I have research this issue quite a bit and Mr. Jacoby seems to have hit the nail on the head for who really is to blame. Like a good friend of mine likes to state "if you have a 100 problems and one of them is government you really have only one problem" or loosely paraphrased in that manner.
Once again we have those in Washington DC trying to promote a government solution to a government created problem. ---------- Forwarded message ---------- From: JacobyList <[EMAIL PROTECTED]> Date: Sun, Sep 28, 2008 at 11:24 AM Subject: Jeff Jacoby: Whose mess, Congressman Frank? / 9-28-2008 To: [EMAIL PROTECTED] <http://www.jeffjacoby.com> Jeff Jacoby September 28, 2008 Subscribe <http://www.jeffjacoby.com/list_subscribe.php> | Unsubscribe <http://www.jeffjacoby.com/list_unsubscribe.php> ** *WHOSE** MESS, CONGRESSMAN FRANK?* *By Jeff Jacoby* *The Boston Globe* *Sunday, September 28, 2008* * http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/ * "The private sector got us into this mess. The government has to get us out of it." That's Barney Frank's story, and he's sticking to it. As the Massachusetts Democrat has explained it<http://www.youtube.com/watch?v=X1fM28w34uQ>in recent days<http://ap.google.com/article/ALeqM5ioHc80xKMiATnqCpK0cDKJzk_nPQD93BUTS01>, the current financial crisis is the spawn of the free market run amok, with the political class guilty only of failing to rein the capitalists in. The Wall Street meltdown was caused by "bad decisions that were made by people in the private sector," Frank said; the country is in dire straits today "thanks to a conservative philosophy that says the market knows best." And that philosophy goes "back to Ronald Reagan, when at his inauguration he said, 'Government is not the answer to our problems; government is the problem.' " In fact, that isn't what Reagan said. His actual words<http://www.reaganfoundation.org/reagan/speeches/first.asp>were: " *In this present crisis*, government is not the solution to our problem; government is the problem." Were he president today, he would be saying much the same thing. Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless<http://edition.cnn.com/2008/BUSINESS/09/15/lehman.merrill.stocks.turmoil/index.html>the private sector's discipline <http://www.npr.org/templates/story/story.php?storyId=95105112>can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so -- or else. The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism<http://query.nytimes.com/gst/fullpage.html?res=950DE1DF1E39F932A3575AC0A96F948260&sec=&spon=&pagewanted=all>and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites. The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. In 1977 Congress passed the Community Reinvestment Act <http://www.federalreserve.gov/dcca/cra>, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." In 1995, under President Clinton, the law was made even more stringent. Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up hundreds of billions of dollars' worth of the questionable mortgages that ensued. Some state and local governments added pressure of their own<http://query.nytimes.com/gst/fullpage.html?res=950DE4D8153AF937A2575AC0A96F948260>. All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines<http://www.bos.frb.org/commdev/commaff/closingt.pdf>instructed. Applicants lacking sufficient savings to cover a down payment and closing costs should be allowed to rely instead on "gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies." Lenders were even directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit. As long as housing prices kept rising -- and with millions of otherwise unqualified borrowers adding to demand, they did -- the illusion that all this was good public policy<http://articles.latimes.com/1999/may/31/news/mn-42807>could be sustained. But it didn't take a financial whiz to recognize that a day of reckoning would come. "What does it mean when Boston banks start making many more loans to minorities?" I asked in this space in 1995. "Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians, and regulators plans to take the credit?" Not Barney Frank. And yet his fingerprints are all over this fiasco. Time and time again<http://www.wsj.com/article/SB122091796187012529.html?mod=most_emailed_day>, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant<http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=all>that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned<http://www.whitehouse.gov/cea/gsemankiw_speech_nov_6_2003.html>of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained<http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3AFNM&it=ye&action=detail&id=2395631>that the administration was more concerned about financial safety than about housing. Now that the bubble has burst and the "systemic risk" is apparent to all, Frank blithely declares: "The private sector got us into this mess." Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one likely suspect in the nearest mirror. (Jeff Jacoby is a columnist for The Boston Globe.) 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