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Wednesday, October 1, 2008

Of Bad Law, Bad Choices & Ignored Warnings

     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. 

As 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.

But in 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.

Higher 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.

When the 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.

Will the 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.

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