Mortgage Meltdown Was Caused by Government Mandates

by Hans Bader on October 21, 2009 · 2 comments

in Bailout Watch, Legal, Politics as Usual, Precaution & Risk, Sanctimony

The mortgage meltdown was caused partly by the government, which created an artificial market for bad mortgages.  The Washington Examiner cites a recent study by Peter Wallison, who had prophetically warned about risky financial practices for years, finding that two-thirds of all bad mortgages were either “bought by government agencies or required to be bought by private companies under government pressure.” Now, the Federal Housing Administration is ramping up its purchases of low-quality mortgage loans, threatening taxpayers with hundreds of billions of dollars in losses, and creating the risk of another housing bubble in the future.

As Michael Barone notes, Congress is now seeking to pass costly legislation that could reinflate the housing bubble, threatening future financial meltdowns.

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Hans Bader October 22, 2009 at 4:39 pm

As the Wall Street Journal has noted, it was Barney Frank who sabotaged reform of the corrupt mortgage giants like Fannie Mae, and ridiculed warnings about the future mortgage crisis by saying we shouldn't focus on the little issue of bank safety and soundness, rather than being concerned with affordable housing (i.e., mortgages for people who couldn't really afford them, courtesy of federal HUD affordable-housing mandates).

Hans Bader October 22, 2009 at 5:04 pm

Victor Davis Hanson lists some of Senator Chris Dodd's ethical troubles and false claims:

"1. He claimed that he had not the slightest involvement in the AIG bonus exemption that he in fact helped insert.

2 He got more AIG money than anyone in the Congress — more even than Barack Obama, who came in second.

3. He got a sweetheart deal on an Irish "cottage" from a crooked stock-trader. [receiving it for hundreds of thousands of dollars less than its market value]

4. He got two preferential discount mortgage interest deals from the now-bankrupt Countrywide.

5. He was one of the Fannie Mae-enabling overseers at a time it was going broke and giving senators like Dodd himself campaign cash — he topped out near $134,000 higher than anyone else.

6. He got a sweetheart profit deal from a condo joint-buy with crook Edward Downe, Jr.

7. He intervened with the Clinton administration to get the felon Downe pardoned.

8. He misrepresented the value of his Irish cottage that he obtained via the agency of the dubious Mr. Kessinger."

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