Grand County " GOP shoulders blame for mortgage meltdown |

Grand County " GOP shoulders blame for mortgage meltdown

Pin the mortgage meltdown tail on the Democratic donkey, a Republican wrote recently.

The writer blamed the entire debacle on the Democratic Party’s support of the Community Reinvestment Act and on loans that required no income, no job, no assets and which were resold to Fannie Mae and Freddie Mac.

I had an immediate flashback to the last time I played Pin the Tail on the Donkey. I was in the eighth grade. In fact, this whole presidential campaign is beginning to sound like that Saturday night junior high school slumber party I experienced many years ago. (Today’s youngsters call these marathon parties “sleep overs.”) The party had three phases: playing games, ghost stories, and sleeping.

Pinning the tail on the donkey of the mortgage meltdown solely on Democrats is an analogy that is more like hitting the poster on the wall with the donkey on it, but missing the point where the tail should have gone because you were dizzy and had a blindfold on. Subprime loans and the Community Reinvestment Act were part of the picture, but the overwhelming cause of the mess was Republican members of Congress and the Bush administration who took away many of the safeguards against greed.

Their ideology dictated the action. They believed markets could police themselves, and the less regulation, the better. The Community Reinvestment Act (CRA) was an attempt to stop redlining, the practice of banks that refused to make any loans to anyone wanting to buy a house in neighborhoods inhabited by minorities. It required the banks to lend and market to minorities. There was nothing in the Act that gave a green light to fraud and predatory, high pressure, and shell game sales practices. It happened, though, just as it happened in other markets not subject to the CRA.

There were problems in the mortgage sector all through the chain, from loan originators to Wall Street. The lowering of standards to allow subprime loans was a big mistake. I have never been a fan of subprime loans. People who have bad credit records or who cannot save enough for a 20 percent down payment on a home are bad credit risks. Period.

The lesson learned from this meltdown is that subprime loans are dirty words and I hope they will go the way of the prehistoric three-toed horse. Hiding those credit risky loans from easy scrutiny by investment purchasers, as Freddie and Fannie did, was also another practice I hope will end up in a glue factory. Rewarding investors who sold bad loan bonds, giving them golden parachutes if the stuff hit the fan, was another practice that should be tossed into a compost pile.

Predatory loan sales practices must be stopped, too. However, to do all of this requires reregulation and new regulation. We will need to take our blindfolds off and stop playing games if we are to fix these problems. An unregulated market cannot police itself against greed. That is the lesson we should take away from the worst economic crash since the Great Depression.

On to the next game: gossip. That is the one where players sit in a circle. One whispers an innocuous rumor to the person on the right and at the last person repeats what she heard aloud. The hilarity was that what the last person heard bore no resemblance to the initial rumor. We call this circle “the Internet” these days.

How Barack Obama’s casual relationship with a former terrorist turned into a major smear campaign is the ultimate example of how this game is played. The end gossip story was that Obama and Osama Ben Laden were cut from the same cloth because they palled around with terrorists.

Ye gads. The community initiative that involved Bill Ayers and Obama was funded by a conservative foundation and it included the former president of that conservative Chicago north shore university, Northwestern. The project, to improve and decentralize schools, was endorsed by the Republican governor of Illinois.

I wonder what the end gossip story would have been if the initial gossip followed the gist of the conclusions of an investigation posted on “Barack Obama has been named by the Annenberg Foundation to the board of directors of the Chicago Annenberg Challenge. Others named to the board were the former president of Northwestern University. Bill Ayers, former radical activist and now a professor at the University of Chicago, will serve on the subcommittee working with grant recipients.”

Scary ghost stories came next. Obama’s middle name is a code word for one of them. Every time you hear it, someone somewhere thinks Obama is really a Muslim, or an Arab, just as the ghost story narrator told them. Even John McCain tried to stop that one, it was so off base.

The last phase of the slumber party, as the adrenaline of fun ebbed, was to stop giggling and to roll up in your blanket and put your head on your pillow and go to sleep, awaking at the crack of daylight. It was then you realized you actually slept. My goodness, have we slept.

We let the regulatory agencies look the other way in the name of keeping government off the backs of business. Congress, both sides of the aisle, the Bush administration, and an ignorant public fed by an adrenaline rush of easy credit and inflated home values, let the agencies do some very unwise things.

It is now Sunday. The party is over. We have to do some homework. We have to decide which presidential candidate will keep this meltdown from happening again.

Will it be John McCain, who does not let the word “regulation” cross his lips and whose economic philosophy and economic advisers are no different than the Bush administration’s? Or will it be the new guy on the block, Barack Obama, who will not be tied down to the failed ideological baggage of the past, who recognizes the value of regulation when self-regulation fails, and who has Warren Buffet as one of his chief economic advisers?

Move ahead to Tuesday, Election day. We hope we are ready for the history test and if we have made conclusions that were logical to the point; we might even get an A.

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