In an earlier posting about Kit Bond's attempts to high-step around the pile of steaming rot that has infected our economy, Hotflash underlined one of the coping mechanisms that many Republicans have adopted to escape the blame that is properly theirs. Bond seems to have joined numerous other Republicans in a new choir where they are busy singing the praises of regulation and attempting to assure us that, in spite of the evidence to the contrary, they have always been firm proponents of financial regulation. As Josh Marshal of Talking Points Memo noted:
I knew we were in a new era ... When all the candidates started competing to prove that they were the most pro-regulation.
So, since to hear the Republicans tell it, they were all on the side of the angels, and since they controlled the presidency and both legislative houses for six years, how do they explain the current financial mess that is, undeniably, the result of lax regulation? Easy, it's all the Democrats fault; it is the result of pressure to force lenders to practice a type of misguided affirmative action in the housing market. You have probably seen this silly meme surfacing in one or an other of its aspects recently, and, if you are like me, you responded with a vehement WTF!
But make no mistake, if progressives do not act quickly to make sure the real story of Republican deregulators kowtowing to their wealthy campaign supporters is well-understood, this sorry alternative will establish itself firmly in the minds of many of the confused and angry people who need to think clearly just now if they are to support real reform when they vote this November. Just think of all the credulous souls who refuse to give up their belief that we went to Iraq to fight Al Queda, or that Reagan singlehandedly ended the cold war.
This is an urgent matter given the speed with which the right has mobilized to plant the story about the foolish Democrats who pushed deregulation on reluctant government agencies in order to serve the minorities who hold them in thrall. One example: the American Family Association (AFA), James Dobson's evangelical influence group devoted to right wing wedge issues, is pushing this story hard through a series of emails to the faithful. (Yes! I am on their list--though how got there is a mystery).
Most of the rants I have received from these folks center on the need to preserve Western Civilization from the dangerous "homosexual agenda." Consequently, I was somewhat surprised when I got the following email with this simple message:
Want to know why we are in the financial mess we are in? Read this article which appeared in the NEW YORK TIMES ON SEPTEMBER 30, 1999. It answers the question.
The article describes the efforts of the Clinton administration to increase lending to minority and low-income borrowers by easing the credit requirements on loans that it purchased from banks and other lenders. The article notes the potential problems of purchasing subprime loans and, on the surface, seems to be a reasonable piece of evidence implicating Clinton as the "father" of our current financial crisis.
But since this is the AFA, where, you ask, does the homosexual agenda enter the picture? Not to worry. A second mailing indicates that the AFA remembered that Barney Frank is gay:
The more we learn about the financial mess our government is in, the more we see how the liberals got us in this crisis and now want the government to get us out. What we need is a thorough investigation of this matter. Those found breaking the law need to be prosecuted.
Read this article concerning Barney Frank from the Boston Globe to understand better why we are in this mess.
Here is another article concerning Congressman Frank.
The first article, from the Boston Globe, blames the Community Reinvestment Act (CRA), which was passed way back in 1977 in order to reduce discriminatory credit practices against low-income and minority neighborhoods, known as 'redlining'. The author of this article asserts that under the aegis of the CRA, Fannie Mae and Freddie Mac spurred the orgy of buying and selling of subprime mortgages that created our current dilemma. It further asserts that Frank fought to keep the intrepid Bush administration and its Republican cohorts in the congress from strengthening oversight that would reign in the irresponsible lending that the CRA encouraged.
The second article is more inflammatory. It asserts that Frank fought against regulating Fannie and Freddie because his long-term partner was a Fannie Mae executive "at the forefront of the agency's push to relax lending restrictions. "
There are, unfortunately for our Republican brothers and sisters, lots of problems with these cobbled together efforts to blame the "other guy." An incomplete account of history leads to analyses that are not as sharp as they should be.
Was Clinton's pressure on Freddie and Fannie responsible for the mortgage crisis? Consider this chronologyof regulatory actions assembled by Stefan from Blog for Democracy, which leads to the conclusion that:
It was a mistake to credit Fannie and Freddie for investing in subprime securities toward their affordable housing goals. That's on the Clinton administration in a general, theoretical way. But it was under Bush when the practice began to threaten the economy in a very real way and it was allowed to continue and even encouraged. It was also a mistake to expand the program after 2000 and that is all on Bush's HUD crew. However, there was a large push among individual, mostly Democratic members of Congress in 2004, the last time the HUD strategies were revisited (prior to this year) but to blame them (or the CBC) for the problems when they had so little power seems a bit of a stretch.
What was the role of the CRA? For an answer take a look at this report from Traiger and Hinkley, LLP, which concludes its lengthy and thorough analysis with this statement:
Our study suggests that without the CRA, the subprime crisis and related spike in foreclosures might have negatively impacted even more borrowers and neighborhoods. Compared to other lenders in their assessment areas, CRA Banks were less likely to make a high cost loan, charged less for the high cost loans that were made, and were substantially more likely to eschew the secondary market and hold high cost and other loans in portfolio. Moreover, branch availability is a key element of CRA compliance, and foreclosure rates were lower in metropolitan areas with proportionately greater numbers of bank branches.
As for the argument that Barney Frank, at the behest of his gay partner, abused his power in ways that led to the collapse of the housing market, well ... as David Fiderer notes in the Huffington Post, Frank's relationship with Fannie executive, Herb Moses, ended ten years ago and Moses left his job at Fannie Mae at about the same time--long before regulations were seriously relaxed. Fiderer writes that:
As Hank Paulson, the Federal Reserve, and the SEC all confirmed, the financial crisis "was triggered by a dramatic weakening of underwriting standards for US. subprime mortgages, beginning in late 2004."
The Huffington Post article concludes that the failure to regulate Fannie and Freddie was due to the fact that:
... the Republicans failed to negotiate a deal when they were in charge, and now place the blame on others,
So, in conclusion, when you discuss the roots of our current financial collapse, salient points to remember are:
1. Republicans controlled the White House and the Congress for six years during which the crisis began to develop. They have continued to control the White House during the past two years. If they were inclined to regulate, nobody could have stopped them.
2. CRA was not responsible for the housing crash. According to Wikipedia:
... CRA regulated loans tended to be safe and profitable, and ... subprime excesses came mainly from institutions not regulated by the CRA.
Further, as the man himself, Barney Frank, puts it:
CRA, originally passed in 1977, does not require banks or thrifts to make loans that are unsafe or unprofitable. In fact, federal law requires that CRA lending activities must be done consistent with safe and sound banking practices.
It was, as the Wikipedia article observes, the Bush administration that pushed Fannie Mae and Freddie Mac to fulfill their affordable housing goals--which were not identical with the CRA--by buying subprime mortgage-backed securities.
3. Neither is Barney Frank the responsible party. Frank was not in a position to exert real power vis-a-vis regulation until long after his possible conflict-of-interest relationship with Herb Moses ended. In fact, Frank was one of the forces behind the reform of Fannie Mae and Freddie Mac that was finally passed in the Democratic Congress in May 2007.
Anything else is pure B.S. Now go get the word out
UPDATE: I wanted to add this link to an article by Ed Gilgore of the Democratic Strategist which emphasizes the explicitly racist aspects of this "blame the liberals" dodge and discusses how it relates to the McCain campaign.
N.B. I revised this posting in order to correct some very minor errors (10/13)
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