According to Time Magazine, hardly a right-wing publication, twenty-five persons/entities are to blame for the financial crisis that began in September 2008. Some of the people on the list I’ve never heard of. Some of them, though, are household names which include Phil Gramm, Alan Greenspan, American Consumers, Bill Clinton, George W. Bush, and Bernie Madoff.
One name that was glaringly left off of this list was Massachusetts Congressman, Barney Frank. According to the Boston Globe, again, not hardly a right-wing publication, Congressman Frank’s fingerprints are all over the financial fiasco. According to the Congressman, the private sector got us into this mess and the government has to get us out of it. Frank, a committed liberal and proponent of big government, the current financial crisis is the span of the free market run amok, with the political class guilty only of failing to rein in the capitalists.
The Globe goes on to indicate that while the mortgage crisis convulsing Wall Street has its share of private sector culprits, they weren’t the ones who got us into this mess. The mortgage lenders didn’t wake 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 Globe continues to opine that the roots of this crisis go back to the Carter administration. At that time, government officials egged on by left-wing activists, began accusing mortgage lenders of racism and redlining because urban blacks were being denied mortgages at a higher rate than suburban whites.
The pressure to make more loans to minorities/borrowers with weak credit histories became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to meet the credit needs of low-income, minority, and distressed neighborhoods. 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 even more flexible criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.
All of 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 instructed. Lenders were 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, the illusion that all this was good public policy could be sustained. But it didn’t take a financial whiz to recognize that a day of reckoning would come. 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?
Barney Frank doesn’t. But the Globe indicates that his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago (2003) when the Bush administration proposed much tighter regulations for Fannie Mae and Freddie Mac, Frank was adamant that these two entities were not facing any kind of financial crisis. When the White House warned of systemic risk for our financial system unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.
In their piece dated, September 28, 2008, Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. The Globe concludes their piece stating: “If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.
Time, in their acknowledgement that Bill Clinton was one of the contributors to the financial crisis, pointed out that in 1995, Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods. It has been the subject of heated political and scholarly debate whether any of these moves are to blame for the troubles, but they certainly played a role in creating a permissive lending environment.
Time, in their blaming of George W. Bush, acknowledged that he did push for tighter controls over Freddie Mac and Fannie Mae, but failed to move Congress to follow through. And as the Boston Globe indicated, Congressman Barney Frank was adamant that Freddie and Fannie were not facing any kind of financial crisis. Time goes on to indicate that President Bush backed on signed Sarbanes-Oxley after the Enron scandal. But when SEC head William Donaldson tried to boost regulation of mutual and hedge funds, he was blocked by Bush’s advisors at the White House as well as other powerful Republicans. Time ended by simply stating the meltdown happened on Bush’s watch.
Those of us who have been managers know that if something happened under our watch, we own it. It doesn’t matter what actions are taken to prevent it or what we may do to correct the problem.
The Democrats, however, would have you to believe that the economic collapse of 2008 was solely the fault of George W. Bush. The U.S. economy is an extremely complex entity and common sense would indicate that it would take more than one person or entity to bring it down.
So when Democrats try to push their lie that Bush was exclusively responsible for the 2008 economic melt-down, keep all of the above in mind and point this out to the Democrats.