September 29th, 2008

The financial crisis: why the hush-up about the Democrat role?

I was awakened today as usual by my clock radio, which happened to be set on a talk show. Blah, blah, blah about the financial crisis, with some sort of Wall Street “expert” saying that this happened because of a lack of regulation, and that it is historically the Republicans who are against regulation and in favor of unfettered free markets.

That certainly woke me up in a hurry

The idea that Republican opposition to regulation is currently to blame is a meme I’ve heard over and again—mostly from Democrats, and most particularly from Barack Obama in the opening minutes of the first Presidential debate. But in the case of the present financial crisis, although it’s possible and even obligatory to say that there’s fault on all sides and plenty of it to go round, it seems very clear that: (a) an extremely vital impetus for the subprime loans which drove this particular sequence of financial problems was the Democratic demand—and the translation of that demand into a legal obligation—that it is the right of even those who can’t afford homes to have them nevertheless; and (b) that in this case it was Republicans who repeatedly tried to regulate Fannie and Freddie and Democrats (including many of those who spout off most piously and most mendaciously today) who repeatedly blocked them.

If you missed this earlier, please take a look now:

Why is this particular fact so hush-hush that I doubt most people outside the rather narrow confines of the blogosphere are aware of it? Is it because it is such an inconvenient one for the Democratic cause, and most of the MSM is in the tank for Democrats? And if so, why did even John McCain keep his mouth shut about it in the debate as he listened to Obama declaring in his opening statements that the crisis was, “…a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain, a theory that basically says that we can shred regulations and consumer protections and give more and more to the most…”?

Some think it’s because McCain didn’t want to jeopardize the all-important negotiations going on between the parties by trashing the other side. Some say he doesn’t have the fire in the belly. Some say he’s waiting for the bill to go through, and then he’ll speak up. Some say he’s relying on the 527s to do the work. And of course Democrats and Obamaphiles (not to mention Nancy Pelosi) say it’s because the Democrats are innocent of any wrongdoing or responsibility.

I can’t quite fathom why McCain held back, because the Democrat fingerprints are all over this one. Perhaps he really is the “country first” statesman he says he is. If so, it would be an irony of truly Orwellian proportions if that fact causes him to remain silent, and allows the lies of the Demcrats about their own role to become the dominant explanation in voters’ minds.

25 Responses to “The financial crisis: why the hush-up about the Democrat role?”

  1. Sergey Says:

    I know no serious economist who asserts that nothing in market economy should be regulated. Banking is regulated everywhere, since customers of this industry usually have not enough information to judge quality of services. And ALL natural monopolies need regulation. Fannie and Freddie are natural monopolies.

  2. Truth Says:

    Why is this particular fact so hush-hush
    Neo, accusing the Democrat for the financial crisis now is far realistic; GWB/republican for two terms in WH should have the time to fix the problem that Democrat started.

    The question here why GWB/Republicans so hush-hush about the cost of wars in Iraq and Afghanistan they trying hardly to cover-up their lies and their mismanagement the miserable case they put US in today politics.
    Look to Dr. Rice accusing and talking about Russia she said:

    Other actions of Russia during this crisis have also been deeply disconcerting: its alarmist allegations of “genocide” by Georgian forces, its baseless statements about U.S. actions during the conflict, its attempt to dismember a sovereign country by recognizing Abkhazia and South Ossetia, its talk of having “privileged interests” in how it treats its independent neighbors, and its refusal to allow international monitors and NGOs into Abkhazia and South Ossetia, despite ongoing militia violence and retribution against innocent Georgians.

    I’m referring, among other things, to Russia’s intimidation of its sovereign neighbors, its use of oil and gas as a political weapon, its unilateral suspension of the CFE Treaty, its threat to target peaceful nations with nuclear weapons, its arms sales to states and groups that threaten international security, and its persecution – and worse – of Russian journalists, and dissidents, and others.

    Is there more Irony than this?

  3. Occam's Beard Says:

    Speaking from a position of unalloyed ignorance, I would say that the problem appears to have arisen from lack of regulation coupled with quasi-governmental status. Absent either condition, the problem probably wouldn’t have arisen.

    The market appears not to have looked worried about the finances of Fannie and Freddie because it assumed the government would make any losses good. The absence of perceived risk kept the music playing.

    Regulation was the only thing that could have made a difference, but legislation to effect it was blocked by the Democrats – according to no less than Bill Clinton himself.

