September 22, 2008

Financial Crisis is Our Fault, too

Marc Comtois

"How the Democrats Created the Financial Crisis" by Kevin Hassett is getting heavy play in conservative circles (talk radio, the blogosphere), mostly because it is both an accurate piece of the story and attractively partisan. However, Victor Davis Hanson reminds us that, while there is plenty of blame to put on Wall Street and Washington, we also need to look in the mirror.

For two decades, we — as in we Americans — expected to buy homes, flip them, and walk away with thousands — without much thought about what might happen to the johnny-come-lately at the bottom of the pyramid when the game was finally up and housing prices cooled or crashed. Walking away from a mortgage on a house with negative equity was "smart;" putting someone in one who had no ability to come up with a down payment, monthly payments, taxes, and maintenance was "fair"; borrowing unduly against equity for cash expenditures was "understandable."

We deified the masters of hedge funds, derivatives, and subprime mortgages, forgetting that passé oil production, mining, farming, manufacturing, engineering and construction were the real sources of our material wealth.

We assumed mega-returns on our portfolios, without a thought what Wall Street did to get them, or the effect on others who needed to borrow at such high interest to run their businesses.

Ours became a culture that wanted larger cars but less drilling to fuel them, more stuff and more credit from — and more anger at — the Chinese; less taxes but even more government hand-outs; ever more electricity, but fewer icky coal and nuclear plants — and always more health-care, education-care, prescription drug-care, housing-care, and always less care how to pay for it.

So by all means let us prosecute the lawbreakers, finger-point at the enablers, lecture the stupid, but at least spare us the sanctimonious "they" did this to poor "us." If there were not a Senate Banking Chairman like Chris Dodd without shame cozying up to the creeps at Freddie Mac and Fannie Mae, or a Richard Fuld playing casino roulette with someone else's money, we would have had to invent them.

But it's easier to blame someone else, right? Yes, I know that some of Hanson's litany could be attributed to what some would disdainfully consider "free market capitalism," but look again and you'll see government's hand in all of it, too. We want it all with no risk to ourselves while expecting government to bail us out for our poor choices. And the people who are left to foot the bill are those who either made the right choices in the first place or are willing to take responsibility for not. In short, those who don't regard government as the cure of all ills will be paying the bill for those who do.

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I worked as a title examiner during the housing boom. We used to laugh at the sell prices on the houses and the ARMs and we would repeat, probably hundreds of times, 'here's a future foreclosure'.

Some a-hole decided that everybody should be able to own a home. Not surprisingly, that stupid idea came from the same a-hole that though invading Iraq and that no child should be 'left behind' were good ideas, too.

Posted by: Greg at September 22, 2008 2:26 PM

Greg, I won't cloud your BDS, but would point out that it was the Clinton administration that "decided that everybody should be able to own a home."

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.

Posted by: Marc at September 22, 2008 2:37 PM

Marc is right. It was during the Clinton era that "affordable housing" became a mantra for putting people with less-than-stellar credit records into homes.

Still, most of the blames lies not with the Clinton (or Bush) administration, but on the private sector. Companies chose to ignore risks to make a short-term profit.

Posted by: Anthony at September 22, 2008 4:04 PM

No, its the liberal media....... You guys are unbelievable. This site has become a study in hypocrisy. Where is the outrage relating to this bailout. What's the difference between Paulson and Hugo Chavez? What happened to accountability and the ownership society ....the invisible hand and allowing the market to work itself out? This site has become a joke and you guys are mere hand puppets of Capitalist greed. Can I have money to pay all my bills please? HAHAHAHAHA. And the yachts sailed off into the sunset. What a bunch of suckers.

Posted by: Bobbyj at September 22, 2008 6:23 PM

Get a grip. Clinton left office 8 years ago. The influence of the Community Redevelopment Act and other Clinton era legislation didn't become negative until the mismanagement by the Cheney-Bush administration and the Greenspan fed. Remember Alan G. testifying before congress that he feared a possible shortage of federal debt might become a market problem? Greenspan was forced to buy in to Busheconomics and keep interest rates artificially low to facilitate massive borrowing to pay for the Bush tax cuts and war spending. That was the fuel that ignited the hyper inflation in housing and led to the mortgage fraud and excesses. You shouldn't mindlessly parrot everything you hear on Limbaugh. He does have an agenda, you know.

Posted by: observer at September 22, 2008 6:35 PM

This monstrosity just shows further that Bush is a socialist who is against abortion.
World domination, torture, indefinite confinement of citizens, the fascist "Patriot" Act, domestic spying, etc. ALL aided and abetted by a Democrat Senate and/or House.
You will notice how the local marxist blog (owned by the "Fortunate Son" of a multi-millionaire executive) speaks volumes in its complete silence on this trillion dollar corporate giveaway. This is a blog that screeches in anger if a mass-murderer is deported but is completely silent on this travesty.
Maybe Bush has just been the first 2 Obama terms?
Open borders, dangerously expanded federal powers, amateurishly interventionist foreign polices, Orwellian named bills, etc.

