American-Manifesto.com In Defense of American Exceptionalism

There are several points that the media is ignoring.

First, the Clinton administration loosened the rules for mortgage qualifications to make “the dream of home ownership” available to more people.  Simultaneously left wing groups were assaulting lenders if the groups felt a lender wasn’t doing enough to funnel mortgage money to a particular constituency.  Good intentions perhaps but the bill is coming due.  With a vengeance.

Second, in addition to the regulatory role above the federal government played another key part with Fannie and Freddie.  Fannie and Freddie, of course, buy mortgages from lenders and then bundle the mortgages in mortgage backed securities.  Buying the mortgages from the lenders, of course, was intended to get mortgages (debt) off the books of the lenders and enable them to issue more loans.  That’s a great idea if you have stringent underwriting requirements, but, as noted above, the Clinton administration loosened them.  The result was a situation where mortgages were ridiculously easy to get which contributed to the rise in real estate prices.

Third, as more and more mortgages were issued, (government created and regulated) Fannie and Freddie bought and securitized more as well.  These seemingly safe bonds issued by the semi-governmental Fannie and Freddie, of course, were being purchased by many financial institutions. However as noted above the underwriting standards were getting dangerously loose and the house of cards was destined to fall at some point.

Fourth, there were many calls to reform Fannie and Freddie.  Being semi-governmental Fannie and Freddie had an unusually close relationship with the political establishment and was particularly ruthless in its efforts to beat back the calls for reform.  Who was one of the prime congressional culprits in beating back reform?  None other than Barney Frank who is now slamming wall street regularly.

Is wall street blameless in the current mess?  Certainly not.  But the federal government has played a huge role.  Where’s the media coverage of that?