Sarah Palin held up well, going against the more experienced Joe Biden in their vice-presidential debate. But she let me down when it came time to talk about the current financial crisis. Jumping on the “Wall Street greed” bandwagon, she missed her chance to lay blame for the current financial crisis at the feet of those actually responsible. Lest we forget, the match that touched off this conflagration was the failure of huge numbers of sub-prime mortgage borrowers to repay their loans.
In answer to the moderator’s question, Palin stated: “Darn right it was the predator lenders, who tried to talk Americans into thinking that, uh, it was smart to buy a $300,000 house if we could only afford a $100,000 house. There was deception there. And there was greed and there is corruption on Wall Street.”
This puts Palin in agreement with such as Maxine Waters. Congresswoman Maxine Waters (D. CA) was on the TV the morning of October 2 blaming shady lenders for tricking people into buying homes with sneaky variable-rate loans and other deceptive practices. These borrowers, she opined, simply didn’t understand what they were getting into. A lawyer can’t understand those loan documents — they’re that confusing.
She talked about “… people who were lured into these exotic products, uh, the adjustable rate loans and the no documentation loans. Our regulators should have been on top of that. They should have seen these predator type, uh, exotic loans coming on the market and they should have stopped them.”
“Most people who signed on the dotted line,” she continued, “really don’t understand everything that’s in that mortgage. Contracts. You have lawyers, uh, you have people in the industry and in the media who are signing contracts every day who don’t understand them. But most people are not lured into products that they cannot afford. This happened with deregulation. This mess started because they found that they could come up with all kinds of adjustable rate mortgages and loans, uh, that people truly didn’t understand who wanted to get into that American dream of owning a home, and they got lost in all of this. They got messed up. It’s not that they’re all irresponsible people, of course there are some, but many good, hard-working people thought this was an opportunity to own a home.”
So there you have it: Mortgage lenders, apparently seized by a desire to not be repaid the money they loaned, tricked borrowers into signing confusing loan documents with incomprehensible adjustable rate features, to lessen the chances the loan would be repaid. Congresswoman Waters did not explain why lenders wanted to force money on people who could not repay it. But I can tell you: Government forced lenders to make loans to people who were unlikely to repay them.
So is “this mess,” as Maxine Waters labeled it, really the result of de-regulation, as Congresswoman Waters would have us believe? Let’s jump in Mr. Peabody’s Way-Back machine and go to 1992. Here we find the Congress, controlled by Democrats (including Maxine Waters) at that time, requiring Fannie Mae and Freddie Mac to increase their purchase of sub-prime mortgages — the loans of low income and middle income borrowers. The Los Angeles Times reported: “Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains.”
That Democrats required the purchase of sub-prime loans does not sound like de-regulation to me.
Let’s leap forward now to The Clinton administration. As I wrote on September 8, 2008, the housing market collapse, which touched off this financial meltdown, was the result of Clinton administration meddling in the free market.
Andrew Cuomo, the Secretary of Housing and Urban Development (HUD) under Clinton, accused mortgage lenders of racial discrimination, because too many of the people who could not afford mortgage loans were minorities. Threatened with lawsuits by the Federal Reserve, lenders were required to find ways to make more loans to persons considered bad risks. Andrew Cuomo proposed the goal that Fannie Mae and Freddie Mac have 50% of their portfolios made up of these sub-prime mortgages by the year 2001.
This again, does not sound like de-regulation to me.
It did, of course, have the desired effect — according to a 1999 Los Angelses Times article, “...black and Latino home ownership has surged to the highest level ever recorded.” Once again, government meddling in the marketplace had the desired effect.
It is, of course, the undesired effects we’re seeing now. As stated in my Laws Of Government, the Sixth Law, first corollary:
“Legislation designed to help the poor is as likely to hurt them as to help. While any given law may benefit the targeted individuals in exactly the manner intended, the unintended consequences will result in overall harm to those beneficiaries as well as society in general.“
That describes this situation perfectly. The intended recipients of this government beneficence (racial minorities, the poor) did enjoy, at least for a while, the benefits of home ownership. Arguably, however, many of these folks are now worse off than before, and, of course, American society at large is now paying the (unintended, but not unforeseeable) cost.
Instead of placing blame where it belongs, Palin promises more regulation (see Law Six, Third Corollary) due to a problem caused by government interference in the first place.
I can’t help but wonder how Palin intends to prevent people from buying something they cannot afford, whether it is a $300,000 home when they can only afford a $100,000 home or a $50,000 vehicle when they can only afford a $20,000 vehicle.
We had a mechanism in place to prevent people from over-extending themselves financially. It was called credit-worthiness. If you couldn’t afford a $300,000 loan, lenders would not give you a $300,000 loan.
Connect the dots, people. “This mess” was caused by government-mandated replacement of credit-worthiness with political correctness. Before the Democrats, and in particular, the Clinton administration, changed the rules, there was no sub-prime mortgage problem. People who could not afford loans were not given them. The “exotic” loan types were the result of FedGov’s mandate that loans be given to people who could not afford them.
In their zeal to help poor people, Democrats have unleashed the biggest financial disaster since the Great Depression. The bigger crime though, is blaming “this mess” on the free market and demanding “better oversight” of the financial sector. That’s what got us into “this mess” in the first place.
Ironically, the Democrats are successfully blaming this on Wall Street and the free market, much to the Republicans’ dismay. If the McCain-Palin ticket would just help the American people connect the dots, this election could go a whole different way.