  4. Truth Says:

    Regulation was the only thing that could have made a difference,

    If the banks worked with their Normal Bank /Self Regulations, i.e. not giving mortgages to people not fits the bank’s criteria, this crisis may not happed or may be limited.

    The main blame should thrown on some big banks what they done and why went softer in lending bank’s money out of their own regulations

  5. SteveH Says:

    This is like a nightmare where you scream for help but no sound comes out.

    Damn all democrats and their media cronies trying their best to destroy this country.

  6. Occam's Beard Says:

    Truth, please note the distinction between Fannie and Freddie’s finances on one hand, and those of the U.S. government on the other. There is/was no connection between them until last week.

  7. Occam's Beard Says:

    Summaries of the origins of the housing crisis:

    A great analysis

    video summary (never mind the partisan political pitch at the end, which is overkill; the facts speak for themselves).

  8. Baklava Says:

    Looking back:
    Subprime (teaser rates) loans should be outlawed. Having a lower payment initially with nothing down does nothing but increase risk for the lender and borrower.

    Going forward:
    A house payment should still be required to be paid. Just because a house is worth less than the amount of the loan does not make a bailout necessary.

    What makes the bailout necessary is the crippling effect of the percentage of people who have left their homes and stopped paying their loans.

    How to fix that?
    1) Reduce capital gains taxes to very little – capital will flow to the properties that are a good bargain right now (this is how Rockefeller gained many of his assetts in the Great Depression – buying low)
    2) Reduce taxes on ALL americans especially the top brackets.
    3) Reduce business taxes

    Having the government SPEND money is the wrong answer to the problem as it is socialism.

    Socialism is the government choosing who gets what resources.

    Capitalism defined is the PEOPLE choosing who gets what resources. Ultimately, the people choosing who gets what resources is what’s needed here. People will get great deals on property, the economy will grow, jobs will be created….

  9. Assistant Village Idiot Says:

    Occam’s Beard, you said “Truth, please note the distinction…”

    Don’t ever bother to finish a sentence that begins with those words.

  10. Occam's Beard Says:

    The scary thing is that this housing crisis presages what’s going to happen when the boomers retire. Lots of people have zero savings, and those of us who are more prudent will probably end up pabeing taxed to pay for those too stupid or short-sighted to live within their means. So the ants will be taxed to provide for the grasshoppers.

    I’m getting harder nosed in my old age. We need to stop saving people from their own stupidity. Indeed, it’s becoming clear (at least to me) that it is imperative to have bad things (and I mean really bad things) happen to stupid people, to serve as a warning to others.

    People struck down by blind fate, sure, I’m happy to help. People struck down by their own stupidity, lousy judgment, or poor impulse control…let ‘em rot.

  11. Truth Says:

    Occam’s Beard, thank you for your point.

    Btw, looks there is more stupied here to those who craetes the crices as we see from above words

  12. Baklava Says:

    Wow…

  13. DonS Says:

    accusing the Democrat for the financial crisis now is far realistic; GWB/republican for two terms in WH should have the time to fix the problem that Democrat started.

    Bush attempted to fix the problem in 2001 and many times since then. The Democrats in Congress prevented any fix; they were in the tank for Fannie and Freddie.

  14. Occam's Beard Says:

    I always found the “affordable housing” mantra irritating. Affordable for whom? To live where? Wherever they choose? That’s great. When do I get my affordable beach house in Malibu, right next to Barbra Streisand? I’m already packing…(I just hope she doesn’t sunbathe in her birthday suit – shudder).

  15. DonS Says:

    If the banks worked with their Normal Bank /Self Regulations, i.e. not giving mortgages to people not fits the bank’s criteria, this crisis may not happed or may be limited.

    The main blame should thrown on some big banks what they done and why went softer in lending bank’s money out of their own regulations

    The problem is that the government pushed for lending to poor people who couldn’t afford houses. Regulations were such that it made it more difficult to discriminate against those who couldn’t afford.

    Initial lenders were encouraged to make risky loans. Freddie and Fannie bought the loans, then sold them to third party lenders, who had no insight into the initial borrowers.

    The fault clearly lies with politicians, specifically the Clinton Administration, Carter, and Congressional Democrats.

  16. Occam's Beard Says:

    DonS, I agree. I’d presumed that the blame was more evenly apportioned, but on looking into it, I’ve changed my mind.

