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Thanks, Democrats!

Ever since this whole subprime/housing/credit mess started unfolding, I've been trying to wrap my head around the whole thing and get a grasp on just what happened. This has been extraordinarily difficult for me, as I have no head for economics, but I've finally read enough to piece together a working theory on how at least a part of it came down.

The short version: pretty every single time the government had a chance to intervene and either slow down or head off the disaster, the Democrats were ready to grease the skids and keep things going headlong towards disaster -- no matter what anyone else said.

When Bill Clinton pushed through the expansion of the Community Reinvestment Act in the last 1990s, the theory was to get more people into homes. At that point, the banks -- who would be making the loans -- balked. "Yeah, we can get them into the homes, but a good chunk of them won't be able to stay there. We'll end up having to foreclose, and then we'll be owning a bunch of homes we don't want."

"Don't worry," said the Democrats. "We'll take care of that. We'll let you sell off the loans as 'investment-grade assets.' You won't get stuck with them."

"But who the hell would buy them? They're still shaky loans, no matter who owns them or what we call them."

"It's OK, we'll get Fannie Mae and Freddie Mac to insure them. With those folks behind the loans, they'll sell like hotcakes. And later, if they bust, you'll be off the hook."

"I dunno... it's still a shaky deal. I think we'll just pass, thanks. You can't make us give mortgages that we think will go bad."

"Actually, we can. You see, if you ever want to merge with any other bank, or make any other major moves, the public can sue to stop it -- and one of the grounds will be if you're in compliance with the CRA. In other words, you start making these loans, or our buddies at ACORN and the like will shut down any big moves you want to make. But really, that shouldn't be necessary -- you'll still make money off these bad loans, so what's the problem?"

So there we have a perfect carrot and stick for the banks to issue bad mortgages, thanks to the meddling of the government perverting the normal market forces. The normal checks on giving risky loans were inverted -- by removing the risk from the lenders and the market in general and dumping the burden on the government, they suddenly became no-lose deals for those best positioned to know bad loans from good.

So all the risk ends up dumped on Fannie Mae and Freddie Mac, those misbegotten, wretched hybrids of public and private enterprise -- all the liabilities of both, with very few of the benefits. When some in Congress started seeing the warning signs, in 2003 and 2005, they tried to push through some reforms to head off the looming disaster.

And once again, it was Democrats to the rescue.

Democrats like the infamous "friends of Angelo," an exclusive club of highly-influential people who got sweetheart mortgage loans from Countrywide Financial. This included Senator Christopher Dodd, chairman of the Senate Banking Committee; Senator Kent Conrad, chairman of the Senate Budget Committee: and Franklin Raines and Jim Johnson, two former CEOs of Fannie Mae. These highly-influential people were given multi-million-dollar loans from Countrywide Financial at extremely favorable terms, at the explicit direction of Countrywide CEO Angelo Mozilo.

Democrats like Chris Dodd and Barack Obama and John Kerry, who each took in over $100,000 in campaign donations from Fannie Mae and Freddie Mac. In Obama's case, it's even more remarkable; the donations are cumulative over a 20-year period, and Obama hasn't even been in the Senate for four years. He got more money faster than anyone.

Democrats like the ones featured in this video, Democrats like Maxine Waters, Gregory Meeks, Lacy Gray, and Barney Frank, who fought like hell to stop investigations and regulation of Fannie Mae and Freddie Mac, to the point of attacking the regulators who were insisting -- FOUR YEARS AGO -- that Fannie Mae and Freddie Mac were in serious trouble and could end up costing the taxpayers billions.

Yes, there was a certain element of greed involved in the current collapse. But as others have noted, a good chunk of that greed wasn't financial, but political. Enough Democrats had discovered that shoveling mortgages on to people who couldn't afford them could buy them a lot of votes and a lot of campaign money and a lot of power, and it didn't really cost them anything -- they could keep shuffling the bad loans around and around from hand to hand like a hot potato and keep pushing back the day of reckoning when enough of those loans would go belly-up and bring down the whole house of cards.

Until it did.

Thanks, Democrats. Thanks SO much.


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Comments (29)

I always knew the democrats... (Below threshold)
WildWillie:

I always knew the democrats would sell their vote to the constituency so they can hold office, because both parties do that. But there are times where the good of the country trumps party politics, but I had no idea the democrats would be willing to crash our economy long term to hold their seat short term. Despicable. ww

The only people that are go... (Below threshold)
dr lava:

The only people that are going to buy into this nonsense are those that have no knowledge of how our government works or choose to selectively forget the balances of powers within the executive and legislative branches over the past 15 years.

