Not being one who likes to split the difference, I approach the outrage on the Right over Sunday's New York Times massive takeout on the complicity of the Bush administration in the subprime mortgage meltdown in an unfamiliar, possibly seasonal spirit of compromise.
In a fragment of a nutshell, the NYT argues that George W. Bush's determination to expand low-income (read: minority) home ownership as a means of expanding the "ownership society" (along with, so he and the allegedly brilliant Karl Rove believed, the Republican Party) was the agent of our economy's destruction. Bush supporters and NYT opponents, ranging from White House press secretary Dana Perino to Noel Shephard at News Busters, highlight glaring NYT omissions of Democratic hands at the helm of disaster, ranging from the Carter and Clinton White Houses to Democrats in the Senate. Shephard presents the nub of the crisis thus:
Nor did they [NYT] have any space to apprise readers of the Financial Services Modernization Act of 1999. This legislation, passed with overwhelming bipartisan support in both chambers of Congress and signed into law by Clinton in November 1999, removed the last vestiges of the Depression era Glass-Steagall Act thereby allowing banks, brokerage firms, and insurance companies to offer exactly the same services.
This deregulation is the key to our current financial crisis, but was totally ignored in this Times piece.
So, too, was the Commodities Futures Modernization Act of 2000 which, amongst other things, deregulated lending derivatives thereby making it possible for banks, brokerage firms, and insurance companies to issue and trade credit default swaps without any government oversight.
As NewsBusters readers are highly aware, it is in fact credit default swaps which are at the heart of our current crisis -- the so-called "toxic paper" you've heard so much about during Congressional hearings the past few months.
Yet, the Times chose to not address credit default swaps in this almost 5000-word piece. And, although the word "derivatives" was mentioned twice, the authors opted not to mention the Act which deregulated them OR the president -- Clinton! -- who signed that legislation into law.
It is a categorical and indisputable fact that the deregulation at the heart of our current crisis was all signed into law before George W. Bush became president.
Excellent points all. But I say, to coin a phrase, why can't we all just get along--and put the two needlessly competing narratives together?
The fact is, the fuzzy, moist-eyed pabulum of "compassionate conservatism" was gasoline on an already burning Democratic fire that has, in the past eight Bush years, completely burnt out the basic workings of the marketplace, both locally and globally. To readers of Steve Sailer's work, which I have highlighted on this blog (including here), it may seem strange that the NYT didn't better reinforce its argument about President Bush's ideology of using the federal government to expand low-income/minority home ownership, which the president touted in various speeches on the subject (that the NYT failed to highlight). But this part of the history of the mortgage meltdown is in decidedly politically incorrect territory. Much easier for the NYT to just sink its teeth in GWB, once more with feeling, rather than probe too deeply into race-related, discomfiting areas that are soft ideological spots for liberals and "conservatives" alike.
Here is a chunk from Sailer's September Vdare.com piece, "Karl Rove--Architect of the Minority Mortgage Meltdown," which opens with a quotation from a speech Bush gave on June 18, 2002:
"The goal is, everybody who wants to own a home has got a shot at doing so. The problem is we have what we call a homeownership gap in America. Three-quarters of Anglos own their homes, and yet less than 50 percent of African Americans and Hispanics own homes. … So I've set this goal for the country. We want 5.5 million more homeowners by 2010—million more minority homeowners by 2010. (Applause.) … "
The five and a half million marginal minority homeowners that Bush bunglingly called for is a big number. At a mortgage of, say, $127,000 each, that would add up to, let me check my calculator, oh…
$700 billion—the size of the current bailout. Well, whaddaya know …
Bush rattled on:
"I'm going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector. (Applause.) …
“And so what are the barriers that we can deal with here in Washington?"
Well, there’s one obvious barrier to minority homeownership: many American minorities don't earn enough money to be able to afford their own home.
You might think, therefore, that the way to help minorities make higher wages would be to alleviate competition for their jobs by cracking down on legal and illegal immigration. Especially because illegal immigration is, well, illegal. And that's what the Chief Executive gets paid to do—enforce laws.
Nevertheless, Bush and Rove apparently hoped that amnestying illegal immigrants would win over Hispanic citizens, so they did almost nothing about illegal immigration (other than trying to legalize it, of course) until an outraged public forced their hands in the last couple of years.
Bush and Rove didn't have a plan for helping minorities earn more. Instead, they had a plan for helping minorities borrow more.
Bush went on in his June 18th speech:
"Well, probably the single barrier to first-time homeownership is high down payments. "
Traditional standards requiring "high down payments" existed for, as we see now, very good reasons. Being able to pony up 20 percent, or even just 10 percent, was cold, hard evidence of borrowers' credit-worthiness. It showed you hadn't spent every penny you ever earned. And a big down payment meant you instantly had substantial skin in the game. That you had paid out tens of thousands of dollars meant you were likely to do whatever it took to avoid losing your house by failing to pay off the loan.
