Saturday, January 24

How Pelosi and Dems rigged the report on the mortgage meltdown

Wanna know how government really works?

Actually most of you really don't, because it's sordid and depressing and corrupt, but a tiny few of you have a strong sense of honor and propriety and are probably curious, so here goes:

It's widely known that people who own their own homes take better care of both the homes and their neighborhoods than renters do.  Accordingly, Democrats and liberals came up with a "great" plan:  If more people owned their own homes, cities would be better places!  Great!

But what's stopping renters from buying homes *now*?  Oh yeah: Banks knew from lots of experience that if a potential borrower had a lousy credit record, or not enough income, the chances of them defaulting on the mortgage went way up.  If a business wanted to *stay* in business it didn't make sense to give mortgage loans to such borrowers.

Democrats--being Democrats--had a great solution for that one:  Just pass a law (or issue banking regulations, which is a lot easier) forcing banks to give mortgages to people with poor credit!  

Genius, eh?  What could possibly go wrong?

Of course banks and other lending entities weren't stupid:  They knew (from long experience) that such mortgages would have a high default rate, so as a condition of not opposing the law (or regs) they got a provision inserted into the bill allowing them to sell high-risk mortgages to Fannie Mae or Freddie Mac.  (Some of you may not be aware that both those were "government-sponsored enterprises"--an orwellian term meaning that they could be bailed out with taxpayer bucks.  Oh, and they also paid huge salaries to see-no-problems Democrat "executives.")

The result was an explosion of what came to be called "ninja loans"--no income, no job, no assets.  The word came down to loan officers from banking execs to give mortgages to anyone who applied, because of the risk of a huge government penalty if anyone was declined.

So around January of 2008, after years of the gummint forcing banks to make mortgage loans to borrowers who normally wouldn't have qualified for a mortgage, and then the banks selling most of this "paper" to Fannie and Freddie, the absolutely inevitable and predictable happened:  Defaults on sub-prime mortgages started going exponential.  This triggered the "subprime mortgage crisis," in which a massive wave of mortgage defaults crashed both the banking system and the housing market in most major U.S. cities.  (Wiki has a decent summary if you're curious.)

The wave of defaults (foreclosures) threw tens of thousands of homes on the market.  This had the effect of driving home prices down--which then had a more pernicious effect:  People who *had* to move (as in job transfer) found they were "underwater"--they couldn't sell their home for enough to pay off the mortgage.  In that situation many borrowers with decent income and credit defaulted rather than having to pay tens of thousands of dollars at closing.

With homes now a glut on the market, new-home construction--a huge component of the economy-- cratered.

The immediate result of these three events was a huge wave of government spending (TARP) to bail out some government agencies that held the paper, and some of the too-big-to-fail banks.  A second result was new laws that greatly increased government control of parts of the mortgage industry.

All that is background to my topic today, which is how then-House-Speaker Nancy Pelosi and the Democrats who were mainly responsible for creating the conditions that led to this implosion conspired to rig the so-called "investigation" into what caused the meltdown.

After the implosion of the mortgage industry--an event which shook the U.S. economy to its roots--most Americans wanted to know how the hell it happened so we might avoid repeating it.  So in 2009 a congressional committee was formed, called the Financial Crisis Inquiry Commission.

In 2009 Democrats had total control of both houses of congress, meaning they were able to appoint all the members of the commission and allocate funding, staff and other resources.  The appointment process was controlled by then-House speaker Pelosi, who appointed her California pal Phil Angelides, a long-time Democrat operative, to head the commission.

According to a just-released book by one of the ten members of that commission, here's what happened:

• Angelides provided no staff to help Republicans interview witnesses, conduct research or draft the report. But Angelides gave Democrats on the commission almost 80 staffers to help demonstrate the Dem narrative that bank risk-taking and greed unleashed by deregulation caused the crisis.

• Angelides never notified Republicans on the commission about the hundreds of witnesses he called to testify in closed-door interviews with his staff.  As a result, none of these witnesses was cross-examined--something that might have changed their testimony had it been done.

• Angelides staffers never put most of these closed-door witnesses under oath.

• Angelides buried evidence that by 2008, 75% of all high-risk mortgages had wound up on the books of HUD-controlled Fannie Mae and Freddie Mac or agencies such as the Federal Housing Administration. Although a memo by Fannie Mae's former chief credit officer showed that government, not the private sector, drove risky lending, the memo was never formally made available to the Republican members of the FCIC.

• Angelides withheld the 900-page final draft of the report from the Republican commissioners until eight days before sending it to the printer.  Like the 1,300-page bill that became Obamacare, no one on the Republican side had time to find out what was in it.

• After a Republican member of the commision filed a 43,000-word dissent, Angelides removed all but 9,000 words of it from the report widely distributed in bookstores.

The effect of all these maneuvers was to hide evidence that the main cause of the implosion was the government's policy of forcing banks to make sub-prime loans.  The commission's report was designed to support Democrat demands for a "new New Deal" that would put even more of the banking industry under federal control.

Sure enough, in July of 2010 Democrats passed the Dodd-Frank Act--which shockingly left Fannie and Freddie untouched.

As a result, Fannie and Freddie, now under full federal control, are back to making low down payment loans to high-risk borrowers, and the Dodd-Frank-mandated Consumer Financial Protection Bureau is forcing banks to ignore credit risks when evaluating potential borrowers.

The lesson here is that the party in power can pass a law that causes huge damage, but then totally escape all responsibility (yes, all), simply by rigging the subsequent "investigation."  There is no mechanism for punishing the corrupt riggers.  No scorn or loss of income or prestige will ever be attached to any of them.

And yes, that principle applies to both parties.  It's just that the Repubs can never get away with anything because the lying media will instantly jump on the slightest hint of Repub malfeasance.

And I'm okay with that.  Too bad they can't do that job for both parties.
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A great article on how Barney Frank--who was a constant pusher for forcing banks to give mortgages to high-risk borrowers--lied and dodged to avoid any blame for the role he played in the crash is here.  As late a a month before the crash Frank assured an audience (captured on video) that Fannie and Freddie were completely financially sound and that any rumor to the contrary was simply Repubs trying to do damage to the innocent Democrats.  Yeah.

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