You choose to leave out the fact that the republicans were in complete charge for 6 years from 2000 til 2006. If there was a problem that they wanted to correct why didn't they do it?

You leave out the push the Bush administration made for the "ownership society" in 2002.

The actual source of this debacle is in the failure of the conservative dogma and the myth of the free market/de-regulation.

The war on labor and manufacturing begun by Reagan has left us a country that makes nothing but debt. A country that makes nothing is nothing.


There was lack of forceful ... (Below threshold)
hermie:

There was lack of forceful leadership on the part of the GOP in those years. Instead of using their majority to push for reform, they did the 'let's all get along' thing and it bit them in the butt.

Geez, lava, I dang forgot t... (Below threshold)

Geez, lava, I dang forgot to mention how the Republicans TRIED, but the Democrats fought like hell and managed to stop it.

Oh, that's right, I did.

Do you even READ the stuff I write, including the links, before parroting the latest Obamoid talking points?

J.

And then Pelosi makes her '... (Below threshold)
FlaLady:

And then Pelosi makes her 'plea' to pass the bill. The American public does NOT want to make this any worse, by channeling more funds to ACORN, or by making the taxpayers foot the bill.
And I am so ANGRY that the MSM ignores and will not report on this issue but continues to sweep it under the rug and claim that the Bush administration is entirely at fault! Obama tries to point the finger, too, as though he is not complicit in the whole sordid scenario.

Your description seems cons... (Below threshold)
jim2:

Your description seems consistent with a Ponzi scheme.

So Republicans knew this wo... (Below threshold)

So Republicans knew this would happen and they didn't do anything to stop it? To me, that is worse than what you accuse the Democrats of doing. In their defense the Dems were doing what they thought was right. You guys knew it was wrong but didn't do enough to change it.

Also, if the Republicans did try to stop this and were unable what does that say about them? The R's had control of both houses of Congress and the WH for years at at time and yet with all that power they were unable to stop a global crisis they saw coming for over a decade.

Anyone who wants to pin this on Clinton without taking the Republicans to task for ignoring the problem for over a decade is playing politics IMO.

I see Blue Neponset is sign... (Below threshold)

I see Blue Neponset is signing on to the argument that "the Republicans are to blame for being right, but not trying hard enough, but we have to give the Democrats a pass for fighting so hard at being wrong."

Interesting theory.

Of course, to buy into it, you have to convince yourself that the Republicans' repeated attempts to bring about changes -- but being stymied by scumbags like Barney Frank, Lacy Gray, Christopher Dodd, and the like -- constitutes "ignoring the problem."

J.

Granted, this knowledge doe... (Below threshold)

Granted, this knowledge doesn't help us navigate the immediate future. When you have cancer, it doesn't matter what caused it. Still, now that McCain is no longer trying to be polite and salvage a compromise deal, I wonder if he can trumpet this point at every opportunity. It might do America some good to get a glimpse of that famous temper of his.

Blue Neponset's choice is: ... (Below threshold)

Blue Neponset's choice is: ineffectively right, vs. effectively wrong. Hence: Vote for us! We're more effective!

I disagree with you that th... (Below threshold)

I disagree with you that the Dems are to blame for this. But if I accept that premise then the next logical question is why didn't the Republicans do something to stop this? They had the power and opportunity to repeal the law/regulations you point to as the seeds of this crisis, yet they didn't. Why? The sakes in this case are too high to just be right. If the R's who were in power were so ineffectual that they couldn't stop this from happening when how come you don't point any fingers at them?

IMO your assigning of the blame is way too one sided. If you really believe that those law/regulations caused all this then you should be screaming for (among others) Mitch McConnel's and Jon Boehner's head too.

An even larger scheme that ... (Below threshold)
epador:

An even larger scheme that will crash soon is that the middle class can live a comfortable life, expect retirement and government services laid out for them, without a strong industrial base that BRINGS IN money into the country, and keeps it in rather than sending it to our economic and political enemies in China.

We paid for a lot of that fancy show in Peking with our many trips to WalMart folks.

