Search Falling Awake
Just Darts Since 2009
It’s tough to know where to start here, so let’s just dive right in.
Take a look at Senate Majority Leader Harry Reid’s (D-NV) statement made a week ago:
We are now seeing eight years of reckless Bush economic policies come crashing down with unimaginable speed and severity.
“This crisis puts our economy and the well-being of the American people in serious jeopardy. President Bush said on Friday that we should assign blame later – which is, of course, exactly what you would expect the culprit of the crisis to say. [This line reveals Reid’s mindset. There is no reason in the Democrat worldview for trying to solve a problem until after fingers have been pointed.]
“But the American people have a right to know what brought us to this grave economic danger. The answer is a president and Republican Congress determined to repeal all reasonable oversight and accountability, ignore what they couldn’t repeal and allow corporate greed and recklessness to saturate our economy.
Got that? Okay, now read this New York Times article from five years ago:
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
It is regrettable that 40 days before an election, it has taken the worst economic crisis in our nation since the Great Depression to finally get the attention of the President. Until this point, the cries for help from millions of Americans being forced from their homes and struggling to make ends meet fell on the President’s deaf ears. Now, we face challenges that were entirely preventable and avoidable.
Well, they might have been preventable, if the chairman of the banking committee hadn’t been in Countrywide Financial’s pocket. As for the “President’s deaf ears,” go read that New York Times article again.
Here’s Dodd again:
The landscape of our nation’s economy has been radically re-shaped by the United States government over the course of just a few days and in a totally ad hoc manner. Companies that form the foundation of our financial markets are shrinking and disappearing practically overnight. Their insatiable appetite for risk has permeated all sectors of the financial services industry, and has spread beyond our shores. It has felled giants like Bear Stearns and Lehman Brothers; brought others to their knees like Merrill Lynch, A.I.G., Fannie Mae, and Freddie Mac; prompted the largest thrift failure in our history – IndyMac Bank; and eliminated the final two independent investment banks – Morgan Stanley and Goldman Sachs.
Huh. That’s quite a litany. But he forgot to mention Countrywide Financial. Must have slipped his mind.
If you clicked on that New York Times link, you might have spotted this little nugget at the bottom:
These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.
Who said that? Congressman Barney Frank (D-MA), Chairman of the Financial Services Committee.
And see what his priorities were (and are)? Affordable housing. “Affordable housing” can mean many things, but when you’re the Chairman of the Financial Services Committee it means “subprime mortgages.”
AFFORDABLE HOUSING–>SUBPRIME MORTGAGES–>RECORD FORECLOSURES–>FINANCIAL CRISIS–>TAXPAYER BAILOUT.
Given this inevitable chain of circumstances, why not just confiscate our money to directly purchase a home for every poor credit risk? It might be cheaper. Ah, but then you wouldn’t be able to decry the high salaries of CEO’s, would you?
And what does the Democrats’ plan include? Money for ACORN, of course. ACORN does what, again? Well, for one thing, ACORN registers Democrats to vote. Fraudulently. But that’s another topic. More to the point, ACORN lobbies for affordable housing. And the beat goes on.
See, on this issue, Democrats can’t lose. If mortgage companies lend based upon ability to repay, they are threatened with regulations regarding “discriminatory lending practices.” If they lend without considering ability to repay, they are threatened with regulations regarding “predatory lending practices.”
If our public schools taught economics with half the zeal they reserve for condom use, the voters might not be able to be fooled like this. Which, of course, is why Democrats think the public school system is just peachy.
You know who was most prescient on the housing bubble? Ron Paul. If the man hadn’t associated with crazy racists and 9/11 “truthers,” I might have voted for him in the primaries. He gets economics. Again, this is from five years ago:
The connection between the GSEs [Fannie Mae and Freddie Mac] and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.
Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.
Republicans say no one’s to blame. Democrats say Republicans are to blame. They’re all engaged in breathtaking dishonesty, but at least the Republicans are displaying charity.