Where ‘credit’s’ due

If you don’t do anything else to prepare for Election Day, I implore you to make every effort to understand the current financial crisis before you vote. Here’s a brief synopsis to get you started.

Fannie Mae and Freddie Mac are two government-sponsored enterprises charged with helping low-income individuals buy homes. That’s a fine goal in principle, but the government used a law called the Community Reinvestment Act to strong-arm banks into making loans to people with little means for repayment.

Fannie and Freddie purchased these bad loans from banks and resold them around the world. On paper this was very lucrative for the two agencies, but their “funny money” accounting finally caught up with them, triggering the disaster we’re in now.

For years, Republicans warned that Fannie and Freddie were in need of more oversight. In 2006 John McCain announced, “I join as a co-sponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole.” 

But Congressional Democrats resisted reform, eager to keep forcing banks to make risky loans to their low-income constituents.

Amazingly, not only did the Democrats reject calls for stricter oversight of Fannie and Freddie, but they sought to expand their operations. The New York Times reported on Oct. 5: “Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority home buyers ... ‘Fannie’s mission is of paramount importance,’ Senator Jack Reed, a Rhode Island Democrat, lectured (Former Fannie Mae CEO Daniel) Mudd at a Congressional hearing in 2006, ‘In fact, Fannie and Freddie can do more, a lot more.’”

Even Bill Clinton recently conceded, saying, “I think that the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”

Today these same Democrats are brazenly citing a Republican agenda of deregulation as the cause of our problems. Usually Republicans do support freer markets, but of course, there are good regulations and bad regulations.

The regulations imposed by Democrats via the CRA caused the housing bubble that triggered our current crisis. The regulations proposed by McCain and other Republicans would’ve sought to reform the problems created by intervention in the market. It’s almost always the government-run-and-funded agencies that need more adult supervision, not private firms, which are ruled by unforgiving market forces.

Now, the same politicians who caused this disaster have committed nearly $1 trillion of taxpayers’ money to “fixing” it. The thought that these boneheads won’t use that money to drive us farther into the ground would be hilarious if the reality wasn’t so sobering. It’s critical that we understand the mistakes that led us here and that we never repeat them again.