The biggest fallacy that ou... (Below threshold)
arcman Author Profile Page:

The biggest fallacy that our left brethren here keep spouting is that "the Republicans were in complete control of the Congress". Unfortunately "complete control" would mean that the party in power needs to have at least 60 members in the Senate. Otherwise nothing can get through a "cloture" vote. All it takes is one member to fillibuster, and if there are not 60 votes to stop it the bill dies. Last I saw at least one of the above named were Senators.

Blue, your not listening (r... (Below threshold)
WildWillie:

Blue, your not listening (reading). The many attempts were made, the dems blocked it. Hello. We couldn't even get judges through without threat of a filibuster from the demo's. ww

Seriously, the Justice Dept... (Below threshold)
_Mike_:

Seriously, the Justice Dept needs to get involved in this.

You've got government regulators who were overseeing Freddie & Fannie testifying before Congress that the pair were operating dangerously (if not illegally) AND at the same time you've got Congressional twits slamming the regulators for daring to bring it up... FURTHER, it turns out that many of the Congressional twits who were slamming the regulators for bringing up problems with F&F were being 'bought'(via special lending rates) by Freddie & Fannie execs. There's at LEAST an ethics problems that needs to be investigated.

What's more is that you've got one of the two Presidential candidates who has those very same execs on their staff. And there's very little stink being raised over it. Unfreakingbelievable.

I'm gonna play Devil's advo... (Below threshold)
Boyd Author Profile Page:

I'm gonna play Devil's advocate here (JT knows where my heart's at, and it definitely ain't in sympathy with the Democrats) because it looks to me like some stuff is getting glossed over.

Many are saying that, despite the fact that Republicans held majorities in the House and the Senate, Democrats blocked their efforts to pass financial reforms earlier this decade. When asked how the Democrats managed that, the response is that they filibustered in the Senate.

But that begs two questions in my mind: 1) while they could have filibustered in the Senate, I certainly have no recollection of this having happened. Can anyone point to where the Democrats actually did something in the Senate to block passage? And B) what about the House? I don't recall a bill of this nature passing the House and getting stalled in the Senate. I don't think such a bill existed. Can anyone point to where this happened?

Trust me folks, I'm on the conservo-libertarian side here, but we can't just wave our hands and blame the Democrats without being able to back it up. And saying that Democrats blocked reforms when Republicans controlled both Houses needs to be backed up with evidence, because without evidence, it isn't plausible.

Wow. The willful ignorance... (Below threshold)

Wow. The willful ignorance here by a couple of the usual suspects is astounding.

It's all the Republicans fault for not wresting the lid to the cookie jar from those who have spent the majority of three decades controlling it and widening the opening.

Some TRIED to fix the problem. How many times does that have to be said? One of those people is running for President. The other was busy organizing support for those who tried to get more hands in the jar. Hands that had no means to make more cookie dough.

I guess the bare-faced lying preserved for all time on video for everyone to see still isn't enough for some. And these same people who fight to preserve aspects that caused the problem in a bill that should be designed to fix it will still get dr lava's and Blue Neponset's vote. Why? Because the intentions are good. Never mind the means or the outcome.

"IMO your assigning of the blame is way too one sided." That's because the blame IS heavily one-sided. In effect, Blue Neponset is saying, "Well, unless you're willing to blame [insert politician here], then I'm not listening."

Boyd: The '05 bill was yan... (Below threshold)

Boyd: The '05 bill was yanked because Democrats filled it with so much crap that it became moot. It never got past the House. One of the Democrats' amendments was to stall any oversight of F&F suggested in the bill for a full year. In that year, F&F could have easily expanded well beyond their intended purpose making them unfairly competitive in a market where everyone else had to abide by regulations. There were other aspects just as bad that Democrats fought for and would not bend.

Had the bill passed as such, we would STILL be where we are now.

I think something is being ... (Below threshold)
MO Tim:

I think something is being glossed over as well. The Dems have the majority in the House to pass this bailout bill without any Rebublicans signing onto it and can lead it through the Senate. Its the same scenario. They can pass it since they are in the majority, but Pelosi was screaming yesterday about the "unpatriotic" Republicans not supporting it. She needs the protection of some Republicans so that when this bomb of a bill blows up, it won't entirely be on the Dems head. As in the past, the Republicans had the majority, but the media fallout would have been terrible.

I've been a real estate appraiser for nearly 15 years. I saw it coming. Loans were made and within months homes were lost. Lender pressure was horrible for the last several years. Inflated appraisals were predominant. This mess has been brewing for sometime and could have been stopped. Some tried, but were stopped as the video shows. The Republicans didn't have the political capital, due to their overspending, etc. to push something of this like through.

