Republicans continue to push their meme about the cause of the financial crisis in debate after debate, thankfully we largely avoided that particular meme in the last debate as it focused on their foreign policy foibles. The candidates running in the Republican Presidential Primary, of course, have chosen to feed red meat to its base, regardless of its mendacity. They and their voters love the elite, wealthy one percent who must be defended at all costs. If that can be done while scapegoating the remaining 99%, especially minorities and the impoverished, so much the better.
So, how does that happen in this case?
One of the tactics that a good defense attorney will do is try to offer a plausible alternative criminal candidate instead of their client. It is rather obvious that we bailed out Citibank, Bank of America, et al and that this was due to their choice to engage in risky investments. If they had not made risky investments, then they would not have needed this bailout. The managers did not have any personal stake in the successful outcome of their investments since their financial companies would be immune from damage as too big to fail. These managers are millionaires, many of them many times over. And their financial companies were some of the most profitable ever. Clearly, they are the 1 percent. And they were bailed out with money from the rest of us.
However, to retain the campaign contributions of these wealthy people and to retain the votes of their base which hates poor people and people of color, they decided to scapegoat Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac arose out of legislation that was designed to increase the percentage and absolute number of minority home owners. The argument is that Fannie Mae and Freddie Mac enabled poor people with bad credit who should not have been approved for home loans to get them.
Thus, at one fell stroke they get to protect the 1 percent, scapegoat the poor and minorities, and throw red meat to their base.
The problem, as with most things that the Republicans say, is that this is a false picture of reality.
Professor Krugman gives the background :
Here’s the background: Fannie Mae — the Federal National Mortgage Association — was created in the 1930s to facilitate homeownership by buying mortgages from banks, freeing up cash that could be used to make new loans. Fannie and Freddie Mac, which does pretty much the same thing, now finance most of the home loans being made in America.
He points out why their allegation is false:
In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.
Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.
McClatchy reports why their thesis fails
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.
Federal Reserve Board data show that:
More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
Read more: http://www.mcclatchydc.com/...
Another commentator reports
Over the past 2 years, I have repeatedly asked the people who push this narrative to provide some evidence for their positions. I have offered a $100,000 if they could prove their case.
Specifically, I have requested some data or evidence that DISPROVED the following facts:
-The origination of subprime loans came primarily from non bank lenders not covered by the CRA;
-The majority of the underwriting, at least for the first few years of the boom, were by these same non-bank lenders
-When the big banks began chasing subprime, it was due to the profit motive, not any mandate from the President (a Republican) or the the Congress (Republican controlled) or the GSEs they oversaw.
-Prior to 2005, nearly all of these sub-prime loans were bought by Wall Street — NOT Fannie & Freddie
-In fact, prior to 2005, the GSEs were not permitted to purchase non-conforming mortgages.
-After 2005, Fannie & Freddie changed their own rules to start buying these non-conforming mortgages — in order to maintain market share and compete with Wall Street for profits.
-The change in FNM/FRE conforming mortgage purchases in 2005 was not due to any legislation or marching orders from the President (a Republican) or the the Congress (Republican controlled). It was the profit motive that led them to this action.
Mother Jones gives us a few more facts and summarizes this for us.
Bottom line: You Lie GOP, You are a bunch of haters, Keep protecting the 1 % and keep attacking the 99 % ! We will see you at the ballot box ! :- )