Presidential Debate: Who’s Responsible for the Financial Crisis?
September 27, 2008 Posted by Amy Hall
I’m very frustrated by McCain’s lack of response to Obama’s charge that “Republican policies” of deregulation are responsible for the current financial crisis. I know that many of you disagree with McCain and are against Republican policies in general, but I do ask that in the interest of intellectual honesty and clarity, you all take a few minutes to review some facts so you can argue fairly for your position.
From the New York Times, September 11, 2003:
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago….
Among the groups denouncing the proposal today were the…Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Here’s another excerpt from the Wall Street Journal about who endorsed and who opposed legislation to prevent this crisis:
In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent….
If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.
It turns out that the Democrats put pressure on Fannie and Freddie to lower their standards in order to enable people to buy homes who really couldn’t afford to. This was done out of compassion, but as I’ve explained before, misplaced compassion can have disastrous consequences when it directs government policy at the expense of standards and justice.
In terms of the debate itself so far, I’m really interested to know what health care has to do with foreign policy. What’s going on with these questions?
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Posted in Amy's Posts, Main Page, Politics
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September 27th, 2008 at 12:14 pm
Great post! It is amazing how quickly people forget the actions (and inaction) that get us into the mess we are in. And how quickly those responsible are to blame others, or at least throw up smoke to hide their own culpability.
It is unfortunate we need to turn to the very people who allowed this to happen to fix it. There is nothing new under the sun.
September 29th, 2008 at 5:24 pm
s a CPA I have lost a lot of business telling clients to have their financial ducks in a row before buying a house. As a Christian I have pleaded with people to let home ownership be a blessing and not a curse. It was extremely unpopular and seen as foolish to give sound, conservative financial advice over the last 10 years. “The borrower is SLAVE to the lender” is not a verse that many of us are willing to put into practice.
In that time I was often asked to write “comfort letters” essentially taking on the responsibility of giving the mortgage company a green light on a loan. That was the day that I knew that we were going to end up here eventually. In every one of those cases I refused because my client was borrowing too much at too high a rate and the broker was essentially agreeing with me by asking me to sign off on the deal.
I know that there are other financial advisers who gave the same sort of advice that we give and it was largely ignored by the client. “If I don't get a house now, I will NEVER be able to afford it.”
In the day where you walked into a bank, gave all of your financial information to your neighbor who worked as a loan officer, there was a real interest in looking at giving you the right loan. They knew that they would hold that loan and collect all of the payments. The irresponsible lending practices would have easily been avoided had people had some integrity in selling the mortgages in the first place. This is a wonderful example of what happens in a capitalist society without a moral base.
The Democrats cry that you cannot legislate morality when it comes to social issues, but that is exactly what they are attempting to do in the financial markets.
September 29th, 2008 at 11:48 pm
The Republicrats are responsible.
http://www.ronpaul.com/2008-09-26/gw-bush-on-the-housing-boom-oct-2002/