This illustrates fallacy ... (Below threshold)
hcddbz:

This illustrates fallacy of bi-partisanship. At time you have to stick to your guns and not get along. The president, members of congress and senate tried to fix this problem but in an effort to get along they left it alone. At time you need to be called a racist and bully and stupid and do the right thing anyway. If the MSM goes against it screw em, buy air time buy ads get on shows and state your view point. They will never give you credit for being right anyway so just do the right thing.

Another example of great co-operations was when Phil Gram worked with Bill Clinton to get Glass Steagal Repealed,.

I understand your explanati... (Below threshold)
Boyd Author Profile Page:

I understand your explanation, Oyster. I'm not sure I buy it, though. Amendments can be defeated, certainly by the majority party. Amendments can be kept off of a bill, or once attached, can be removed.

I completely support drawing attention to the leadership at Fannie and Freddie during the past couple of decades, as well as pointing out where the vast majority of their bribes political contributions went. I just think it's a stretch to say that the Democrats prevented reforms when the Republicans were in control, but now that the Democrats are in control, they could have passed it on their own without any Republican support.

Yes, I see and understand the differences in the two circumstances, and if all you're interested in is preaching to the choir, then this plan of attack is fine (albeit pointless). If you're going to actually persuade someone to your point of view, however, I think this is a losing argument.

The sophistry of the democr... (Below threshold)
materialist:

The sophistry of the democrat is a wonder to behold, and wondrously effective! If the Republicans had gone to the mat to rein in F&F the msm would have crucified them as racist oppressors of the poor. If no crisis happened because the problem was fixed, they would have had very little in the way of an effective defense. They were stymied, and they knew it until the problem became so obvious that it had to be addressed. But by that time the democrats were in control.
There are many things for which to blame the Republican congresses, but this is not one of them. George Bush, on the other hand, is still in office, and has moved so ineffectually in this matter that it looks like he has handed the presidency to the least qualified candidate to ever seek the office.

Boyd: "Amendments can be... (Below threshold)

Boyd: "Amendments can be kept off of a bill, or once attached, can be removed."

Sure, they could have simply removed the extraneous crap inserted by Democrats and then the Democrats would simply vote no - and probably a few too-liberal republicans. When crafting a whole new bill, they don't vote separately on each aspect of it. This was not an existing bill they were trying to amend. These were amendments to a bill that wasn't even in effect. They fight over it, but when when one side refuses to let it go further without their amendments one of two things can happen; they can let it go to a vote with or without the amendments, (with the amendments, the bill was useless. Without the amendments they'd never get enough votes) or they can hold to their principles and yank it saying, "I'm not putting my name on it."

That's my point, Oyster. Ex... (Below threshold)
Boyd Author Profile Page:

That's my point, Oyster. Exactly how does the bailout bill differ from earlier financial reform efforts in this regard? I'm not seeing how Republicans weren't responsible for legislative failure when they were in control, but the Democrats are now that they're in control.

Boyd...Having a majority do... (Below threshold)
Don:

Boyd...Having a majority does not mean they are in control. R's only had a slight majority. And just like social security, even though we see the train wreck coming, politicians will not stick their neck out until it is too late and we are in crisis mode.

OT....McCain's new ad:... (Below threshold)
Chris:

OT....McCain's new ad:

http://www.youtube.com/watch?v=r2RZ0sUcVcE

AND THE PROOF OF THE PUDDING:

http://www.youtube.com/watch?v=_MGT_cSi7Rs

Boyd, because almost half o... (Below threshold)

Boyd, because almost half of their own wouldn't even vote for it.

Sounds like a glib and divo... (Below threshold)
Boyd Author Profile Page:

Sounds like a glib and divorced-from-reality response, Oyster.

You don't have to convince me. I'm just pointing out that your somewhat empty claims will fall on the deaf ears of independents who need to be persuaded.

Boyd, glib?Republi... (Below threshold)

Boyd, glib?

Republicans pulled their legislation OUT OF PRINCIPLE. It never got to a vote because they wouldn't allow it to be bastardized. You're the one insisting it was a failure. I'd call it a victory for principle.

The newest legislation was in the face of an actual crisis and they loaded it so badly they couldn't even get almost half of other democrats to go for it. I'd call that an incontrovertible failure.




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