A long, long time ago in a galaxy far, far away, we lived in a country ruled by a couple of corrupt oil men and their cronies. A war was being fought and a country occupied for oil, with massive costs in life and treasure. Cost of living was rising in every aspect of our lives, but no cost was rising faster than the price of gas, so critical to the pocketbooks and personal economies of all Americans. Ideally, this should have been an issue that killed the party of the oil men and their cronies. The other party sat back and waited to reap the electoral benefits.
And then something happened: the bad guys got out in front of the issue, and demagogued their way into turning a gas/oil price crisis to their benefit by playing to the worst fears and ignorance of the public. Prominent Democrats, caught flatfooted, were forced to capitulate.
Of course, this wasn't long ago or far away at all. Democrats got punished for their complacency on oil and drilling, making energy one of the only positive (!) issues for Republicans in the entire campaign. Worse yet, it may be happening again.
The crisis on Wall Street is the worst such crisis in almost a century. From a purely political perspective, the Democrats as a party stand to gain from the crisis, if for no other reason than that Republicans have been the party of Wall St. and in favor of the very same Milton Friedman-inspired deregulations that caused the crisis in the first place. Obama has been doing a good job of tying Republicans and their philosophies to Wall St. and to the broader crisis in general. But if we're not careful, Republicans will look to turn this issue on its head by blaming "liberals" and feeding Americans' deep fear and distrust of the Other. Again. And it's already happening.
The new Republican argument is that liberals forced banks to lend to poor people, particularly minorities, and that the poor banks were driven to bankruptcy after being forced by multicultural "political correctness" to lend to the lazy brown people. This line is best exemplified in this Investor's Business Daily article:
They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.
If they don't comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.
No fewer than four federal banking regulatory agencies are responsible for enforcing the law. They subject lenders to racial litmus tests and issue regular report cards, the industry's dreaded "CRA rating."
The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.
This is not really a new argument; it's just that until now, it's been relegated to the very fringes of the conservative movement in comments on crazy conservative blogs or in an irregular Human Events article or American Prospect hit-piece. Regular readers of FreeRepublic and RedState will have seen these talking points used fairly frequently. In the past, these arguments were meant only to placate the base, and would not be repeated in civilized company for fear of being laughed out of the room.
Now, however, that Obama is rising heavily in the polls and Republicans are at risk of seeing the very idea of letting markets regulate themselves falter and die, they're being forced to pull out all the stops to rescue their ideology and blame liberals and minorities for the self-inflicted rape and pillage of the economy. Add an African-American candidate for president to the mix, and the GOP may hope to kill two birds with one stone: deflect blame for the financial meltdown while stoking fear and anger of minorities to reduce Obama's vote.
Here Larry Kudlow:
And here's Minnesota Free Trade Association president David Strom:
Watch for this to become the new talking point of the extreme right. Only problem, of course, is that this argument is total crap: the Community Reinvestment Act didn't affect most lending after 2001 (when most of the highest-risk loans were made); the repeal of the Glass-Steagall Act, spearheaded by none other than John McCain economic advisor "mental recession" prononent Phil Gramm, pretty much deregulated the financial markets, allowing massive speculation; Greenspan's keeping interest rates insanely law throughout most of the Clinton and Bush administrations made lending insanely cheap; most of the problem loans weren't even made by the thrifts and banks covered by the CRA; and the CRA had nothing to do with the problems at Fannie Mae and Freddie Mac.
The best refutation of this garbage is in an overlooked article by our own bonddad over at Huffington Post:
There are two huge problems with this analysis. The first one alone should dismiss this claim as a farce. The CRA was signed into law in 1977 -- almost 30 years ago. So, what do you think the possibilities of a law passed 30 years ago causing the lending problems now? That's one heck of a law to have that kind of effect....
In other words, the CRA isn't even an issue. But that won't stop the the likes of Rush and his progeny from saying it over and over again until all sorts of people believe it....
A simple Google search with help from Wikipedia would have revealed how clueless the CRA caused this mess claim is. But that's not the point. The entire financial system is under tremendous stress on the Republican's watch. It's their policies that are under the microscope right now. And they just don't look that good. So now the political game is to shift the blame to Democrats. And who better then to blame then ... Jimmy Carter.
Democrats would be wise to get their talking points in order:
- Deregulation and the philosophy behind deregulation caused this mess
- Banks were not forced to lend to anyone; they were driven by greed
- If they banks had been "forced" to make these loans in spite of reservations about risk, they would not have repackaged all these loans and killed themselves with insane amounts of leverage
- The law Republicans blame for this problem was passed over 30 years ago; the crisis is because of loans made in the last 8 years
- The law Republicans blame for this mess did not affect that vast majority of lenders making the bad loans
- Republicans were in charge of overseeing the economy when this happened
- Only Democrats will bring back the commonsense regulations we need to make sure this never happens again
If we get caught as flat-footed on this issue as we were on gas prices and drilling, it will our own fault that we lost--not the electorate's. Failure to get in front of this issue and cut this argument off at the pass would be nothing short of electoral malpractice.
Keep your eyes on the prize, and be ready to fight back.