The truth about the meltdown

Nancy Pelosi, Barney Frank and other congressional Democrats went out of their way to blame Republicans for the Wall Street meltdown.


Pelosi, the Speaker of the House, sounded like an opponent of the bill she was urging members to support when she took to the floor to disparage the financial mess and to pointedly claim the $700 billion price tag was "only a part of the cost of the failed Bush economic policies to our country."

Frank, a Massachusetts congressman and chairman of the House Financial Services Committee, mocked Republican leaders' inability to pass the bailout bill on Monday, and ridiculed reports that some GOP congressman were offended by Pelosi's highly partisan speech -- and condescendingly offered to round up 12 Republicans and "talk uncharacteristically nicely to them" to get them to support the bill.

The problem with this sort of rhetoric -- other than the fact that it's divisive and unproductive, particularly coming as it does in the midst of a great crisis -- is that Democrats are the majority party. More than 90 of them voted against the bailout bill, so it's a bit disingenuous to hang its failure on the other party.

Moreover, Pelosi is a disgrace. A Speaker of the House, third in line to the presidency, should be above such frothy-mouthed partisan rabies. That's hardly the bipartisanship she promised in 2007. And it's nothing akin to leadership.

And speaking of disingenuous: While Barack Obama is blaming the crisis on Republican policies and lack of regulation, it comes out that he was the second-biggest recipient of Fannie Mae lobbying funds -- and has employed the services of former Fannie Mae fat cat Franklin Raines.

Meanwhile, Barney Frank and other Democrats seem to forget that they actually opposed Fannie Mae and Freddie Mac reforms a few years ago that might have prevented this crisis.

You can't make this stuff up. We've seen the video. We've listened to the Democrats in committee arguing that Fannie Mae and Freddie Mac -- the government-sponsored entities (GSEs) that ignited this credit meltdown and had to be bailed out by the federal government recently -- were fine and should be left alone.

"Frankly, we were trying to fix something that wasn't broke," Rep. Maxine Waters, D-Calif., said in a 2004 hearing. "Mr. Chairman, we do not have a crisis at Freddie Mac and, in particular, at Fannie Mae, under the outstanding leadership of Mr. Frank Raines."

Rep. Gregory Meeks, D-N.Y., said the GSEs had done a "tremendous job," and angrily questioned the competence of federal regulators attempting to rein in practices at the GSEs, saying, "There's been nothing that was indicated that's wrong with Fannie Mae."

Rep. Lacy Clay, D-Mo., called the hearing a "political lynching of Franklin Raines," who is black. "I get the feeling that the markets are not worrying about the safety and soundness of Fannie Mae as (the Office of Federal Housing Enterprise Oversight) says that it is."

Rep. Frank said at the hearing, "I don't see anything in the report that raises safety and soundness problems" regarding the GSEs, adding that "I think it serves us badly" to question the safety and soundness of Fannie Mae and Freddie Mac.

Now they want to blame the mess on Republicans.

The truth about the meltdown is that, at Democrats' urging and with the sorry acquiescence of Republicans over the years, the government encouraged and cajoled and forced mortgage companies to hand out loans to people without regard to their ability to pay them back -- in a perhaps well-intentioned attempt to increase home ownership, particularly among minorities.

As Harvard economist Jeffrey A. Miron put it for, "beginning in 1977 ... Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

"This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle."

It's folly for the government to be involved in such social engineering. It's absolutely ludicrous to force the financial sector to go along.

There's plenty of blame to go around when an entire nation is scammed.