Gasparino Skewers Government Policy As a Major Contributor to the Financial Crisis
by Anthony RandazzoOne of the last people you’d expect to be a catalyst for the near collapse of history’s most advanced financial system is the secretary of Housing and Urban Development. Though not the masterminds of the nation’s economic woes, Andrew Cuomo and Mel Martinez were willing musclemen for the Congressional and White House driven mandates that housing be made more affordable to all through government subsidy.
Those mandates, policy stemming back to the 1960s, were driven by compassion, but have turned out to be the chief cause for the current rampant rates of default, foreclosure, and economic pain striking particularly hard at low-income families.
Such is the story Charlie Gasparino tells in his new book, The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System. Gasparino notes that Cuomo as much as boasted in the late 1990s about forcing Fannie Mae and Freddie Mac to expand their subprime mortgage portfolios. Not slowing down, the George W. Bush appointed Martinez carried the ball forward with great speed, presiding over a period of time where Fannie and Freddie grew to hold a combined $1 trillion in subprime mortgages.
These government-sponsored entities were the tools the government used to try and expand housing opportunities to more and more Americans. A noble goal, but one executed by disastrous means. To begin with, the policies—explicitly set forth by members of Congress and the executive branch—were directly a part of creating the housing bubble. Gasparino nails it in his book, saying:
One of the ironies of the bubble Fannie and Freddie helped create through their guarantees and purchase of subprime loans is that it made housing less affordable, not more so. To own a home, working-class and poor families were now more reliant than ever before on the various gimmicks the mortgage business offered—the adjustable-rate mortgages and “no-money-down” loans that allowed families to live in their homes at minimal initial cost, only to have their mortgage payments skyrocket later.
Government housing policies of the past several decades were the cause of other problems as well, including creating incentives for banks to over securitize mortgages. The implicit support Fannie and Freddie had allowed it to borrow cheaply, spend freely, and act irresponsibly. You, the taxpayer, had their back.
All the while, corruption at the highest levels was rampant. Gasparino also writes of the “Friends of Angelo” scandal, where the CEO of Countrywide gave sweetheart deals to allies on Capitol Hill—including the top Senate banking and housing overseer, Chris Dodd.
Ultimately, the story of The Sellout might be summed up by this line from President Bush at the height of the bubble about the goal of expanding homeownership to more low-income families, particularly minorities:
There’s all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place.
That is the attitude that has sunk us today. The crisis started with compassion, it was driven by excessive confidence, and we are paying the price today.
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For more on this topic, also see my Reason Online article looking at other ways the government has been complicit in causing the crisis: The Myth of Financial Deregulation.
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24 Comments
Three words:
"Community Reinvestment Act."
There’s all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place.
What ridiculous dreck. It's not corporate America's responsibility to make America "compassionate." Where do these mental retrogrades get this silly bullshyt?
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Yep CRA-1977 Jimmy Carter and all the government edicts that were follow ons. Pushed by ACORN, Barack Obama, our so-called president, and shielded from scorn by Democrats in Congress.
The story will not remain hidden from public view much longer.
And what makes you think that government rationed healthcare won’t be a bigger scam than the sub-prime mortgage mess government caused? How about sub-prime government rationed healthcare.
"Compassion." This is a quite misused and overused excuse for government programs. Compassion isn't giving people no incentive to improve themselves and to work for what they get. Any good parent knows that this is indulgence and spoiling. What you get at the end is a brat.
Wonderful analogy!
Bertha Lewis and her ilk, are nothing but spoiled brats.
MadreDeDanseurs very nice I am glad so see I am not the only hard a$$ parent that gets it
Don't forget all the dumbass buyers who didn't read their contracts or didn't care. As always, they want their money for nothing and their chicks for free.
Is it just me or is the bloom coming off BO's rose? I just noticed the MSM as represented by the usual suspects are reporting stories that BO does not want to hear much less want anyone to hear. I was beginning to lose hope that the rush of August was only that. But finally even if only by little steps, the story is unfolding. There are so many plots with subplots going on, all of them in one way or another inextricably tied to one another. What at first appears to be an incredibly outlandish conspiracy theory is gaining credibility. In our world today Perception is reality and the big BO is going to get a double dose of it real soon.