    I think the rot runs deeper than just Democratic policies, and indeed reflects the rot of Democratic philosophy: that everyone is entitled to whatever he wants, and doesn’t have to work for it; just wanting it is good enough.

    That’s a fundamental, collective character defect in their party.

  17. Truth Says:

    The problem is that the government pushed for lending to poor people who couldn’t afford houses.

    Yes agree that as Bill Clinton did, what about GWB, did he indorse those regulations by Bill Clinton?

    GWB have 8 years in WH, Republican had 6 years control of the senate, what the done during these years?

    then sold them to third party lenders, who had no insight into the initial borrowers.

    I don’t sure what I can say, but let take it from the start insurance companies they have main focuses on their money and made many adjustments to their polices due to the market risks and customer history, so where their homework for those years?

    What could be blamed here both politicians and reddie and Fannie and other is the transparency in their work.

  18. Occam's Beard Says:

    I don’t sure what I can say, but let take it from the start insurance companies they have main focuses on their money and made many adjustments to their polices due to the market risks and customer history, so where their homework for those years?

    Truth, this cuts to the heart of the matter. The third party buyers of this toxic paper didn’t think they needed to do their homework, because Fannie and Freddie were “government sponsored entities,” and therefore were thought to be backed by the government.

    If they’d been unambiguously private, they’d have faced a lot more scrutiny, and gone under long ago.

  19. gcotharn Says:

    re Repubs against regulation

    Repubs are against overmuch regulation of private industry.

    DEMS are against regulating quasi government agencies such as Fannie/Freddie.

  20. Truth Says:

    Occam’s Beard
    The third party buyers of this toxic paper didn’t think they needed to do their homework,

    I think you miss my point here,, let put in this way what I meant of homework by Fannie and Freddie not the third Party customer.

    Understandably from the end of your comment why they didn’t do their homework.

  21. Occam's Beard Says:

    Truth, you’re right, I misunderstood you. My apologies.

    Fannie and Freddie, as I understand it, didn’t want to do their homework; they pressured lenders to use “flexible” standards of creditworthiness (e.g., count welfare and unemployment benefits as “income”) because they wanted to increase minority homeownership.

    Which they did. For a while…

  22. douglas Says:

    Of course, lost in this is that in the end, it didn’t do low-income people seeking first time homes any favors. They either bought a house they ended up not being able to afford, or they watched housing prices go up detached from the rate of inflation (because of artificial demand increase) and so detached from wages. So, even if done with good intentions, it completely failed, and hurt a lot of people to boot, many of whom had nothing to do with this mess.

    As for McCain, I think it’s a combination of-
    -Putting country first.
    -wanting to solve problems first and play politics second
    -his repeated tactic of giving enough rope so they can hang themselves as things come out later (as they do, eventually), or he can bring the attack later and get them not only for the initial sin, but the cover up or misleading statement later.

    I only hope his timing is correct, and there is enough time left.

  23. expat Says:

    Occam’s Beard,

    I think that groups like ACORN did quite a bit of pressuring too.

  24. Vince P Says:

    I’m surprised a few regulars haven’t educated themselves on this yet.

    The Community Reinvestment Act of 1977 is the primary culprit and Fannie Mae/Freddie Mac are the chief enablers.

    This is a timeline of the history of Fannie Mae problems in the 90s.

    Each item is a link to a story at this main link

    http://online.wsj.com/article/SB121599777668249845.html?mod=article-outset-box

    Paulson’s Fannie Test 07/15/08 – Does Hank Paulson want to leave the U.S. financial system better than he found it? That’s his test in the wake of his commitment to use taxpayer money to rescue Fannie Mae and Freddie Mac.

    Fannie Mae Ugly 07/12/08 – Investors continued to flee Fannie Mae and Freddie Mac almost as frantically as the political class tried to reassure everybody there was nothing to worry about.

    The Price of Fannie Mae 07/10/08 – It’s time Americans understood the price they could soon pay for the Beltway’s confidence game with these high-risk “government-sponsored enterprises.”

    Too Political to Fail 04/21/08 – Fannie Mae and Freddie Mac aren’t held to the same standards of accountability as everyone else.

    Fannie Mayhem 11/20/07 – Chuck Schumer is lucky Congress ignored his idea that Fannie Mae and Freddie Mac should ride to the rescue of the housing market.

    Fannie More 10/23/07 – Barney Frank and Chuck Schumer have come up with a proposal that would increase the risk to taxpayers from Fannie Mae and Freddie Mac.

