Thanks, Democrats!

Ever since this whole subprime/housing/credit mess started unfolding, I’ve been trying to wrap my head around the whole thing and get a grasp on just what happened. This has been extraordinarily difficult for me, as I have no head for economics, but I’ve finally read enough to piece together a working theory on how at least a part of it came down.

The short version: pretty every single time the government had a chance to intervene and either slow down or head off the disaster, the Democrats were ready to grease the skids and keep things going headlong towards disaster — no matter what anyone else said.

When Bill Clinton pushed through the expansion of the Community Reinvestment Act in the last 1990s, the theory was to get more people into homes. At that point, the banks — who would be making the loans — balked. “Yeah, we can get them into the homes, but a good chunk of them won’t be able to stay there. We’ll end up having to foreclose, and then we’ll be owning a bunch of homes we don’t want.”

“Don’t worry,” said the Democrats. “We’ll take care of that. We’ll let you sell off the loans as ‘investment-grade assets.’ You won’t get stuck with them.”

“But who the hell would buy them? They’re still shaky loans, no matter who owns them or what we call them.”

“It’s OK, we’ll get Fannie Mae and Freddie Mac to insure them. With those folks behind the loans, they’ll sell like hotcakes. And later, if they bust, you’ll be off the hook.”

“I dunno… it’s still a shaky deal. I think we’ll just pass, thanks. You can’t make us give mortgages that we think will go bad.”

“Actually, we can. You see, if you ever want to merge with any other bank, or make any other major moves, the public can sue to stop it — and one of the grounds will be if you’re in compliance with the CRA. In other words, you start making these loans, or our buddies at ACORN and the like will shut down any big moves you want to make. But really, that shouldn’t be necessary — you’ll still make money off these bad loans, so what’s the problem?”

So there we have a perfect carrot and stick for the banks to issue bad mortgages, thanks to the meddling of the government perverting the normal market forces. The normal checks on giving risky loans were inverted — by removing the risk from the lenders and the market in general and dumping the burden on the government, they suddenly became no-lose deals for those best positioned to know bad loans from good.

So all the risk ends up dumped on Fannie Mae and Freddie Mac, those misbegotten, wretched hybrids of public and private enterprise — all the liabilities of both, with very few of the benefits. When some in Congress started seeing the warning signs, in 2003 and 2005, they tried to push through some reforms to head off the looming disaster.

And once again, it was Democrats to the rescue.

Democrats like the infamous “friends of Angelo,” an exclusive club of highly-influential people who got sweetheart mortgage loans from Countrywide Financial. This included Senator Christopher Dodd, chairman of the Senate Banking Committee; Senator Kent Conrad, chairman of the Senate Budget Committee: and Franklin Raines and Jim Johnson, two former CEOs of Fannie Mae. These highly-influential people were given multi-million-dollar loans from Countrywide Financial at extremely favorable terms, at the explicit direction of Countrywide CEO Angelo Mozilo.

Democrats like Chris Dodd and Barack Obama and John Kerry, who each took in over $100,000 in campaign donations from Fannie Mae and Freddie Mac. In Obama’s case, it’s even more remarkable; the donations are cumulative over a 20-year period, and Obama hasn’t even been in the Senate for four years. He got more money faster than anyone.

Democrats like the ones featured in this video, Democrats like Maxine Waters, Gregory Meeks, Lacy Gray, and Barney Frank, who fought like hell to stop investigations and regulation of Fannie Mae and Freddie Mac, to the point of attacking the regulators who were insisting — FOUR YEARS AGO — that Fannie Mae and Freddie Mac were in serious trouble and could end up costing the taxpayers billions.

Yes, there was a certain element of greed involved in the current collapse. But as others have noted, a good chunk of that greed wasn’t financial, but political. Enough Democrats had discovered that shoveling mortgages on to people who couldn’t afford them could buy them a lot of votes and a lot of campaign money and a lot of power, and it didn’t really cost them anything — they could keep shuffling the bad loans around and around from hand to hand like a hot potato and keep pushing back the day of reckoning when enough of those loans would go belly-up and bring down the whole house of cards.

Until it did.

Thanks, Democrats. Thanks SO much.

Size matters II
OK, I'm For The Bailout