Big government, multiculturalism bring on Wall Street meltdown
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
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
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.
And the worst is far from over. By the time it is, we'll all be
paying for Clinton's social experiment, one that Obama hopes to trump
with a whole new round of meddling in the housing and jobs markets. In
fact, the social experiment Obama has planned could dwarf both the
Great Society and New Deal in size and scope.
There's a political root cause to this mess that we ignore at our
peril. If we blame the wrong culprits, we'll learn the wrong lessons.
And taxpayers will be on the hook for even larger bailouts down the
But the government-can-do-no-wrong crowd just doesn't get it. They
won't acknowledge the law of unintended consequences from well-meaning,
if misguided, acts.
Obama and Democrats on the Hill think even more regulation and more
interference in the market will solve the problem their policies helped
cause. For now, unarmed by the historic record, conventional wisdom is
buying into their blame-business-first rhetoric and bigger-government
While government arguably has a role in helping low-income folks buy
a home, Clinton went overboard by strong-arming lenders with tougher
and tougher regulations, which only led to lenders taking on hundreds
of billions in subprime bilge.
Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.