Can we trust Obama to do a better job with the economy than the last two Democratic presidents?
This lack of trust may be well deserved. The “sub-prime” melt down can be traced to three major events – all caused by the Democrats playing politics. While Barack Obama was not around for the first two, he was elbows deep in the most recent turning point and, despite his limited time in the Senate, he was second largest recipient of campaign cash from Fannie Mae and Freddie Mac.
But first a bit of history on how we got into this mess.
Carter and the Community Reinvestment Act of 1977
In 1977 Democratic president Jimmy Carter pushed through the “Community Reinvestment Act” (CRA) to make it easier for low income families and those living in sections of cities that were in transition to buy a home. This law was passed to stop banks from “red lining” – refusing to make loans in certain parts of a city – and not providing loans to credit worthy minorities and other low income families. While the concept was noble and well intended, like so many Washington mandates, the devil was in the details.
Here is how the National Review described the problem in a recent editorial:
...The Community Reinvestment Act, a bit of legislative arm-twisting much beloved by Sen. Obama and his fellow Democrats. One of the reasons so many bad mortgage loans were made in the first place is that Barack Obama’s celebrated community organizers make their careers out of forcing banks to do so. ACORN, for which Obama worked, is one of many left-wing organizations that spent decades pressuring banks and bank regulators to do more to make mortgages available to people without much in the way of income, assets, or credit. These campaigns often were couched in racially inflammatory terms. The result was the Community Reinvestment Act. The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama’s fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands — which are political demands — have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime.Bill Clinton and the “Reform” of 1995
The bankers cannot blame CRA entirely; they made a lot of bad bets on rising home prices. But CRA did influence lending standards across the banking industry, even in those institutions that are not strictly liable to its jurisdiction. The subprime debacle is in no trivial part the result of lending decisions in which political extortion trumped businesses’ normal bottom-line concerns. (Read the article HERE)
In 1995 Democrat Bill Clinton pushed through a major reform of the CRA. In 2000, Howard Husock, the former Director of Case Studies at Harvard’s Kennedy School of Government and current Director of the Manhattan Institute's Social Entrepreneurship Initiative wrote “The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities.”
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.” (Read the article HERE)Howard Husock's City Journal article didn’t get much notice when it was published but, like the ancient Greek prophet Cassandra, time proved him correct.
The masterminds from the Clinton administration of this massive expansion of CRA did quite well for themselves. John Gibson of Fox News recently wrote an editorial on this subject titled: “Barack Obama's Fannie Mae/Freddie Mac Connection”
Fannie and Freddie have also been places for big Washington Democrats to go to work in the semi-private sector and pocket millions. The Clinton administration's White House Budget Director Franklin Raines ran Fannie and collected $50 million. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Big Democrat Jim Johnson, recently on Obama's VP search committee, has hauled in millions from his Fannie Mae CEO job. (Read the article HERE)The Proposed Reform of 2005
After a series of accounting scandals at Fannie Mae and Freddie Mac, in 2005 the Bush administration proposed tightening the regulation on these financial giants. Along near straight party lines, the Democrats and a handful of entrenched Republicans blocked the reform. Why were the Democrats, who never saw a government regulation they didn’t like, so bent on protecting the shady practices of Fannie and Freddie? Why would the Republicans, who controlled Congress and the White House, be so quick to run up the white flag? The Associated Press may have the answer; lots and lots of money. Fannie and Freddie have been stuffing the pockets of powerful members of congress for years.
The contributions are part of a lobbying arsenal that has invested $80 million over the past five years to win hearts and minds in the capital. Fannie and Freddie have spent big on hiring former White House officials and lawmakers. Some members of Congress have received tens of thousands of dollars from the PACS, especially those on committees with jurisdiction over the companies, including Frank.Neither party was exactly a profile in courage during the 2005 reform attempt. With a $700 BILLION dollar bailout looming, the stench from this scandal has finally prodded some action with the FBI launching an investigation. Don’t expect big headlines here. When both political parties have dirt on their hands, things like this tend to get settled behind closed doors.
They had huge armies of lobbyists that were tripping over each other, so they developed friends on both sides of the aisle over the years," said Peter Fitzgerald, a Virginia banker and former Republican senator from Illinois. "Republicans got very tight with them over the years and they got very powerful."
Stephen Ellis, vice president of Taxpayers for Common Sense, a Washington-based watchdog group, said the PACs' campaign cash to Congress has helped insulate Fannie and Freddie from oversight. (Read the article HERE)
To gain America’s trust, Barack Obama needs to answer these questions
- What exactly is his relationship to the former CEO of the bankrupt Fannie Mae, Franklin Raines?
- Since 1989 Fannie Mae and Freddie Mac have used PACs and individual contributions to support candidates. Why is Barack Obama – who has only been in the Senate for 4 years – second in total campaign contributions from Fannie Mae and Freddie Mac for the past 20 years?
- Why did he stand silent in 2005 and vote with the other Democrats to block financial reform which could have prevented the current crisis in the financial markets?
- Why should a person with no experience in finance who has never studied economics be trusted to find a solution to this incredibly complex problem?
Like Ricky used to say to Lucy. “You got some 'splaining to do!”