As I read through one of Leveraged Sellout’s latest stories, the absurdity of the current financial situation finally sank in. Merrill Lynch was purchased by Bank of America, which, as the Leveraged Sellout blog puts it, is like “…Target just acquired Neiman Marcus.”
Bear Stearns and Lehman Brothers are in shambles and the government is about to spend around $2,000 per person in the United States in an attempt to pull companies out of the holes that they dug themselves into. Like many Americans, I am upset that my tax dollars are going to support this step towards socialism.
Didn’t one of the minds on Capital Hill realize how much trouble the risky investments of Freddie and Fannie? When Nancy Pelosi was asked if the Democratic members of Congress shared any of the responsibility for the current financial mess her answer was simple and to the point: “No.”
Major party politicians will lie their way out of any mess they have gotten into, but this isn’t a little white lie; in fact Pelosi and other Democrats noses start to grow longer as you look into the details of how this all started.
To see the beginning of this entire situation you have to travel back thirty years. At the time, in order to qualify for a mortgage on a home you had to have a good credit history, a solid job, and overall seem to be a likely candidate to pay back the money that you were borrowing. In 1977 the Community Reinvestment Act (CRA) was passed and the changes to this philosophy began.
At the time, the CRA mandated that banks meet the credit needs of the entire community in an attempt to prevent redlining, or lending only to borrowers in higher property value areas. In 1995 it was reformed so that it also encouraged lending to low- and moderate- income borrowers as well
In 2000, a Treasury Department survey found that from 1993 to 1998 lending to low- and moderate- income borrowers increased 80 percent, and CRA institutions loans to these same borrowers increased 39 percent while loans to other borrowers increased 17 percent.
In 2003, a member of Congress noticed the risk of this situation and spoke out against it to the House Financial Services Committee. He remarked before his esteemed colleagues that: “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.”
Two years later, members of Congress attempted to address the issue and to more strictly regulate Fannie and Freddie. It would have forced Freddie and Fannie to get out of their riskier investments and could have helped to prevent the situation that is wreaking havoc on America’s economy today. It was put to a vote and failed due to straight party line voting.
I present the previous evidence to counter Pelosi’s response and contend that the Democratic Party should actually bear most of the responsibility for the current situation.
The wise man’s warning to the possibility of the crisis we are enduring today was Texas’ own Ron Paul, who just so happens to be a wise Republican. (Yes… He is really is more of a Libertarian but he still has an R next to his name)
The legislation that could have curbed this current crisis was proposed by Republicans, and was prevented from going any further by Democrats as the voting divided on party lines. Also, for those of you who haven’t made up your minds on who to vote for in the current presidential election; Senator John McCain was a co-sponsor of the bill that could have prevented this entire situation while Senator Barack Obama voted against it.
The reforms to the CRA that pushed companies to make these sub-prime loans were pushed by the Clinton administration to encourage lending to risky borrowers in an attempt to make buying a house fairer (a favorite term of the Democratic Party).
Given all of this, I would say that Democrats seem to have played a very large role in the economic crisis facing us today. The Republicans played their part as well, but I am convinced that this entire mess could have been averted if the Democrats played ball on the legislation to regulate Fannie and Freddie.
Obama, Clinton, and Chris Dodd all voted against the legislation. It just so happens that all three have received donations from Fannie and Freddie employees and political action committees. McCain and others may have taken money from Fannie and Freddie executives, but at least they still had the sense not to let contributions to their campaign influence their vote in this specific situation.
All of the government intervention that led to the mess and the solution proposed just confirm the fact that I will be voting straight Libertarian. At least I know that if something goes wrong with the economy during Libertarian control, it won’t be the government’s fault.
John Micahel Wilshusen is a junior political science major. He can be reached for comment at [email protected].
