ACORN, Obama and This Mess

Background: The 1977 Community Reinvestment Act called on banks to increase lending in poor and minority neighborhoods. At the outset it’s requirements were vague. Then in 1990 along came a group of community organizers called ACORN. ACORN eventually figured out how to lever the CRA against potential lenders. But they needed to change Fan & Fred policy too. From the Chi Trib, "Housing activists pushed hard to improve housing for the poor by extracting greater financial support from Fannie and Freddie." That is, ACORN’s early effort (‘90 & ‘91) to pressure banks was still being hamstrung by the twins’ then relatively conservative standards - the twins would not take lenders out of anything but pretty solid paper, not mortgages backed by welfare payments or the neighborhood’s best jump shot.

In one of the first book-length scholarly studies of ACORN called Organizing Urban America, Rutgers political scientist Heidi Swarts describes this group, so dear to Obama, as "oppositional outlaws." Swarts, a supporter of ACORN, states that its members think of themselves as "militants unafraid to confront the powers that be." "This is reinforced by contentious action," she continues. "ACORN protestors break into private offices, show up at a banker’s home to intimidate his family, pour protestors into bank lobbies, all in an effort to force a lowering of credit standards for poor and minority customers."

ACORN’s progress was linked to its Democratic allies. ACORN did poorly under the Bush adm but with the advent of the Clinton administration ACORN’s efforts began to bear fruit. Standards at the twins were lowered. In 1992 ACORN kicked up its pressure tactics. Banks caved; ironically they became ACORN’s best allies to get Fan&Fred to loosen even further so they (lenders) could be taken out of junk loans they made under pressure. As Stanley Kurtz, sr fellow at the Ethics & Public Policy Institute explains, "..by 1993 the grand alliance of ACORN, national Democrats and local bankers, looking for someone to lessen the risks put on them by ACORN’s leveraging of the CRA, united to pressure Fannie & Freddie to loosen credit standards...."

At first the twins resisted. Then with the street’s help they figured out that there was a hell of a lot of $ in it for them and gladly cooperated. They became speculators. In June 1995 Clinton announced the new program for raising home ownership in American to an all time high, a plan that looked to commit $1 trl to low income and minorities, or about ½ of the twins’ portfolio at that time. Then it was really off to the races for ACORN. For the next 12 years, at both local and national levels ACORN served as the catalyst, levering 1) mandates created by the CRA and 2) their pull with Democratic politicians to force the twins into an expanding pattern of high risk loans. (In 1995, Obama, as director of Chicago’s Woods Fund, successfully pushed for a major expansion of $ assistance for ACORN in that region.) Thus, ACORN is at the base of the whole mess, that is, Obama and his co-workers at ACORN used the CRA and Democratic sympathizers to entangle the twins and thus the entire financial system in a disastrous disregard for any basic financial standards.

Republicans tried to rein in Fannie and Freddie, knowing that the answer was more regulation, not less (see our last sketch under US Economy). This is not the private sector. Fannie and Freddie are government creations that pay their executives millions of dollars but were shielded with our tax money from suffering the downside risk of the market. They engaged in risky hedge-fund style financing. Deregulation is about keeping the government from hobbling the private sector and hamstringing its ingenuity and productivity; deregulation does not apply to the twins.

Republican attempts at reform in 1999 failed. In 2003, when Alan Greenspan testified about how Fannie and Freddie’s loose practices could endanger our financial system but it was Democrat Barney Frank who said these institutions were fundamentally sound, and should be more aggressive in getting loans to low-income people. At the House Financial Services Comm hearing of Sep/25/03, Rep Frank said, "I do not think I want the same kind of focus on safety and soundness that we have in OCC (Comptroller) and OTS (Thrift Supervision). I want to roll the dice a little bit more in this situation towards subsidized housing..." Too much.

As we highlighted earlier, in 2005 a Republican reform (S-190) passed the Senate Banking Committee on a party-line vote, only to be blocked by Democrats from passing in the full Senate. And in 2006 when John McCain spoke on the Senate floor of the need to reform Fannie and Freddie immediately, Democrats (including Obama) would not respond. Naturally. The twins have been a cash cow for the left.

The Democrats are squarely to blame. Some may deny that but if so they are not engaged in an exercise of intellectual honesty. Democrats have resisted all attempts at reforming Fannie and Freddie; they pushed those organizations to become more and more reckless in their policies. The investments carrying those tainted mortgages went from bad to worse. Now we’re in a crisis and on the verge of a meltdown. This is inexcusable. If this is explained to voters Obama will loose. This is McCain’s silver bullet. If he does not use it he does not deserve to win.

Robert Craven