Blame Dems For This Fiscal Mess
Wednesday - February 18, 2009
Democrats will point a finger, as President Obama has done in recent statements, at the recently departed Bush Administration for our economic crisis. George W. Bush critics repetitiously cite his tax cuts and overall fiscal stewardship as being instrumental in bringing our nation to its knees. “The failed economic policies of the past eight years ...” is the mantra of the new administration and its supporters.
I was not a fan of the Bush Administration’s strategy addressing our financial meltdown. I opposed, with many, the idea that we would be able to bail out various financial institutions with taxpayer money, thereby stabilizing markets and mitigating losses while instilling confidence among investors and the general public.
That said, I believe the work of Treasury Secretary Hank Paulson will be looked upon as a major blunder, and historians will shake their fingers at Bush. The massive $700 billion Troubled Asset Relief Program (TARP) conceived by Paulson and supported by Federal Reserve Chairman Ben Bernancke caused flags to go up whether you were red or blue. In September of last year, the TARP bailout was being touted as the salve for our economic wounds. Today, we know there was zero quantifiable positive impact with the first phase of TARP, and there is even less confidence the second stage will be any better.
Unfortunately, with the election of Barack Obama, a bigger Democratic majority in Congress and the acquiescence of President Bush, a run on taxpayer money is still under way.
A case can be made that Democratic administrations and members of Congress are ultimately responsible for our present situation. We can trace the beginning to the 1977 Community Reinvestment Act.
Enacted during the Jimmy Carter Administration with a Democratic Congress, the intent of the law was to end discriminatory credit and lending practices against lower-income individuals and communities. The intent may be noble, but in reality the CRAis the enabling legislation for disaster. In 2007, the 30th anniversary of the CRA, then Fed chair Bernancke said, “The CRA has served as a catalyst, inducing banks to enter underserved markets that they might otherwise have ignored.”
Ironically, it was in 1989, under President George H.W. Bush, where oversight of lending practices was increased. In response to the savings-and-loan crisis, there was a normalization of lending practices appeasing community activists and regulators alike. However, a parallel bill to CRA was passed under President Clinton and a Democratic Congress in 1992, requiring Fannie Mae and Freddie Mac to extend a certain percentage of their loans for affordable housing. Credit requirements were relaxed in order to meet the new threshold. There were further adjustments to the CRA and similar legislation in 1994, 1995 and 1999 - all taking place during the Clinton administration. As a matter of fact, an objective of Bill Clinton in 1999 was to expand the reach of the CRA.
In 2003, under President George W. Bush, a Federal Reserve review of regulatory lending practices concluded changes in the housing market found only 30 percent of CRA-driven loans were being adequately scrutinized. In 2005, the Office of Thrift Supervision implemented new rules countering lending requirements implemented in the 1990s. Democrats and their activist supporters protested.
The attention paid to the lending and business practices of Freddie/Fannie encouraged heightened scrutiny and regulation, especially in regard to secondary mortgages.
In 2005, S. 190, a bill doing just that, was passed out of the Senate Banking Committee. But the purely party line committee vote signaled it was a partisan issue. The Republicans couldn’t wrest enough votes from the Democratic opposition, and the bill never made it to the full Senate. Some economists maintain if this bill had passed in subsequent years, this entire economic debacle could have been averted.
The protection of Fannie Mae and Freddie Mac to continue their ultimately destructive lending practices can be traced to their strongest advocates. Democratic Sens. Christopher Dodd, Barack Obama and Hillary Clinton received the greatest financial contributions from Fannie/Freddie. Sen. Dodd, the Senate Banking Committee chairman, has received the most, more than $165,000, while Sen. Barack Obama received more that $125,000.
These Democratic senators killed S. 190, which would have given regulators the tools to rein in the suspect business lending practices (fueled and defended by Democrats) by Fannie Mae/Freddie Mac and enabled by the Democrat-passed Community Reinvestment Act of 1977.
The collapse of our markets is because of the government guarantees of high-risk loans to those who would normally not qualify. Combine the artificially inflated value of real estate, the precipitous number of foreclosures and the stunning accumulation of toxic debt, and the economic upheaval is unprecedented.
It’s ironic that in these trying times the buzzword is “bipartisan-ship.” Obama invokes this concept daily. If only the president and his party would have heeded that call years ago, we may not be in the painful condition we’re in.
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