Lack of regulation you say?

By Mischa Popoff on October 1, 2009

Some claim the global financial crisis was caused by a lack of regulation. But it was overregulation and community activism that caused the American mortgage crisis which precipitated the global financial meltdown.
The American mortgage industry is overseen by Freddie Mac and Fannie Mae. They are roughly equivalent to our Canada Mortgage and Housing Corporation, the big difference being that unlike CMHC they participate directly in the mortgage market. Now hold that thought…
When anti-free-market lawmakers passed laws making it a basic human right to own a home − an effort begun under President Carter and concluded under Clinton − lenders did not at first play along. After all, who in his right mind would give a mortgage to someone who can’t afford the payments?
Enter the federally funded Association of Community Organizations for Reform Now (ACORN) which launched coordinated protests against institutions that refused mortgages to anyone deemed worthy by ACORN, even if they were unemployed.
Lenders asked Congress how to deal with this and the answer was to go ahead and write the mortgage, then sell it… wait for it… to Freddie Mac and Fannie Mae! Problem solved… at least temporarily.
These “toxic” mortgages were repackaged and sold on the global investment market, thus turning what should have been an American problem into a global problem. Other factors like skyrocketing oil prices compounded matters, but no one denies that bad American mortgages are the foundation of the mess we’re still in.
One of the ways the lenders dealt with being forced to write mortgages to those who couldn’t afford them was to invent the sub-prime mortgage whereby a low introductory interest rate was replaced by an astronomical rate on the renewal date. Anyone, even greedy capitalist lenders, could see this would turn out bad for lender and homeowner alike. And while one could certainly imagine regulations prohibiting such practice, the simple fact is no one in Washington, not even the nicest Obama Democrat, plans to outlaw this practice.
Guess how many separate regulators already oversee the FMs? The answer is 200, each replete with fancy offices, computers, filing cabinets (you know... the usual bureaucratic trappings), and of course full staffing. Each is charged with the duty of overseeing a specific aspect of mortgage lending in the U.S., like making sure enough minorities receive mortgages, but also ensuring only good mortgages are written. Oops! Looks like the regulators failed on the latter.
Then there are politicians like Congressman Barney Frank and Sen.Chris Dodd (Democrats) who were given princely budgets for extra staff to help them oversee these 200 regulatory bodies. Rather than enforce existing laws, Frank and Dodd both lied about the stability of the FMs right up until both lenders imploded.
President Obama promises to transform the role of the Federal Reserve to prevent a repeat of the debacle. He couldn’t very well just insist that existing laws be enforced; to do so would be to accuse Frank, Dodd and other ranking Democrats of dereliction of duty. But as long as he’s in the mood for writing more regulations, you’d think Obama would at least deal with the source of the problem. But guess at how many times the FMs are mentioned in the president’s proposed bill? The answer is 0 (zero). It will be business as usual for these “regulatory” entities.
It’s the anti-free-market legislation mentioned above that makes it a right for every American to own a home, and which casts racist aspersions on any lender that doesn’t play along.
But, in trying to help more African-Americans, North American Indians and Latinos own their own homes, this legislation has only succeeded in shoving more African-Americans, North American Indians and Latinos out of their homes.
Whining for more government control of financial markets is just a diversionary tactic for the Democrats. Imagine how it might’ve turned out if the government wasn’t involved.


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