Sunday, September 28, 2008

Meltdown - Causes (cont.)

  • Jeff Jacoby exposes Barney Frank's role in the bubble
  • Here is an article from the New York Times in 1999 showing Fannie Mae "easing the credit requirements on loans that it will purchase from banks and other lenders"
  • Of course, politicians bragged about the increase in home ownership when it benefited them. And why did Fannie Mae ease credit requirements? "The top priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42% of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer."
  • Many of those sub-prime mortgages went to minorities just like politicians wanted, but in 2001, politicians wanted it both ways - pressure the banks to make loans and sue the banks for pushing those loans
  • In 1997, Wachovia (then First Union) bragged about their involvement with the Community Reinvestment Act
  • More blame for Fannie and Freddie
However, political pressure can only go so far. If the means are not available, there is only so much credit that can be loaned out. That is where the Federal Reserve comes in via its loose monetary policy. Financial institutions were able to come up with creative ways to provide loans to high risk borrowers because credit was easily available (especially after the the 2000-2001 recession and 9/11).

Many people want to blame an era of laissez-faire capitalism for this mess because corporations were involved. It is not, however, "laissez-faire" when governments use corporations to enact egalitarian goals. That is probably best described as Corporate Socialism.


Brian T. Webb said...

How far a step is it from Corporate Socialism to fascism as Mussolini saw it?...

...probably not that far. In fact, looking at the past 40 years, it's hard not to see a gradual game plan in this direction...

...while not a broad conspiracy, neocons, neolibs, neoblahblahs have been moving the U.S. to a society that appears free as long as you consume it (many layers of meaning implied here), when in fact we have slowly but surely been moving us away from what made us great in the first place (individual freedom) no a system that looks a lot more like ones that cause MAJOR problems for humanity in the past (corporate "freedom").

William P. Dupre said...

Yep, Fabianism is more like it. It will probably happen by default, and not by some grand construction - which, I guess, is the point of the Fabian gradualist ideology. My point being that I don't think those in power would call themselves Fabian (maybe some).