Posted by: Mike at September 22, 2008 7:21 PM

The trouble with well intentioned programs like CRA is that they expand. After the politicians have their feel good moments, nobody minds the store. Its one thing for a bank to have $25K exposure in a low priced housing area. Its another thing when they have exposure for Alt-A and liar loans at many times $25K. Loosen the controls, rules and oversight and the banks and mortgage brokers couldn't help themselves and neither could the people who looked at a house as a combination of a retirement plan, investment vehicle and mad money piggy bank for grown up toys.

ps - I'm not looking in the mirror. Flipped the first house in a lightning 11 years and haven't flipped the second yet after 19 years. What the hell is wrong with you people anyway? ;) ;) ;)

Posted by: chuckR at September 22, 2008 7:31 PM

I think Mike and I are just about as fed up with this President as one can reasonably be.

Posted by: Greg at September 22, 2008 9:18 PM

Do you think that a McCain advisor may want to place blame for this finicial disaster on his opponent or off his candidate? The first article you cite is written by one.

Posted by: Phil at September 23, 2008 6:13 AM

Phil, Not to get into the nuances of constructing a blog post, but you'll notice I didn't pull quote from that piece and referred to it as "attractively partisan." What I chose to highlight were VDH's emphasis on a lack of personal responsibility all the way around. I know that many people have "a dog in this fight", especially in an election year. There's plenty of partisan finger pointing going around. But, as I've said many times, there's plenty of blame to go around.

Posted by: Marc at September 23, 2008 9:02 AM

observer, I think everyone agree that the subprime mess is at the heart of the financial "crisis".

If you go back in time, the Clinton Administration set the foundation for the easy access to credit given to people with less than stellar credit ratings.

In 2005, the Senate Banking Committee (under Republican control) attempted to pass a bill prohibiting government sponsored enterprises (GSE's)--Fannie Mae and Freddie Mac--from keeping portfolios and attempted to impose increased regulation. It was the Democrats that shot the bill down because they thought it adversely affected the promotion of affordable housing.

Look, I don't blame the Democrats entirely for this mess.

The mortgage industry took the opportunity created by the Clinton Administration to write bad mortgages. Individuals got themselves in over their heads.

Congressional Democrats were warned about the problem by Congressional Republicans, but chose to spike key legislation instead of supporting it. From my perspective, the Bush Administration's biggest failure is not pushing back on the Congressional Democrats to get the 2005 bill passed.

So there's enough blame to go around: the mortgage industry, individuals, credit rating agencies and investment banks all played a role.

But to the degree that politics enters into the equation, the Republicans were on the right side.

If the mortgage industry and consumers acted responsibly and the credit rating agencies had accurately assessed the risks of outstanding instruments, we'd all be sitting around praising Clinton and Congressonal Democrats for the opportunity of home ownership to subprime borrowers. But it didn't work out that way.

It's like blaming the homeowner who leaves his front door open and gets robbed. The person with the ultimate responsiblity is the burglar (in this case, the burglar is the mortgage industry and borrowers). But you can't deny that the homeowner (Clinton and the Dems in Congress) made a bad decision to leave the front door open.

Posted by: Anthony at September 23, 2008 11:54 AM

Funny you should mention it!

Actually, blaming Obama is a bit of a stretch.

But like the success of the Surge, this really is a vindicating moment for John McCain.

When the bill to regulate Fannie Mae and Freddie Mac was debated in 2005, John McCain spoke on the Senate floor urging the government to reign in the two GSE's.

Obama--a big supporter of affordable housing programs--said nothing. He later appointed the head of Fannie Mae to run his VP search committee and received more money from Fannie Mae and Freddie Mac than any other politician outside of Chris Dodd.

So while it would be a stretch to "blame" Obama for the mess, McCain would be on very solid ground to question Obama's judgement on the 2005, ask voters to compare Obama judgement to his own and point out Obama's strong ties to the GSE's.

As in the case of foreing policy, the comparison only serves to benefit McCain.

Posted by: Anthony at September 23, 2008 12:02 PM

Anthony, I dont know if you are unaware of the facts or deliberately kidding yourself. Bill Timmons, one of McCain's chief advisers, lobbied for Freddie Mac for $250,000 to kill the legislation you cite. Even more egregiously, Ric Davis, McCain's campaign manager, has received $2,000,000 over the last 5 years to lobby for an industry funded group largely financed by Freddie and Fannie to promote their legislative agenda. This is what Obama means when he cracks that "In the McCain campaign, holding those responsible for this mess is also called a staff meeting."

