History is Happening Now

It has recently become popular among conservative commentators to blame our economic crisis on Fannie and Freddie Mac — quasi-government entities that supposedly contributed to the rise of subprime lending, the foundation of our current financial crisis — and the Community Reinvestment Act.  This is a new version of the Reaganite cant that government is always the problem, never the solution.  Private culpability must be minimized — the market can do no wrong! — and any public entities within a plausible stone’s throw of the crisis at hand must receive all the blame.  We don’t have enough freedom in our markets, you see…

The problem with this blame-the-public-sector narrative is, in the case of the subprime lending crisis, that it’s simply false.  I direct you to an excellent and detailed McClatchy article, which debunks these popular conservative claims.  In this article, David Goldstein and Kevin G. Hall report that:

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 vrom [sic] 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.

The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets reported Friday.

…

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party’s standard bearer, President Bush, didn’t criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Read the whole thing.  This argument is further bolstered by the inconvenient fact that Fannie and Freddie were among the most sane participants in the mortgage markets thanks to — wait for it! — government regulation.  As Paul Krugman points out:

Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. 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.

The real cause of our crisis, as far as I can tell, is unregulated global capitalism — a dismantling of regulation and a lack of regulation of new securities/derivatives and the move in financial markets toward what is called “neoliberalism,” global integration with few capital controls. 

The solution to toxic neoliberalism is not more neoliberalism.  We have a choice to make.  Will we allow the current neoliberal finance system to continue to exist as it does, without a complementary global and democratically-accountable regulatory apparatus adequate to the task of reigning in its excesses?  Or, alternately, will we decide to rebuild firewalls between our national financial systems — essentially, a sort of return to the post-WWII Bretton Woods system — to help forestall future global economic system shocks?  Or will we do nothing until the next crisis?

If we don’t let our voices be heard in the halls of power, then the finance ministers and treasury secretaries and corporate back-room dealers of the world will make this decision for us.  I’m an internationalist at heart, so I prefer the imposition of capital controls in the context of responsible and democratically-controlled global financial and economic integration.  You may disagree — you may prefer a more Bretton Woods – style system or something completely different –  but your views will not be heard if you don’t exercise your democratic rights.  The only path that seems absolutely wrong-headed to me is more of the same.

Here’s another quick example of how sloppy John McCain can be with his lies. Let’s start with this: 

During Saturday’s presidential forum at Rick Warren’s California megachurch, John McCain was asked to name the “three wisest people” he would “rely heavily on” if elected president. He didn’t cite close confidantes Phil Gramm and Randy Scheunemann, possibly because they have gotten McCain into trouble politically. Instead McCain chose Gen. David Petraeus; former eBay CEO Meg Whitman, one of his economic advisers; and Rep. John Lewis (D-Ga.), a leading figure in the civil rights movement. 

Now, let’s look at what this “wise person,” John Lewis, had to say about McCain’s campaign recently:

Civil rights icon John Lewis compared Sen. John McCain (R-Ariz.) to George Wallace in a posting to Politico’s forum “The Arena,” accusing McCain of fostering “an atmosphere of hate” and “hostility” like the one that led to white supremacists’ 1963 bombing of a church in Birmingham, Ala. 

Lewis, a Democratic congressman from Georgia who has endorsed Sen. Barack Obama (D-Ill.), pointed in his posting to “the negative tone of the McCain-Palin campaign,” and said the senator and his running mate, Alaska Gov. Sarah Palin, “are sowing the seeds of hatred and division.”

McCain, in a book he wrote with aide Mark Salter called “Why Courage Matters: The Way to a Braver Life,” had lauded the leadership of Lewis in the nonviolent civil rights movement. 

McCain called the accusation “shocking and beyond the pale” and called on Obama to “repudiate it.”

Brad Woodhouse of the Democratic National Committee said on Fox News: “I don’t think Sen. Obama would agree with that. … I don’t think we would agree with those comments.”

Lewis didn’t accuse McCain of imitating Wallace, but suggested there were similarities. His sharp words may be dismissed as those of a partisan Democrat in a campaign season. But the former head of SNCC and hero of Selma is somebody who McCain has lavished praise upon over the years, including in his book on courage and bravery and by repeatedly invoking Lewis’s name in public appearances.

And here’s some more:

McCain quickly fired back hard, calling the comments “a character attack against Gov. Sarah Palin and me that is shocking and beyond the pale.” 

“The notion that legitimate criticism of Sen. Obama’s record and positions could be compared to Gov. George Wallace, his segregationist policies and the violence he provoked is unacceptable and has no place in this campaign,” McCain said in the statement. “I am saddened that John Lewis, a man I’ve always admired, would make such a brazen and baseless attack on my character and the character of the thousands of hardworking Americans who come to our events to cheer for the kind of reform that will put America on the right track. 

McCain also put the onus on Obama to distance himself from the remarks: “I call on Sen. Obama to immediately and personally repudiate these outrageous and divisive comments that are so clearly designed to shut down debate 24 days before the election. Our country must return to the important debate about the path forward for America.”

If John Lewis — one of the people McCain says he would rely upon most for wisdom in the White House — is now comparing McCain to George Wallace, what does that say about McCain’s judgment?

McCain shouldn’t lie to the American people about whose advice he truly respects. If McCain was telling the truth, and Lewis’ beliefs matter to him, then he should apologize for fostering hate speech, which is what he’s obviously doing when his campaign accuses Obama of “palling around with terrorists.” 

Should Obama repudiate Lewis’ comments? Why would he?