Friday, September 19, 2008

The Affirmative Action Housing Bust

It is amusing and infuriating at the same time when cretins like "Banking Queen" Barney Frank try to blame private lenders for the housing bust, when the private lenders were operating under the rules that creeps like Barney set up:

"The self-proclaimed angels in Washington will tell you they've been working tirelessly to expand the American dream of homeownership by making mortgages available to people unable to plunk down 20 percent on a house. Franklin Raines, the Clinton-appointed former head of Fannie Mae from 1998 to 2004, made it his top priority to make mortgages easier to get for people with poor credit, few assets and little money for a down payment.

The fine print to this noble intent was an ill-conceived loosening of standards. For instance, the Clinton administration reinterpreted the Jimmy Carter-era Community Reinvestment Act to politicize lending practices. Under the CRA, the government forced banks to prove they weren't "redlining" — i.e., discriminating against minorities — by approving loans to minorities and various left-wing "community group" shakedown artists whether they were bad risks or not. (A young Barack Obama got his start with exactly these sorts of groups.) Sen. Phil Gramm called it a vast extortion scheme against America's banks. Still, the banks were perfectly happy to pass the risky loans to Raines' Fannie Mae, which was happy to buy them up.

That's because Raines was transforming Fannie Mae from a boring but stable financial institution dedicated to making homes more affordable into a risky venture that abused its special status as a "Government Sponsored Enterprise" (GSE) for Raines' personal profit. Fannie bought the bad loans and bundled them together with good ones. Wall Street was glad to buy up these mortgage securities because Fannie Mae was deemed a government-insured behemoth "too big to fail." And others followed Fannie's lead.

The current financial crisis stems in large part from the fact that people who shouldn't have been buying a home, or who bought more home than they could afford, now can't pay their bills. Their bad mortgages are mixed up with the good mortgages. And thanks in part to new accounting rules set up after Enron, the bad mortgages have contaminated the whole pile, reducing the value of even stable mortgages.
In 2005, Senator John McCain sponsored legislation to thwart what he later called "the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole."

Obama, the Senate's second-greatest recipient of donations from Fannie and Freddie after Dodd, did nothing.

Meanwhile, Raines, the head of a government-supported institution, made $52 million of his $90 million compensation package thanks in part to fraudulent earnings statements.

But, ah yes, the greedy criminals responsible for this mess must be somewhere on Wall Street."

But it gets worse. Chuck (You) Schumer actually worked to collapse a bank for political reasons:

"The collapse of Indymac bank, the second largest bank failure in American history, began with a letter from the office of Senator Charles Schumer on June 27. He questioned the viability of the bank. When a senior senator who is in a number of influential posts regarding oversight of bank regulators directly attacks the confidence of a depository institution, it matters. Not surprisingly, the director of the Office of Thrift Supervision concluded that the collapse of the bank immediately following the Senator’s comments was not a coincidence. Director Reich concluded that Senator Schumer had ‘given the bank a heart attack’.

Why? Why would a federal official with enormous power, destroy an institution on which tens of thousands of depositors (not all of whom are insured) and employees depend? Why would a New York Senator attack a Pasadena bank, acting as some sort of amateur, self-appointed, long-distance bank examiner?

Perhaps this might help answer the question: Indymac has been under attack from the hard left. The Center for Responsible Lending issued an attack on Indymac within a few days of Schumer’s letter. CRL is part of a small army of left of center ‘research’ groups, community organizers, and public interest law firms who make their living accusing home lenders of racial redlining and predatory lending. On June 20th the Center accused Indymac of unfair practices regarding minority borrowers.

A suspicious person might think that a network of lefty attack groups proficient in bank bashing and frequently funded by trial lawyers and short-sellers, coordinated their activities with a law firm on the hunt and a Senator who works closely with the network."

Did some greedy private sector people, who perceived what Leftists like Barney Frank and Chuck Shumer were doing, cash in on the Left's horrible policies? Sure. But SO WHAT? They don't set the laws--the lawmakers do. Steve Sailer suggests this was deliberate:

"it's hard for most people to grasp the interrelatedness of multiculturalism and greed in fostering the housing bubble. "Diversity" gave the big guys an excuse for doing what they had always wanted to do: debauch credit standards and take the money and run, leaving the mess to be cleaned up by taxpayers (through direct bailouts) and savers (through Fed-created inflation eating away their capital).
To find a starting place in understanding how America's interested elites conspired across lines of race, party, and class to defraud savers and taxpayers, let's just pick one name in the news: Richard F. Syron, the CEO of Freddie Mac, a "Government Sponsored Enterprise" that guarantees almost $2 trillion in mortgages.

Freddie Mac and its "rival" Fannie Mae are able to borrow at lower interest rates than other publicly-traded private firms because it has always been hinted that, if they messed up, the U.S. taxpayers would bail them out on the grounds that they were "too big to fail."

The privilege of borrowing at below market interest rates while lending at market interest rates is a license to print money (until the inevitable catastrophe, of course). In return for this license, naturally, politicians ask Freddie and Fannie to pay off their supporters with loans they couldn't get on their merits.

Because Congress controls the Fannie and Freddie, the GSEs in turn have long controlled Congress, easily fending off the handful of politicians prudent enough to point out that they were on the treadmill to destruction. Fannie and Freddie spend a fortune on lobbying, as well as on foundations that hand out grants, typically to charities and pressure groups with ties to the Left.
Freddie Mac is one of those fortunate kind of entities where the taxpayers are "implicitly" on the hook for losses, but the bosses get paid like private moguls rather than like civil servants. (Heads I win, tails you lose.) Mr. Syron, the former president of the Boston Federal Reserve bank, has pocketed $38 million since taking over Freddie Mac a half decade ago."

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