Big government, multiculturalism bring on Wall Street meltdown
Obama in a statement yesterday blamed the shocking new round ofsubprime-related bankruptcies on the free-market system, andspecifically the “trickle-down” economics of the Bush administration,which he tried to gig opponent John McCain for wanting to extend.
But it was the Clinton administration, obsessed withmulticulturalism, that dictated where mortgage lenders could lend, andoriginally helped create the market for the high-risk subprime loansnow infecting like a retrovirus the balance sheets of many of WallStreet’s most revered institutions.
Tough new regulations forced lenders into high-risk areas where theyhad no choice but to lower lending standards to make the loans thatsound business practices had previously guarded against making. It waseither that or face stiff government penalties.
The untold story in this whole national crisis is that PresidentClinton put on steroids the Community Redevelopment Act, awell-intended Carter-era law designed to encourage minorityhomeownership. And in so doing, he helped create the market for therisky subprime loans that he and Democrats now decry as not only greedybut “predatory.”
Yes, the market was fueled by greed and overleveraging in thesecondary market for subprimes, vis-a-vis mortgaged-backed securitiestraded on Wall Street. But the seed was planted in the ’90s by Clintonand his social engineers. They were the political catalyst behind thisslow-motion financial train wreck.
And it was the Clinton administration that mismanaged thequasi-governmental agencies that over the decades have come to managethe real estate market in America.
As soon as Clinton crony Franklin Delano Raines took the helm in1999 at Fannie Mae, for example, he used it as his personal piggy bank,looting it for a total of almost $100 million in compensation by thetime he left in early 2005 under an ethical cloud.
Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.
Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.
In the end, Fannie had to pay a record $400 million civil fine forSEC and other violations, while also agreeing as part of a settlementto make changes in its accounting procedures and ways of managing risk.
But it was too little, too late. Raines had reportedly steeredFannie Mae business to subprime giant Countrywide Financial, which wassaved from bankruptcy by Bank of America.
At the same time, the Clinton administration was pushing Fannie andher brother Freddie Mac to buy more mortgages from low-incomehouseholds.
The Clinton-era corruption, combined with unprecedented catering toaffordable-housing lobbyists, resulted in today’s nationalization ofboth Fannie and Freddie, a move that is expected to cost taxpayers tensof billions of dollars.
And the worst is far from over. By the time it is, we’ll all bepaying for Clinton’s social experiment, one that Obama hopes to trumpwith a whole new round of meddling in the housing and jobs markets. Infact, the social experiment Obama has planned could dwarf both theGreat Society and New Deal in size and scope.
There’s a political root cause to this mess that we ignore at ourperil. If we blame the wrong culprits, we’ll learn the wrong lessons.And taxpayers will be on the hook for even larger bailouts down theroad.
But the government-can-do-no-wrong crowd just doesn’t get it. Theywon’t acknowledge the law of unintended consequences from well-meaning,if misguided, acts.
Obama and Democrats on the Hill think even more regulation and moreinterference in the market will solve the problem their policies helpedcause. For now, unarmed by the historic record, conventional wisdom isbuying into their blame-business-first rhetoric and bigger-governmentsolutions.
While government arguably has a role in helping low-income folks buya home, Clinton went overboard by strong-arming lenders with tougherand tougher regulations, which only led to lenders taking on hundredsof billions in subprime bilge.
Market failure? Hardly. Once again, this crisis has government’s fingerprints all over it.