The Subprime Causation Fiasco Continues
John A. Quayle
blueoval57 at VERIZON.NET
Sun Dec 14 00:26:12 MST 2008
Free Congress Foundation Commentary: The Subprime Causation Fiasco Continues
By Paul M. Weyrich
December 9, 2008
Have you ever heard of the Community Reinvestment Act (CRA)? If not, you
should have. It is among the factors responsible for the worst housing
crisis in America since 1932. CRA was enacted during the Jimmy Carter
Presidency. It neither was repealed nor enforced during the Ronald W.
Reagan and George H. W. Bush Administrations. President William J. Clinton
enforced the law vigorously. CRA forced banks to make loans to people who
had little or no ability to liquidate them. This created the subprime
market which in turn created the housing bubble. That bubble burst, as all
bubbles do, leaving us with a terrible housing crisis. If something similar
were to occur in the private sector the wrath of Congress soon would be felt.
CRA ought to be repealed. In any reasonable situation it would be. But it
won't because too many powerful interests in Washington want to see it
continue as they attempt to manipulate society to fit their ideology.
Powerful Members of Congress are talking about strengthening the law. What
does that mean? In addition to enforcing CRA, the Clinton Administration
set targets for low-income home ownership at the Department of Housing and
Urban Development (HUD) and at government-sponsored Fannie Mae and Freddie
Mac. The Federal Government had to bail out these entities when the
subprime mortgages failed. These institutions were, in the words of a
federal official, too large to fail. Just like the insurance giant AIG and
various investment firms and banks. But a few investment firms were not too
big to fail. Secretary of the Treasury Henry Paulson determined which
companies lived and which died.
When Paulson was named Secretary of the Treasury, Myron Ebel, a spokesman
for Competitive Enterprise Institute, a free-market think tank, called upon
the Senate not to confirm him. Howard Phillips of the Conservative Caucus
wanted him fired. They were right. But Paulson alone should not be blamed.
The Chairman of the Federal Reserve, Ben Bernacke, and the Chairman of the
Securities and Exchange Commission, my old friend Christopher Cox, all had
an idea of what was coming yet they said nothing. Paulson will leave office
when President Bush leaves in January. The others will remain.
President-elect Barack H. Obama should fire all of them, urge Congress to
repeal CRA and dismantle Fannie and Freddie. However, given the numerical
strength of the Democratic Party in Congress and its base of special
interests in diversity mandates CRA probably will not be touched. Would
Representative Barney Frank (D-MA) have an incentive to repeal it? How
about Senator Christopher J. Dodd (D-CT)? Both have received substantial
political contributions from Fannie and Freddie. How about President-elect
Obama doing something? Probably not. He was the second largest recipient of
political contributions from Fannie and Freddie. All three men have an
incentive to maintain the status quo.
Will anything be done to get at the root of the problem? It would take a
President or a Congress with unusual courage. We are unlikely to see either
for many years. Remember those commercials by President George W. Bush
during his 2004 re-election campaign which bragged that Bush had encouraged
more home ownership than at any time in American history? Right. At our
expense. And by giving more loans which people could not afford to pay
back. When Republicans controlled Congress they paid lip service to the
problem. They proposed remedial legislation, which Democrats blocked, and
they never said a word about it after that.
There is enough blame to go around in this mess. To tackle this serious
problem we will need a different kind of President and Congress.
Paul M. Weyrich is Chairman and CEO of the Free Congress Foundation.
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