To Bush and Rove, however, old-fashioned down payments were just keeping minorities from their fair share of the American Dream. Bush burbled on:
"People take a look at the down payment, they say that's too high, I'm not buying. They may have the desire to buy, but they don't have the wherewithal to handle the down payment. We can deal with that. And so I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.)
We believe when this fund is fully funded and properly administered, which it will be under the Bush administration, that over 40,000 families a year—40,000 families a year—will be able to realize the dream we want them to be able to realize, and that's owning their own home. (Applause.)"
If you do the arithmetic, you'll see that Bush's silly little American Dream slush fund for subsidizing 40,000 families per year would take, not the eight years Bush promised to add 5,500,000 minority households to the ranks of homeowners, but 137.5 years. But, obviously, subsidizing all 5.5 million new minority homeowners out of the taxpayers' money would be so insanely expensive that white voters would rebel.
No, it had to be done on the sly, through the magic of fractional reserve banking, which, as the Federal Reserve notes, "permits the banking system to 'create' money." By taking more risks, by handing out more mortgages to likely deadbeats, the financial system could simply "create" the cost of 5.5 million homes for minorities.
CNN reported after Bush's June 17 speech at the St. Paul African Methodist Episcopal Church in Atlanta:
"Fannie Mae, Freddie Mac and the federal Home Loan Banks—the government-sponsored corporations that handle home mortgages—will increase their commitment to minority markets by more than $440 billion, Bush said."
(Thomas Allen wrote a must-read article on Fannie Mae's push for more—and more dubious—lending to immigrants way back in 2004.)
In December 2003, when signing the American Dream Downpayment Act, Bush bragged:
"Last year I set a goal to add 5.5 million new minority homeowners in America by the end of the decade. That is an attainable goal; that is an essential goal. And we're making progress toward that goal. In the past 18 months, more than 1 million minority families have become homeowners. (Applause.) And there's more that we can do to achieve the goal. The law I sign today will help us build on this progress in a very practical way."
What was truly significant about Bush's 2002 speeches (including the doozy he delivered on October 15, 2002 at his White House conference, which you should read for the schadenfreude alone) was not the legislation he endorsed—but the unsubtle message he was sending to lenders and, most importantly, to his own employees, the federal regulators.
Bush made clear at his October 15, 2002 conference that he opposed not merely discriminating against borrowers who might turn out to be bad credit risks—he wanted more money to go to documented bad credit risks. He brayed:
"Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans."
Let's put Bush's influence in perspective. I'm not saying that financial institutions would intentionally make hundreds of billions of dollars worth of bad loans just on the President's say-so. But what I am saying is that federal employees, such as financial regulators, do listen closely to what the Chief Executive says about what he wants done regarding those iffy loans.
Let's review: As long as the federal government ends up bailing out lenders, financial regulation is a necessity.
Lenders like to lend. That's what they do. That, typically, is for what they get paid bonuses.
Overly exuberant lending, unfortunately, leads to financial crises. And taxpayers and savers always seem to wind up paying to resolve them, either through formal programs like the Federal Deposit Insurance Corporation, or through ad hoc bailouts (of which we've seen so many in 2008).
Thus, since the government is on the hook for excessive lending, the government regulates lending.
The job of these federal regulators is to "take away the punchbowl just as the party gets going," as former Fed Chairman William McChesney Martin said long ago.
In his many speeches on minority housing, however, President Bush was telling his underlings to keep their hands off the punchbowl. Heck, maybe the regulators should add another bottle of Everclear just to be hospitable.
And if private lenders started worrying that giving mortgages to dubious credit risks could backfire on them, Bush's speeches could be read as hinting that his Administration would try to help them out, to the tune of, say, $700 billion.
Bush summed up:
"And part of the cornerstone of America is the ability for somebody, regardless of where they're from, regardless of where they were born, to say, this is my home; I own this home, it is my piece of property, it is my part of the American experience. "
My emphases. In other words, under the Bush Administration, the American Dream isn't just for Americans. For instance, at his White House Conference on Increasing Minority Homeownership, Bush orated:
"I appreciate so very much the home owners who are with us today, the Arias family, newly arrived from Peru. They live in Baltimore. Thanks to the Association of Real Estate Brokers, the help of some good folks in Baltimore, they figured out how to purchase their own home. Imagine to be coming to our country without a home, with a simple dream. And now they're on stage here at this conference being one of the new home owners in the greatest land on the face of the Earth. I appreciate the Arias family coming. (Applause.) "
This orchestrated push for more minority homeownership wasn't some random caprice of the President. It was part of the master plan of his political Svengali, Karl Rove. As Rove told every reporter who would listen in 2000 and 2001, Bush was supposed to be the new William McKinley, whose 1896 campaign manager Mark Hanna had figured out how to build a Republican coalition combining the business interests with (some) new immigrants to make the Republicans dominant until the Great Depression.
The rest of Sailer's piece is here.
Bottom line: What we have here is a good, old-fashioned, hands-across-the-aisle, bi-partisan disaster on our hands.