    Fannie to the Rescue? 09/29/07 – Fannie and Freddie went up the Hill to fetch a pail of money.

    Freddie Krueger Mac 05/10/07 – Just when you think they’re defeated, Fannie Mae and Freddie Mac arise in Congress to kill any attempt to clean up their dangerous habits.

    The Fannie Tax 04/12/07 – Democrat Barney Frank and the Bush Administration seem to have found common ground on new rules for Fannie Mae and Freddie Mac. Naturally, there’s a catch.

    Memo to Fannie 06/14/06 – A joke in Washington these days goes like this: “What’s the difference between Enron and Fannie Mae? Answer: The guys at Enron have been convicted.”

    Freddie’s Friends on the Hill 04/27/06 – The Federal Election Commission sheds some light on how Freddie Mac rewards its friends.

    Fannie Mae’s House 10/25/05 – Every Congressional session can be counted on to produce its share of bad bills. But the “reform” bill for Fannie Mae and Freddie Mac is in a class of its own.

    Fannie’s Friends on the Hill 05/09/05 – Congress finally seemed ready to protect taxpayers from Fannie Mae and Freddie Mac. Then Republican Mike Oxley decided to ride to their rescue.

    Fannie Turns a Page 12/23/04 – Fannie Mae – a slick, semiprivate firm operating with the patronage of politicians – is the kind of institution one still expects to find in a country like France.

    Fannie the Centaur 12/17/04 – Understanding their half-man, half-beast nature is crucial to fixing Fannie Mae and Freddie Mac in the wake of their recent financial scandals.

    Fannie Mae Liberals 10/14/04 – There were many moments of high entertainment during the House hearings on Fannie Mae’s creative accounting. But our favorite was the Mister Magoo performance given by Barney Frank (D., Massachusetts).

    Fannie Mae Enron? 10/04/04 – The company was cooking the books. Big time.

    Fannie Uncovered 09/23/04 – The housing-finance giant has been engaging in some accounting funny business.

    Fannie’s Risky Business 02/25/04 – Alan Greenspan puts his credibility behind the cause of reforming Fannie Mae and Freddie Mac.

    Christmas for Fannie Mae 12/23/03 – The Federal Reserve Board releases a new staff study about the impact of taxpayer subsidies for Fannie Mae and Freddie Mac.

    White House Fannie Pack 11/11/03 – White House chief economist N. Gregory Mankiw dares to tell the truth about Fannie Mae and Freddie Mac. The mortgage giants were not amused, which means we’re getting somewhere.

    Fannie Takes the Hill 10/09/03 – When the House of Representatives can’t get even a modest regulatory bill out of committee, the dangers of Fannie Mae become clear in reality.

    Speaking Truth to Fannie 03/12/03 – The president of the Federal Reserve Bank of St. Louis warns of a potential crisis arising from Fannie Mae and Freddie Mac.

    Fan and Fred Get the Business 02/19/03 – The year has not started auspiciously for the two mortgage-finance behemoths.

    Fannie Mae’s Risky Business 09/23/02 – We’ve been suggesting that Fannie Mae was exposed to too much interest-rate risk. All of a sudden investors seem to agree with us.

    Fannie Capitulates, Sort Of 07/15/02 – Fannie Mae and Freddie Mac end months of resistance, stonewalling and downright crankiness and agree to register their common stock with the Securities and Exchange Commission.

    Fannie’s Inside Info 07/01/02 – Even in this post-Enron world, Fan and Fred do not provide as much information about these securities as private mortgage lenders do.

    Inside Fannie 03/19/02 – Fan and Fred don’t function like other companies. They’re allowed to pile up debt, implicitly guaranteed by taxpayers, without being held to even the minimum of corporate governance standards.

    Frantic Fannie 02/28/02 – Companies taking on so much risk and debt, and backed by taxpayers, ought to be more transparent in what they tell the world.

    Fannie Mae Enron? 02/20/02 – Fan and Fred look like poorly run hedge funds: lots of leverage and snarkily hedged risk. Does the word Enron ring any bells?

  25. Drew Says:

    Hmmmmmm…

    http://www.youtube.com/watch?v=_MGT_cSi7Rs

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Previously a lifelong Democrat, born in New York and living in New England, surrounded by liberals on all sides, I've found myself slowly but surely leaving the fold and becoming that dread thing: a neocon.
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