Back in the late 1970s, there were all kinds of schemes about buying "investmjent" property for no money down. That didn't work either, but at least the taxpayers didn't get stuck.
There is no "FREE LUNCH"; but sadly, many Americans have and still fall for that canard. Time was, and not really all that long ago, were taught that you didn't buy anything, unless you could afford it; even a house.
You and I have been on this site since the beginning. I am involved, and I am well versed. It is all I can do to keep abreast of this. Sometimes, I step back and gaze in wonder, and can do nothing but shake my head and mutter incoherently. It is unbelievable. Those people, those vermin, are attacking and dismantling anything and everything American.
I wish I had an answer.
I'll tell you this is starting to look like Alinski in reverse, on steroids. One of his cardinal rules is to 'make them live up to their impossibly high standards'. Barak way way way overpromised and just now some of his favorite minions are seeing thru him and seeing how they are getting screwed. The DC school voucher program in the Wash. Times is but one example. Many more promises, broken promises in the pipe waiting to drip, drip, drip out on his sorry a–.
Serendipity my friend. Just a few years ago, sans the internet, this would have never happened. The MSM would have buried all this cr-p as they traditionally do with things that don't line up with their agenda. NOT NO MORE. The internet and especially these social networking tools are providing a timely and needed injection to strengthen true democracy. We are now, all of us the eyes and ears, and mouths of the new media. The one gift we may have to backhandidly grant Obama and thank him for is waking up the sleeping giant known as the Silent Majority. They will be Silent No More.
[...] news by Anthony Randazzo The Sub-Prime Mortgage Market is Broken – Mortgage Advice … [...]
You mean like the Detroit loafers and welfare rats that shuffled dowtown to get their OBAMA stash ??? I actually heard that the lines started forming at 10:00 IN THE MORNING ! Shocking I tell you…. 10:00 A.M……thats right !
Ooops..forgot….. They had to get their hair and nails "DID" so they could look good in the OBAMA WELFARE LINE !
John F. Kennedy said it best to some African nations during his Presidency. No more national cash aid for you BUT I will GIVE YOU all the farming and implements you will need to develop your food supply (paraphrased).
Sadly, most Americans don't realize how much the current economic downturn was *caused* by interference with the market. Instead, the Paul Krugman's of the world explain that these perturbations are the natural result of a fundamental flaw in free market systems; a flaw that only the Krugmans and his acolytes are capable of correcting. So the planners hose the economy by their interference, blame the negative result on the the free market and proceed to prescribe the same "medicine" that made it sick to begin with. The Keynsians are the moral equivalent of Michael Jackson's personal physicians.
I betcha they all be shuckin and jivin in da line, all wantin to "AXE" da man fo a handout, or free cell-a-phone.
It is so tragic when economic policies are driven by a corrupting politicial ideology. The result is wide spread corruption by both the politicians and the financial institutions who are comanded to conform to these ill conceived laws. Sooner or later the reality of the marketplace reveals the flaws of a bankrupt ideology. The very sad thing, is that we are not holding anyone accountable for this massive corruption. The bitter irony, is that our political leaders have anointed themselves as the ones who are going to fix the very mess that they have themselves have created.
Unfortunately, they have held the American people accountable for these ruinous policies. We will be paying forever for their greed and corruption from the very taxation that is now imposed upon us, and will burden unborn generations of taxpayers without relief, subjecting all of us into indefinite indentured and involuntary servitude.
We cannot long endure this massive greed and corruption so blatently imposed upon us. It is small wonder that there is a groundswell of anger being directed against our political leaders, who no longer represent the will of the American People.
The four biggest potential and real financial crises in the USA are:
* Social Security – Several tens of trillions of dollars of unfunded liabilities are starting to come due within a few years. Every president since Eisenhower has warned that the SS system is unsustainable, but nothing was done, most recently when President Bush tried to make an issue of this in the early 2000s and the Democrats in congress refused to discuss it.
