In 2008, a local Democratic Party official wrote to local papers describing the savings and loan collapse as a “Republican monster.”
Though a lifelong Independent, I wrote back that there were many causes for the recession, and that Democrats had their own heavy hand therein. I outlined why.
The editor wrote a lead line over my letter that read: “Regulations subjugated in the name of political correctness.” My letter never mentioned political correctness but it turns out that the editor was more right than he knew. Witness:
&#183; Per an hour-long interview on NPR (May 24) Gretchen Morgenson described a recent book she co-wrote on the S&L crisis and resulting recession called Reckless Endangerment. In it she makes the case that Wall Street “greed” and banking malfeasance were symptoms of the pending collapse, not its cause.
&#183; The cause, Morgenson wrote (as I had written three years earlier), was multifaceted but stemmed at its root from Democrat political correctness pressure upon the lending industry.
&#183; According to Morgenson, in 1994 President Clinton became moved by a 1992 report he read on alleged ‘redlining,’ the practice by lenders of refusing mortgages to unqualified borrowers. White borrowers were included in the redlining, but Clinton was dithered because many of these refused mortgages involved black borrowers, which he read as discrimination rather than simply poor credit.
&#183; The Clinton administration then investigated Fannie Mae for racial discrimination. They didn’t come up with any racism, but they did insist that Fannie Mae’s and Freddy Mac’s portfolio’s become 50 percent low-income borrowers by 2004. The handwriting was on the wall at the government loan backers: lend to more low-income and minority borrowers pronto, or else.
&#183; To help this along, the Clinton administration insisted that lenders not be allowed to ask for W2 forms, or proof of employment, citizenship, or income. They also required that welfare and unemployment benefits be included as “income” when considering mortgage applications. This was banking lunacy in any terms, but it was politically correct. For the Clinton administration that was apparently enough. Not surprisingly, sub-prime mortgage approvals accelerated like a drag racer.
&#183; Morgenson reports that in 1991 Democrat congressman Barney Frank pressured Fannie Mae to hire a boyfriend of his who’d just graduated. As quid pro quo, Frank subsequently and consistently led aggressive efforts to throttle later attempts by congressional Republicans and others to rein in what were already being seen as reckless Fannie Mae lending policies driven by political correctness.
&#183; In 1996, still waving the ‘racism’ graffiti can, Frank led the Democrat charge to discredit a CBO warning, and a later one by economist Walker Todd.
Morgenson told NPR that Democrat congressman Chris Dodd quietly worked a measure into law that required the FED to back insurers and brokerage firms to the same extent it had theretofore backed only mortgage banks. This effectively eliminated the risk of reckless lending for all three and dropped the green flag on the willy-nilly sub-prime loans and spoiled mortgage packaging that naturally ensued.
The Huffington Post reported that Dodd received a personal mortgage from Countrywide Financial “under a little known program that waived points, lender fees and company borrowing rules for prominent people.” Morgenson calls Countrywide “the main culprit” in the rotten loans.
Morgenson’s research found that the Clinton era FED, who referred to banks ostensibly under its authority as “customers,” began to unofficially delegate its duty of setting bank capital reserves to the banks themselves, which they shortly undervalued.
According to Morgenson, the bad lending under all this massive political correctness pressure and artificial opportunism peaked in 1998, and declined until the break of the scandal.
At the end of Morgenson’s interview on NPR, the show’s host told her that her research mirrored “the long standing Republican narrative” that the recession was as much driven by political correctness as by greed. Morgenson answered that poor people, immigrants and minorities had not caused the recession, but neither had a shortfall of government regulations. Rather the root cause was (as I had alluded in 2008) that “regulators lost their appetite to regulate.” The affordable housing dream was laudable, Morgenson said. “The execution was disastrous.” The henhouse doors were thrown open, and indeed the financial foxes had a field day.
So who is this Gretchen Morgenson? Some hack for FOX News? A Republican propagandist? Not exactly. Morgenson is a business/financial editor and columnist for the New York Times.
Where’s the lesson learned here? Perhaps it is that any of us who approach political issues spring loaded with partisan myopia do so at peril of our credibility and grave risk to any useful solution.
William Slusher is an author who resides in the Okanogan Valley.