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Who is to Blame for This Meltdown?

Investors Business Daily: [1]

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically 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 with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the ’90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 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 the time 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 for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today’s nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

(Bold is mine. Pay particular attention to this aspect, going forward. It’s going to come up again, I promise you.)

I said over at OTB yesterday:

The problem is governmental involvement in the loan industry in the form of Fannie and Freddie, A holdover from the socialist meanderings of FDR and an expansion of same, the failure of which was accelerated by serious governmental mismanagement, to the point of malfeasance.

Government caused this problem. They should be the ones to pay to fix it. The people involved should be in jail, and then going forward, government should keep it’s hands off home loans.

Figuring out how to not allow it to happen again doesn’t involve more government but less.

Nice to see IBD agrees with my read as to the cause. As to the cure:

Government needs to acknowledge, I think that it is government that is to blame for the current meltdown… not because of too little influence in the housing loan industry, but far too much. All in the name of not being seen as ‘racist’. The recent meltdowns would seem to suggest that the  issues that the banks had with lending to some areas, had nothing to do with racism, but were in fact based in sound business  practice after all, as I’ve been writing for longer than this blog has been up. I’ve said for years that there was a price eventually to be paid for listening to the race huxters, and what we’ve seen so far, I fear is only part of it.

Consider Detroit. What sane person would lend money anywhere near the place?  Before you answer, check out this site. . [2]  New Orleans, same question [3]. Of course I’ll be called racist for even asking these questions. I know this going in. However, I have to tell you that anyone making the case for loaning to such areas is going to have a hard sell at least. Yet this is exactly the kind of nonsense the banks were forced into, and on a much larger scale. 

I say again, as I dd at OTB: Government caused this problem. Not by inaction but by too much involvement. They should be the ones to pay to fix it. Such should be an official acknowledgement of guilt in the matter,  The people involved should be in jail, and then going forward, government should keep it’s hands off home loans, however well intended the relgulations are.  Figuring out how to not allow it to happen again doesn’t involve more government, but less.