Former FDIC Chairman William Isaac, in an interview on American Public Media's "Marketplace", told the interviewer that the primary cause of the financial crisis was our government!
Ryssdal: Do you agree with Fed Chairman Bernanke and the speech he gave this weekend about the cause of the crisis really being lax regulation?
ISAAC: Ineffective regulation I think is an important contributor to the crisis. I think the government bears a large responsibility for the crisis. Fannie Mae and Freddie Mac were out of control for about the past 20 years -- wild growth rates, decreasing their lending standards, under a great deal of pressure from the Congress to do that. The Congress wanted them to loan more, and to lower their standards, so more people could borrow more money, and it had to come home to roost and it has.
Where was the follow up to that outright lie!!?? Journalistic ethics require a challenge to this or it becomes accepted fact to the general public. Kai Ryssdal has done a major disservice in today's interview. This former FDIC chairman was peddling a conservative meme blaming poor people and indirectly, the Community Reinvestment Act.
Daniel Gross of Newsweek summarized this meme in his 10/7/08 article:
"The thesis is laid out almost daily on The Wall Street Journal editorial page and in the National Review. Washington Post columnist Charles Krauthammer provides an excellent example, writing that "much of this crisis was brought upon us by the good intentions of good people." He continues: "For decades, starting with Jimmy Carter’s Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac"which in turn pressured banks and other lenders"to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity." The subtext: if only Congress didn’t force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel’s Neil Cavuto put it: "I don’t remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."
Daniel Gross blows away this lie.
Starting with the Community Reinvestment Act:
The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn’t apply. There’s much more. As Barry Ritholtz notes in this fine rant, the CRA didn’t force mortgage companies to offer loans for no-money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on subprime debt.
and ending with who the real culprits are:
Look. There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb lending virus originated in Greenwich, Ct., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them" frequently using borrowed capital.
Barry Ritholtz of the blog, The Big Picture, does a great job explaining the financial market, in particular, the financial crisis we are still in the midst of. I recommend reading his comprehensive post on it from 10/2/08. It's worth the time - bookmark it.
If you're interested I already blogged two summaries on the issue of this financial crisis:
here ("Subprime Loan Crisis explained. . .Class Warfare by the Wallstreet elite")
and
here ("Blame the poor and minorities for this financial crisis?").
Please consider taking the time to go to the site of this interview (bottom of the page) and leave a comment expressing your thoughts on this terrible interview!
