Saturday, July 02, 2011

To Fetch a Pail of Money...

According to George Will a new book called “Reckless Endangerment” is a study of contemporary Washington, where showing “compassion” with other people’s money pays off in the currency of political power, and currency.

It's worth noting that despite all the things written about the financial crisis that still grips America and the world it does have an embryo and a focal point. I have not yet read the book, but it appears that names and faces will finally be applied to the culprits.

We've known for quite some time that "Wall Street" was to blame for the implosion of 2008, right? In reality Wall Street's part in all this was a reaction, a devastating reaction to the rules laid down by Washington. The slime merchants of credit default swaps and collateralized debt obligations should not go unscathed, however the gleeful manipulation of lenders, borrowers, investors and insurers was almost an inevitable result.

It started in the Carter years with the 1977 Community Reinvestment Act which pressured banks to relax lending standards. As a way to spread the American Dream to folks whose incomes, assets, or abilities to own a home would never pass muster in the home loan department of a bank the CRA was the epitome of liberal compassion. The embryo if you will.

President Clinton stepped upped the ante by putting teeth behind the compulsory lending standards but then offering banks a way to protect themselves. In comes Fannie Mae, a “government-sponsored enterprise” or GSE. The focal point emerges.

This set in motion the events that eventually (inevitably) led to the housing market meltdown that still grips us today. Fannie Mae and Freddie Mac became perhaps the most powerful financial institutions in the world. While the stage was being set to bring down the most powerful economy in the world James Johnson, the head of Fannie Mae at the time and his - mostly Democrat - friends and associates walked away with millions in bonuses. The money flowing out of Fannie and Freddie for campaign contributions went mostly to Democrats and it was mostly Democrats who defended and then obstructed any attempt to stop the speeding locomotive.

The rest is history. Wall Street did what they always do by creating complicated financial vehicles to maximize their profit. Losing grip on reality and sinking of major "too big to fail" firms was ultimately a bump in the road as we watched the Federal government ride to the rescue with TARP and other bailouts.

Average homeowners, the real losers in all this were thrown a bone with new Financial Industry Reform legislation. Intended to assure us that the banks will never do this again, incidentally written by the same men (Democrats) who brought us reform in the 1990's. They missed one little thing in all the fine print. The reform didn't address Fannie Mae or Freddie Mac at all. Hmmm, were the Democrats behind the legislation still angling for cash for next years campaign?

You may have noticed that I mention "Democrats" once or twice in this story. I'm just trying to set the stage for the inevitable fall guy... It was all George Bush's fault!!!