Of Bad Law, Bad Choices & Ignored Warnings
The current economic crisis is a direct result of bad law, bad choices and ignored warnings. Let’s talk about bad law.
Bad law often originates from well-intentioned people and that’s what happened in the case of our current economic crisis.
far back as 1977, the Carter Administration pushed for and the
Democratic Congress passed the Community Reinvestment Act which gave
incentives to low-income families to obtain mortgages to purchase a
home… A great and worthy goal that achieved some success.
1995, Bill Clinton (with the help of Senator Chris Dodd and
Representative Barney Frank) pushed through changes to the Community
Reinvestment Act. These changes authorized subprime loans. Under
pressure from lawsuits by community activist groups like ACORN, Freddie
Mac orchestrated more than $1 trillion of these dangerous loans to folks
who would not otherwise have been able to obtain a loan due to low
income, no credit, or bad credit.
Until the advent of subprime
loans the housing prices had been tracking at the rate of inflation
(which was very low), but all of the sudden the new demand for housing,
thanks to easy money, made the price of houses skyrocket. It all worked
well as long as interest rates were low, but they didn’t stay low.
rates plus an artificial spike in fuel prices caused by our nation’s
failure to access the Alaskan offshore and other known oil reserves put
out of reach by the Federal government, put a tremendous economic
squeeze on low-income house buyers, many of whom simply quit making
their mortgage payments.
Back in 1995 and all the
way through 2003, there were warnings that there was an impending crisis
at Freddie Mac. There were numerous articles in the New York Times and the Wall Street Journal. In fact, at the time of the Enron collapse, the Wall Street Journal warned
that the situation at Freddie Mac was even worse than Enron. But no
one paid attention. No one wanted to listen, especially those in
Congress who instituted the change to subprime loans.
Bush administration proposed major changes to avert the crisis we are
experiencing today, both Senator Dodd and Representative Frank said
Freddie Mac was sound and that no change or additional oversight was
needed. John McCain was a co-sponsor of the proposed legislation, but
you would never know it from mainstream media coverage. Meanwhile
Senator Dodd, Representative Frank, and newly minted Senator Barak Obama
were receiving huge checks from the executives at Freddie Mac as a
payoff for their continued support.
What about bad choices? Yes,
the folks who took the subprime loans made bad choices. But, it was
awfully hard to resist. A beautiful home in the suburbs with better
schools and less crime was very enticing. And if the interest rate
would only stay low… But the interest rates shot up, the housing prices
dropped and disaster occurred. It’s a sad situation, but you and I
know that it’s not good to bail out our children when they get in
trouble. There is no lesson learned when we do so. We should have
compassion, but a bail out would not be beneficial in the long run. We
are all better off, even if bruised, when we are forced to live with the
consequences of our actions.
Now we face a huge crisis, but
there is another one looming on the horizon that is much, much larger
than the current one, yet the liberals like Dodd and Frank have once
again assured us there is no problem. I’m talking about Social Security
which is just as busted and broken as Freddie Mac. Again the Bush
administration has tried to make changes to return this program to
solvency, but the opposition is in denial, just like they were on the
subprime crisis. The result is sure to be the same.
Dodd’s and Frank’s of this world ever learn? Apparently not! Senator
Dodd, Representative Frank, and Senator Obama now claim that the current
crisis is a result of “deregulation” when, in fact, it is their bad
judgment and bad legislation that have gotten us to where we are today.
It was mandatory regulations stipulating that subprime loans be made to
individuals with no capacity to repay them that caused this crisis.
Dodd and Frank and Obama are afraid the truth will get out. This time they are right. It will. Stay tuned.