need only to look within.

Robert Craven