The “Occupy Wall Street” crowd is grossly misinformed: The painful events they’re protesting — the foreclosures, punishing unemployment rates and increased poverty levels — are much more Washington’s fault than Wall Street’s.
Our current woes were set off by the collapse of the housing bubble. But why did housing crash after rising for over 60 years?
The blame starts with President Bill Clinton, who in 1994 ordered 10 federal agencies to blitz prudent lenders. Clinton’s “Interagency Task Force on Fair Lending” used the Community Reinvestment Act — first enacted in the ’70s — to force banks into lending to unqualified minority borrowers.
Lenders who resisted were branded “redliners” — supposedly “bigoted” banks who were cutting off credit to minority neighborhoods — and targeted by Attorney General Janet Reno, who brought more than a dozen major fair-lending suits.
The Department of Housing and Urban Development forced “redliners” to sign “fair lending agreements.” The Federal Reserve Board blocked bank mergers over unproven charges of racially biased lending.
Meanwhile, Washington set quotas for Fannie Mae and Freddie Mac, the quasi-governmental mortgage-lending giants: In 1996, 42 percent of the loans they originated or purchased had to be “affordable”; the target rose to 50 percent in 2000, and 56 percent by 2008.
In 2004, Fannie/Freddie head regulator Armando Falcon, Jr. rang the alarm, warning that their mortgage portfolio had grown risky — and was savaged by “progressives.” Rep. Gregory Meeks (D-Queens) called it “an excuse to . . . change the direction and mission” of Fannie and Freddie. Sen. Chuck Schumer (D-NY) urged against using “safety and soundness concerns . . . to curtail Fannie and Freddie’s mission.” Rep. Barney Frank (D-Mass.) simply declared: “I want to roll the dice.”
The private sector was happy to feed at the public trough: Like Typhoid Mary, Wall Street spread the contagion created by Washington by bundling the risky loans into mortgage-backed securities.
For a while it all worked, as massive taxpayer subsidies grew an immense housing bubble: Borrowers who found themselves in over their heads refinanced or sold their homes for a profit.
But when the bubble burst, and home prices plummeted, millions defaulted. Lenders drowned in an ocean of subprime loans that Washington had demanded they make. And, thanks to Fannie and Freddie, the taxpayers were on the hook for most of them.
Then the 2008 election gave full charge of the government to the “progressives” who’d made the mess in the first place. So the “comprehensive,” 2,300-page financial reform enacted in 2010 didn’t even mention Fannie or Freddie. And President Obama’s Financial Crisis Inquiry Commission issued a 550-page cover-up calling Fannie and Freddie bit players, never mentioning the CRA chicanery, and blaming it all on the “recklessness of the financial industry.”
Obama has only drawn out the painful correction process: He subsidized mortgage modifications for defaulting homeowners — who soon re-defaulted. Through billions in “refundable” tax credits used as downpayments, he minted even more subprime loans.
Now Washington is caught in a great hypocrisy: Even as it sues 17 banks for cutting corners on loans sold to Fannie and Freddie, Obama insists the mortgage giants eliminate lending standards altogether for refinancing.
Meanwhile, the “robo-signing” scandal has slowed foreclosures. A few posturing state attorneys general seem to have derailed the effort to settle the claims of paperwork errors: The banks understandably insist they get a full release once they pay the billions the settlement requires — but AGs like New York’s Eric Schneiderman and California’s Kamala Harris still want to punish the scapegoat banks.
Yet preventing foreclosures will only make matters worse; they must be completed so the houses of long-in-default borrowers can be placed in stronger hands.
A ray of hope: August’s existing-home sales — an annualized 5.03 million — were up a strong 19 percent from a year ago, long after the homebuyers tax credit expired and Obama’s other housing initiatives failed, and despite disruptions caused by Hurricane Irene and the “tightened” credit standards lenders are imposing (over Obama’s complaints).
This “teachable moment” shows Washington is the problem, and that the free market is the solution. The sooner our leaders recognize that, the faster relief will come.