Posted by: observer at September 23, 2008 12:28 PM

observer, since when were lobbyists given the power to vote down legislation?

Lobbyists advocate on behalf of their clients, just as lawyers advocate on behalf of their clients.

They're not Members of Congress, they can't vote on bills, and they don't even set the policies of the compainies and groups they represent.

McCain voted the right way, Obama voted the wrong way.

I don't hold a lobbyist responsible for a company's behavior any more than I hold a lawyer responsible for a client's behavior.

Your post reminds me of the people who suggest that Bob Walsh is somehow single-handedly responsible for the state of RI's economy.

If Timmons or Davis was running Fannie Mae or Freddie Mac (as was Johnson), I'd say that was a valid issue. If Timmons or Davis didn't believe in what the issues that they were promoting, that would say something about their character.

But I actually think your post is a positive reflection of John McCain.

What you're basically saying is John McCain that supported a bill even though some of the people close to him were advocating against it. That's a sign of independence and McCain's independence was ultimately proven correct.

I won't even point out the irony in the fact that Barack Obama sided with Timmons in tanking the bill.

It's the job of Congress to sort through the competing proposals and ideas and do what is best for the country. Your point highlights that is exactly what John McCain does.

For the record, I also don't buy the "lobbyists are evil" line.

Just about every American is represented by a lobbyist, regardless of whether they're employed by a large corporation, belong to a Chamber of Commerce, take advantage of AARP discounts, are community activists, union members or donate money to the American Cancer Society.

Posted by: Anthony at September 23, 2008 3:01 PM

Anthony, you are very naive to believe that senators and congressman are more imortant than lobbyists. The elected officials are frontmen. The real power that shapes legislation and policy is wielded by the agencies and the lobbyists who ply their trade there.

Posted by: observer at September 23, 2008 6:13 PM

You crack me up. When things go well you're all too willing to take the accolades. Ahhh, but when things go wrong, it's not your fault, it's the forces operating in the background. You know "those" people. The gremlins that pop up and foil your best-laid plans in spite of your best efforts. The only two mantras of the Liberals, I'm working on it (still) and forces we can’t (won’t) control cause it.

Posted by: bobc at September 23, 2008 6:38 PM

"The real power that shapes legislation and policy is wielded by the agencies and the lobbyists who ply their trade there."

And when the Fannie and Freddie lobbyists came around, McCain stood up to them while Obama caved.

Come November, I wonder if voters should take into consideration their disparate reactions to the pressure brought to bear by lobbyists?

Posted by: Monique at September 23, 2008 11:49 PM

Just for fun, here's todays NY Times link on the story. Oh, I know Pravda is "in the tank" for Obama so you can all just dismiss the facts. It's even worse than originally reported. In addition to the 2 million Ric Davis got, he also landed what in effect was a no-show consulting fee of $15,000 a month, after the Homeownership Alliance was shut down.

Posted by: observer at September 24, 2008 8:40 AM

observer, yes and Obama took advice from Rezko, a convicted felon, and hung out with Bill Ayers, a terrorist. So wow, Davis legally earned money for representing a client. SCANDAL!

You still didn't answer the question that your post raises-

How come Obama caved to the lobbyists when McCain stood up to them?

Posted by: Anthony at September 24, 2008 9:37 AM

Anthony, I'm not going to go around the mulberry bush with you again on this. I have already opined that the behind the scenes machinations of the lobbying community are more important than the dog and pony show put on by the elected officials for the TV cameras and the folks back home. You don't want to accept my theory - fine, that's your privilege. As far as Davis legally earning money, that's far from certain. I think lots of prosecutors would look at a no-show $15,000 a month deal with a healthy skepticism, especially in light of what happened to the GSEs. By the way, this probably works to McCain's advantage, he doesn't want to fire Davis with 40 days left in the campaign,but he really has to, or he will be defending this no show payoff constantly. He can just pretend that Davis is being scapegoated by the MSM and let him go. I actually hope he doesn't. From an Obama supporter viewpoint it's better if Davis stays as campaign manager.

Posted by: observer at September 24, 2008 12:21 PM

observer, I hate to burst your bubble, but it's not unusual to for people to structure payments over the course of a couple of years to reduce the tax burden in any one particular year. So while Davis may have completed his work in the prior year, he may have wanted to spread the payments out over multiple years--and done so legally.

Kind of like winning the lottery.

And it's not about your "theory". Under your theory, McCain would have voted against the bill. But he voted for it and stood up to the lobbyist that you talk about. Your theory is proven wrong in the one situation you espoused it to address.

Posted by: Anthony at September 25, 2008 11:45 PM

You simply cannot sit here and believe everything you read or think its even an educated answer. Think about it I'm 12 year old and I'm writing here.

Posted by: 12yearold at September 29, 2008 10:41 AM
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