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 It neither was repealed nor enforced during the Ronald W. 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CRA ought to be repealed.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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