Sunday, September 28, 2008

Barney Frank and the economic crisis

While Democrat Barney Frank is blaming the private sector and the free market for getting us into the current economic crisis, an outstanding (and short) article in the Boston Globe argues that it was our government--including no small part by Barney Frank!--that got us into this crisis. The article says, lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage
lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs"of
"low-income, minority, and distressed neighborhoods." Lenders respon
ded by
loosening their underwriting standards and making increasingly shoddy loans. The
two government-chartered mortgage finance firms, Fannie Mae and Freddie
encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.
Please take time to read the entire article in the Boston Globe when you get a chance.

1 comment:

Kevin said...

Washington is the problem. These politicians trade political favors to special interests and corporations in order to stay elected. Americans get screwed. We must change Washington and hold these politicians accountable for their corruption.