Meddling of '90s caused today's crisis
While everyone is focusing on Wall Street's greed in offering and managing subprime mortgage loans, no one is looking for the root cause of the problem - government intervention in the 1990s.
In 1992, Congress ordered Fannie Mae and Freddie Mac to increase their loans to low- and moderate-income borrowers. Housing Secretary Henry G. Cisneros in 1995 adopted a "national homeownership strategy" that eased requirements to qualify for Federal Housing Administration-insured loans and reduced closing costs for first-time buyers.
Then in 1999, Fannie Mae, under increasing pressure from the Clinton Administration and from stock holders to maintain profit growth, eased credit requirements yet again on subprime loans that it would purchase from banks and other lenders.
It began as a pilot program involving 24 banks in 15 markets encouraging banks to extend home mortgages to individuals whose credit was generally not good enough to qualify for conventional loans. Fannie Mae made it a nationwide program in 2000.
In what was painted by both Republicans and Democrats alike as a noble cause to increase homeownership, they failed to address the root issues of low-wage jobs, lack of reliable transportation and rapidly rising living expenses. Instead, they mandated Wall Street paper over the issues by ignoring the fundamentals of finance and extending credit to people who would not be able to pay.
Homeownership increased, and the government took credit. Now that house of cards has collapsed, and government is refusing to take any of the blame. To top it off, it wants expanded powers to "fix" a system they obviously don't understand.
The people should be loathe to allow the government to exert direct control over the financial system. Its depth of knowledge has been one of telling Wall Street to "just fix it so more people can get mortgages" without even contemplating any of the underlying details or consequences.
Any fool can break a complex system by sticking his fingers somewhere they don't belong. But fixing a complex system is a whole other ballgame, and not one for fools.
Charles Hill
Glen Ellyn