* War on Poverty – LBJ’s effort cost $6.6 trillion over a thirty-year period ($220 billion per year), had virtually no positive effect on poverty rates, became bogged down in waste, fraud, and corruption, and substantially destroyed Black family life in the USA. The money wasted on the War on Poverty with a modest 3% interest rate over all those years and since is equivalent to the entire national debt just two years ago, just as the mortgage collapse was becoming apparent. The War on Poverty was ended by President Clinton on a Republican initiative (and over the strong objections of many Democrats in congress) because the fraud and corruption were becoming a political liability.
* Medicare/Medicaid – LBJ’s Medicare program is a work in progress, with more trillions at risk now and in the future.
* Sub-prime mortgages – Carter’s Community Reinvestment Act and Clinton’s revisions to the CRA are the documents enabling/mandating the housing boom, the housing bust, and the mortgage collapse. “Closing the Gap: A Guide to Equal Opportunity Lending” is an official publication of the Federal Reserve Bank of Boston adopted by the Clinton Administration as national policy. “Closing the Gap” gives detailed instructions on how to violate the law, common sense, Econ 101, and fiscal prudence in order to give mortgages to borrowers that had no hope of paying back the money.
This is the total of the debt crisis in America. WWII has long since been paid for. Note that each of these four programs were initiated by Democrats with some bipartisan support and with some unipartisan (monopartisan?) Republican objections. Each program produced current benefits for current voters, and dumped costs onto future generations. Social Security and Medicare will be a disaster when the bills come due. The War on Poverty and the mortgage crash are disasters now. The War on Poverty and the mortgage crises did terrible damage to the very people that were supposed to be helped by the expenditure of trillions of dollars of taxpayer money. Democrats in congress long delayed reform of the War on Poverty and the mortgage problems, are not addressing the looming Social Security due dates, and are now actively attempting to add substantially to the Medicare debts.
The economic bounce after WWII lasted until 1965, a period of steady growth and stability. The markets went stagnant for seventeen years, including three recessions, after LBJ started taking hundreds of billions of dollars out of the economy for his Great Society programs. The markets and the economy recovered sharply under the Reagan reforms, even with the burden of the War on Poverty costs; the entire increase in the national debt during the Reagan years was almost exactly the amount that Reagan had to spend, by law, on LBJ’s War on Poverty. The Reagan recovery lasted through 1995 when the dot.com bubble seized control of the economy. But then the dot.com bubble popped in Clinton’s last year when the NASDAQ fell $2-1/2 trillion before Clinton left office and GDP and government revenues started falling like a rock for three years. The economy recovered nicely during the middle years of the Bush Administration until the Democrats’ mortgage crisis hit.
In order to pay national obligations, we must have sustained growth and stability similar to the growth after WWII, the growth after the Reagan reforms, and the growth after the Bush reforms in the early 2000s. Instead we are spiralling downward, following the tax and trade policies that created and sustained the Great Depression.
When government does anything based on "compassion", it always leads to failure and escalates when they start meddling with private business.
No wonder why Mel Martinez retired suddenly without explanation. Probably hopes he'll be forgotten.
These 2 articles from 2001 and 2003 are a very interesting read. These articles about Fannie and the American Dream Act have all the bad characters gloating about how they are enabling people who can't afford homes purchase them.
http://findarticles.com/p/articles/mi_m0EIN/is_20...
http://findarticles.com/p/articles/mi_m0EIN/is_20...
Wake Up America! Freddie Mac and Fannie Mae are corrupt institutions. They ned to be doen away with and investigated with people like Franks and dodd going to jail for thier role in stealing millions from us the taxpayers. They looked the other way while the former head at Fannie Mae cooked the books and gave them millions in campaign funds. Then the guy ends up working for Obmas White House! How much in stolen taxpayer dollars did he give Obama to stop the investigations? The guy is dirty and now he works for Obama. Gee what a surprise! Wake Up America! we need to take back our country, starting right now! Vote the sob's out this election and demand that the FBI investigate all of them! They are all dirty! They are all committing treason and stealing our freedoms. Wake Up America! wake Up!