Sunday, September 21, 2008

Subprime Meltdown - Who Deserves Our Scorn?


Socialism Rewards the Foolish and Punishes the Wise


My house is on the market, but who knows if the price is right? Will it sell or will I take a bath? I'm not going to whine about how I was tricked into a mortgage I can't afford, or that I bought during the housing bubble and am somehow unjustly suffering from my own stupidity. Quite to the contrary, we selected a mortgage we could actually afford and, although we bought during the hot market, we purchased a home that was "undervalued" because the owners were in distress. Even if my home doesn't sell for what it would have a year ago I'll still make a profit.

Nonetheless, I am dismayed at the apparent loss of value and, more significantly, that the government is planning a bailout for the banks that lent money to buyers who could never afford to repay it and for the buyers whose greed propelled them to purchase a home that was beyond their means. As a result of their lack of foresight and accountability those of us that made good decisions are suffering the consequences through diminished home values, long times on the market, and inevitably higher taxes in the future. What few realize is that the government's bailout reinforces poor decision making and rewards unacceptable risk taking.

Many claim socialism "levels the playing field" or takes care of the needy. At best, these are misguided attempts at government sponsored charity. Most commonly, they are political ploys intended to appeal to a portion of the population that would benefit from such action. I'm not saying socialism can't work; in fact it can, at the expense of freedom and with very high taxation. Socialism erodes the middle class, helps SOME of the impoverished, and stymies economic growth. How many headlines have garnered our attention which proclaim the disappearance of the middle class; yet, our nation has become more socialist, not less - so it is obvious the affect socialism has on the middle class. In fact, we'll see that the subprime meltdown is a socialist construct gone awry.


Masterminding the Meltdown


Media and the Democrats are quick to blame the "failed economic policies of the Bush administration" for the current banking and housing crises. However, it is noteworthy that subprime mortgages made their appearance in the Clinton years. Therefore, if this is a result of failed executive leadership from the White House then both Clinton and Bush must be to blame. Everyone is quite willing to dole out the failed economic policies criticism, but no one seems willing to ask, much less answer, what about those policies contributed to this mayhem?


To answer the question, we must journey back to 1977 when the Community Reinvestment Act (CRA) was established. The purpose of this Act was to encourage, to the point of mandate in subsequent revisions, lenders to make loans in low-income areas. This Act has been used to file lawsuits against banks for failing to lend to minorities, claiming the banks were "red-lining," or discriminating, against minorities with similar financial qualifications as non-minorities. The banks countered they were not lending in certain markets because the housing values were unstable or declining or the neighborhoods were otherwise considered financially risky. Outcomes rarely favored banks and out-of-court settlements were common with banks promising to establish branches in the neighborhoods and issuing loans. Here we have an example of outright government mandate to banks to make risky loans.


While I in no way condone discrimination, I do believe that a bank has a right to refuse lending to an applicant they deem is under qualified whether it be because of financial history or unproven assets. Sadly, discrimination on the basis of race, gender, or ethnicity does happen, but the accusations levied against banks presumed their decisions were based on race and not other risk factors - including specifics of the property being offered as collateral. If we are to mandate unwise risk taking for banks for the sake of not appearing discriminatory, then the same standards should also apply to insurers. Insurers vary rates and even refuse to underwrite applicants based on age, credit scores, race, and gender. For instance, young male drivers are statistically more prone to accidents than their female counterparts; as a result their insurance premiums are higher. In regions where the cost per claim is higher the premiums are also commensurately higher with some locales being avoided altogether. Is this not identical?


Trivia time!


1) Regarding enforcement of the CRA, who said, "No loan is exempt, no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement.”?

2) Who was a plaintiff's attorney in the case Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/InsuranceDocket / Court 94 C 4094 ( N.D. Ill. ) FH-IL-0011State/Territory Illinois wherein Citibank was sued under the CRA for not lending to neighborhoods it deemed high risk?

3) Who signed on (May 25, 2006) as a co-sponsor of Senate Bill 190, "Federal Housing Enterprise Regulatory Reform Act of 2005," which aimed to provide greater oversight of Fannie Mae and Freddie Mac?

4) Which two senators have received the first and second most campaign contributions from Fannie Mae and Freddie Mac?

5) Who said on September 7, 2007, "Subprime lending started off as a good idea: helping some Americans buy homes who couldn't previously afford to."?

6) Who trained personnel and is considered a friend of ACORN, a major player in lawsuits against banks under the CRA?


ANSWERS:


1) Janet Reno while acting Attorney General under the Clinton administration.

2) Barack Obama.

3) John McCain.

4) Chris Dodd and Barack Obama, respectively.

5) Barack Obama.

6) Barack Obama.


Certainly a single person or politician is not to blame for the current economic crisis. Notably, no one from the Democrat-controlled House or Senate has stepped forward to launch a Congressional investigation...what does that tell you? Nonetheless, we can place blame on the implementation and enforcement of socialist ideals and the lack of responsibility of the many Americans who signed mortgages they could not afford. In response to the fallout we see government making further socialist advances: nationalizing banks, socializing investment risk, proposing revised principal or payment terms on mortgages people can't afford (Biden), and promising bailouts for the irresponsible at the expense of the responsible.


Americans need to get realistic about the root cause of the problem. This is not a Bush Administration problem. We are in an economic spiral brought to you by socialism. Truly, Obama deserve more blame than Bush, but don't forget to take responsibility for your part too.

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