Government made the mess. Now clean it up
Examiner Editorial
October 21, 2009
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When Rep. Barney Frank, D-Mass., declared last year that "the private sector got us into this mess," he offered a solution: "The government has to get us out of it." Neither claim was true, of course, but that's the point. In order to maintain the illusion that the Obama administration can deliver an economic recovery, the role of government in causing the crisis in the first place must be obscured.
Thank goodness for people like Peter Wallison of the American Enterprise Institute who skillfully analyze government data. He noted recently in the Wall Street Journal that two-thirds of the bad mortgages -- those "toxic assets" we heard so much about last year -- were bought by government agencies or required to be bought by private companies under government pressure. How could this have happened? The answers are found in Peter Schweizer's superb new book, "Architects of Ruin." Schweizer describes in detail the radicalization of government housing regulations, beginning in the 1970s under the Carter administration.
Then in the Clinton decade, the federal government elevated a political goal -- increasing homeownership among minorities -- over the traditional sound lending principles that prevent the creation of toxic assets. At the same time, Fed Chairman Alan Greenspan's cheap money policies unleashed a flood of lending that encouraged the real estate bubble. The bubble inspired the Washington politicians to engage in more social engineering through housing policy, even as it temporarily insulated them from the inevitable consequences.
We are still dealing with those consequences. In September, delinquencies among U.S. commercial mortgage-backed securities surged to 3.64 percent, up from .54 percent last year. The Mortgage Bankers Association projects that foreclosure rates will keep climbing through until late next year, particularly among Federal Housing Administration loans, 8 percent of which were in foreclosure or delinquent at the end of June, compared with 5.5 percent in early 2006.In 2008, it insured 21.5 percent of all new mortgages, up from fewer than 6 percent in 2007. Yet despite all those failing loans, FHA so far this year has backed nearly 2 million mortgages worth at least $328 billion. What is it they say about the definition of insanity?
You wouldn't know it, however, according to a study from the Pew Research Center's Project for Excellence in Journalism. Pew found that only three storylines have dominated coverage of the financial crisis:Efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. In other words, nothing about the government's -- and Barney Frank's -- dirty little secret.
