McCain’s Fingerprints Found on Banking Disaster
Paul Krugman unearthed this smoking gun quote from John McCain:
“Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”
It’s a twofer. Not only does it pin him to the banking crisis but the quote also has him wishing for the same dangerous deregulation for health insurance.
(H/T Josh Marshall)
Apples and oranges.
The banking crisis occurred when government, in misguided affirmative action mode, forced banks to lend to “underserved” Americans who were unqualified to receive loans at favorable rates.
The problem was not deregulation, but rather government interference into previously solid banking practices. There were other problems, to be sure – including lack of understanding – even amongst financial experts – about how to properly regulate new types of derivative financing. However, government blackmail of banks into extending risky affirmative action loans was the major factor which triggered the meltdown.
BTW, just to be clear, and even though Fannie Mae and the Congressional Black Caucus were in bed together and experiencing carnal mortgage orgasm of lewd proportions: my comments have no racial tinge. Bad credit risk persons of all colors benefitted from the government blackmail of lenders. It was affirmative action lending to everybody.
McCain spoke out in favor of closer regulation of Fannie and Freddie in both 2002 and 2006. Barack has to hit McCain so as to deflect attention from the large amount of contributions Barack received from Fannie and Freddie, and so as to deflect from the Fannie and Freddie executives who are advising Barack(for instance, on the VP selection). However, Barack is only executing a political hit. McCain looks prescient about Fannie and Freddie.
If government forces insurers to give low rates to the “underserved” population of Americans who are bad insurance risks, then you will have an apples to apples comparison between the banking crisis and a future insurance crisis.
Shorter version of gcotharn: It’s poor people’s fault, and the lousy Democrats who persist in forcing them to be treated equally to upstanding (read: rich) Americans.
Where to begin? There is — and was — nothing forcing banks to make mortgage loans to risky borrowers. Nothing, that is, except greed. Abetted by an administration touting “the ownership society” as well as a lack of regulation or lax enforcement standards, low-information borrowers were sold into inappropriate mortgages with limited or no attempts to ensure they were qualified for these loans nor had a high probability of paying them back.
Before you initiate a screed about “low-information borrowers”, please ask yourself whether you personally had a lawyer look over the papers for your most recent home loan. I know I didn’t.
And why would otherwise reasonable banks lend money to people who represented high risk, you might ask, since this appears to be contrary to sound stewardship of the banks’ money? I’m so glad you asked.
Because the risky nature of those mortgages could be thoroughly disguised when they were repackaged into sophisticated investment instruments (read: money-making opportunities for other banks and financial institutions, not for you and me) which sported attractive returns with little indication of their shaky nature.
And why would the shaky nature of these investment instruments be disguised, you might ask? I’m so glad you asked.
Because there were no regulations nor oversight designed to ensure that the exact nature of the risk was obvious to anyone considering purchasing these instruments. Had the risks been clearly communicated, they would not have been so attractive to investors. Had these repackaged bundles of mortgages not been so easy to sell, the shitty mortgages that comprised them would have been far less available.
So, in other words, much of the banking crisis arose because of a lack of regulation, not an excess of regulation.
At the risk of repeating what Gail said, this statement by you, gcotharn:
“The banking crisis occurred when government, in misguided affirmative action mode, forced banks to lend to “underserved” Americans who were unqualified to receive loans at favorable rates.”
is false. It’s not a matter of opinion. It’s simply not true. As I wrote in a post on this matter a couple of days ago, the Community Reinvestment Act, which is what you’re referring to above, did not force banks to lend to unqualified loan-seekers. What it did do was require banks to seek out credit-worthy customers in neighborhoods in which banks refused to operate at all; i.e., redlining.Thus people living in those neighborhoods who *could* qualify under safe lending guidelines were automatically disqualified simply because of where they lived. No bank was ever “forced” to intentionally approve bad loans.
Investor’s Business Daily points to pressure to make affirmative action loans:
Webutante blogs a personal experience:
I’m in favor of regulation. However, the deregulation Dems are commonly demagoguing had little to do with the meltdown. Further, in this instance government regulation – rather than overseeing and limiting risk – was actually forcing banks to make subprime loans. <a href=”http://www.ibdeditorials.com/IBDArticles.aspx?id=306632135350949″IBD again:
I agree with you that Fannie and Freddie, especially, willingly leapt into offering risky mortgages to unsophisticated borrowers. The problem is: Fannie and Freddie were in blatantly in bed with Democrats, and especially the Congressional Black Caucus. Efforts to regulate were routinely blocked by Congress, with Dems in general, and Barney Frank and Chris Dodd in particular, playing huge and prominent roles. This is all on the record. To claim differently – to try and make this a Repub deregulation scandal – is to overtly skew history. WaPo recounts Treasury Dept. attempts to get Congress to regulate the growing problem in 2000. In 2003, NYT reported on the Bush Administration getting Fannie and Freddie Directors to agree to a plan of increased regulation:
Still Congress refused to act.
That McCain overtly favored increased regulation of Fannie and Freddie all along the way – from at least 2002 to the present – is on the record and is impossible for fair-minded persons to dispute. WaPo again:
Kathy,
I note your point about redlining. I’m in favor of government taking a close regulatory look at this practice. However, as I’ve taken pains to document above (in a post which is currently caught in the blog’s moderation, and remains unpublished at the moment), government affirmative action pressure went far beyond looking into redlining. Though abusive government affirmative action regulation was certainly not the only cause of this crisis, it was a major root cause of the problem. To deny that is … just … fantastical and wishful denial of reality.
gcotharn,
That Investors’ Business Daily article you linked to claims lenders were pressured to make unsafe loans by Bill Clinton’s administration, but offers no evidence or support for that argument. So basically, you are not supporting your claim that there was pressure; you are just pointing to another article that says there was, w/o any evidence to back that up.
In fact, there is no such evidence; the evidence actually undercuts your argument. Here is a quote from a detailed description of the changes made to the CRA under Clinton. Note in particular the lines I have bolded at the end of the quote. The article is here.
Rather than wasting precious time reading gcotharn’s
latest craven attempt to score McCain pointscomments, and Kathy’s subsequenttroll-feedingrebuttal, I suggest folks just head over to Sadly, No!IBD quote, 7th line: “It was either that or face stiff government penalties.”
Webutante quote, 8th line: “If my hometown bank failed to comply with this insane new banking policy, it would face stiff penalties from the Feds.”
Second IBD quote, 10th line: “Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called “CRA rating” that graded how diverse their lending portfolio was.”
Some persons are giving personal accounts of how the reality of the program amounted to pressure to lend to bad credit risk persons, with special emphasis on black persons.
Your link is to testimony of Sandra F. Braunstein before the Committee on Financial Services, U.S. House of Representatives. This is Ms. Braunstein’s job description:
Ms. Braunstein had every incentive to represent that she and her department were performing excellently and fairly. She had zero incentive to testify she and her department were performing poorly or unfairly.
Anyone might’ve been lying: from the IBD reporters, to their sources, to Webutante, to Ms. Braunstein. But, I don’t put a lot of trust in Ms. Braunstein’s representation of her own job performance. In my personal case, b/c I read her blog, Webutante has a lot of credibility with me.