A Nation of Moochers by Sykes Charles J

Author:Sykes, Charles J. [Sykes, Charles J.]
Language: eng
Format: epub
Publisher: Macmillan
Published: 2012-01-17T08:00:00+00:00

Bipartisan Madness

While greed undoubtedly drove much of the mortgage mess, politics constantly provided the spur. History will record that the mortgage madness and subsequent bailouts occurred under both Democratic and Republican presidents and that many of the policies and practices that led to the crisis were advanced by both conservatives and progressives (albeit with different motives and agendas).

Even amid warnings that many of the subprime loans were unsustainable, the Bush administration ratcheted up the pressure for riskier loans, in pursuit of what Bush called the “ownership society.” Reported The Washington Post: “Eager to put more low-income and minority families into their own homes, [the Department of Housing and Urban Development] required that two government-chartered mortgage finance firms purchase far more ‘affordable’ loans made to these borrowers. Administration officials publicly complained that Fannie and Freddie were not being as aggressive as the private market and must do more.”8 Bush’s goal was to create 10 million new homeowners, largely backed by low-interest loans and the implicit government guarantees. To make that possible, Bush’s Department of Housing and Urban Development let Fannie and Freddie count the billions of dollars vanishing down the subprime hole as “a public good that would foster affordable housing.”9

In 2003, Fannie and Freddie bought $81 billion in subprime securities; the next year, they had purchased $175 billion, fully 44 percent of the market. By 2006, Fannie and Freddie had backed off a bit, buying only $90 billion in subprime securities. But the damage had been done: From 2004 to 2006, Fannie and Freddie bought $434 billion in securities backed by subprime loans, fueling the lending frenzy by creating a huge taxpayer-backed market for the funny money loans.10 “Every dollar they pumped into subprime securities made the real estate bubble worse,” declared the conservative Heritage Foundation.11

Even as the market began to unravel, Freddie’s defenders rationalized the failures. “It’s like a kid who gets straight A’s and then gets a DUI. Is the kid [messed] up?” one lobbyist for Freddie argued. “No, he made a mistake.… You can’t just get rid of Fannie and Freddie.”12

By this point, though, the support for the risky lending was solidly bipartisan.

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