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Wednesday, September 24, 2008

Liberal Economic Policy = Nobody Wins

Certainly democrats want to blame the current financial crisis on Republicans, and I suspect that there's enough blame for both parties to share. That being said, however, if we really want to find a root cause of the crisis, we need to look all the way back to the 1990s.

Yesterday, The Peter Heck Show called attention to the September 30, 1999 edition of The New York Times, which reported on a new program by Fannie Mae. The program was designed to help subprime borrowers, those whose incomes, credit ratings, and savings are not good enough to qualify for a conventional loan, to own a home.

Franklin D. Raines, who was at the time Fannie Mae's chairman and chief executive officer, explained, "Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements, yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market." In other words, reducing down payment requirements was not enough. Fannie Mae also decided to reduce credit requirements.

It wasn't as though nobody recognized that this was risky business. Peter Wallison, a resident fellow at the American Enterprise Institute, said this: "From the perspective of many people, including me, this is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry."

Sounds almost prophetic, doesn't it? Actually, it was not. It was just common sense. If you give loans to people who are not qualified to get them, you are liable to lose your money. It's just not good business sense.

So why would Fannie Mae make such a poor business decision? According to the article, "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people..."

This is the liberal philosophy that everyone deserves what everyone else has, whether they deserve it or not. It's the myth that, under liberalism, everybody wins. It's the reality that, under liberalism, nobody wins, as evidenced by the results we see today of the relaxed loan requirements started it the 1990's.

I wonder if we'll soon hear Barack Obama's former preacher Jeremiah Wright preaching that "the Clinton administration’s economic policies are coming home to roost."


Blogger Malott said...

Obama said. "But one thing I know is this - we can't afford to gamble on four more years of the same disastrous economic policies we've had for the last eight."

He doesn't mention subprime loans.

I don't understand the situation or economics well enough to have an opinion about what to do now, so I lean on people I respect.

Mike Pence voted against the current fix. So I trust there was something very wrong with it.

4:49 AM  
Blogger Tsofah said...

If the average American knew about Clinton's role in all this, they'd be stunned. Of course, GW reaffirmed the bills that kept this mess open. There were laws repealed that had safety measures in place during the Clinton administration as well.

Add to that that 9/11 did great damage to our economy. That damage has been slowed down with the tax rebates, granted. But it HAS arrived.

It would not matter even if Gore or Kerry had been POTUS during this time: this economy has been in dire straights since the late 1990's. With the WTC attacks - that was made even worse.

Congress shares equal responsibility for this debaucle.

There are parts of the bill (link posted on my blog) that just wouldn't fly as far as I'm concerned. No one is saying what programs will be cut until money comes in. No one wants to help those who took out those "unethically loaded with higher than high interst rates" loans.

2:58 PM  

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