Foxes don't have mirrors

Americans should welcome hearings currently underway in Congress on the roots of the financial system's meltdown.

 

One of the first CEOs that House Oversight Committee members sharply grilled was Richard S. Fuld Jr. of Lehman Brothers. Fuld squirmed and dodged while trying to explain why he handed out millions in bonuses to fired executives while pleading to the federal government to rescue his firm from the bankruptcy in which it now finds itself.

Many more failed CEOs who bailed out with their multimillion-dollar golden parachutes are also being put on the congressional hot seat, and deservedly so.

Yet here's our problem with the hearings. They're only looking at part of the cause of the disaster. Yes, Wall Street honchos who did wrong should be exposed and, when appropriate, legally punished.

But what about Congress' own role in the subprime mortgage mess that is currently tumbling our economy into what may be the harshest recession since the early 1970s? Without the subprime catastrophe, caused by a burst housing bubble that Congress not only encouraged, but mandated and protected, none of the awful strains on the nation's financial system could have happened.

The central institutions in the mortgage collapse were Fannie Mae and Freddie Mac, the government-sponsored enterprises that were designed to provide mortgages to low-income wage earners. Good intentions, yes, but basically the quasi-government agencies were handing out mortgages to people who couldn't afford them.

During the Clinton administration ushered through the Community Reinvestment Act, which actually required banks to issue bad loans. It seems insane now, but the government began ranking banks on the number of their loans, not their soundness. Quantity over quality -- what a way to run a business. It was Fannie and Freddie's job to lead the way in buying up most of the bad loans.

There were plenty of warnings from economists, left and right, about what a danger this posed to the nation's economy, but congressional Democrats, led by Barney Frank in the House and Chris Dodd in the Senate, protected Fannie and Freddie from any serious structural reforms. The pols' reward: tens of thousands of dollars in campaign contributions.

Democrats complain that deregulation traditionally championed by the GOP is the primary cause of the financial system's collapse and subsequent $700 billion rescue package. Yet, when it came to Fannie Mae and Freddie Mac, it was Republicans, led by President Bush and John McCain, who time and again called for more regulation. And it was Frank and Dodd, operating from their powerful congressional posts, who saw to it that the two tainted agencies stayed largely unregulated.

Minority Republicans are rightly calling for the Democrat-controlled Congress to hold hearings not only on the fallen CEOs, but also their own members' role in the subprime mess. Fat chance. Democrats aren't going to investigate their own, although some of them are as much or more to blame for what's gone wrong as the "golden parachute" CEOs they're grilling.

Here's the final sickening irony: Frank and Dodd, the very congressmen who contributed so mightily to the Freddie Mac and Fannie Mae debacle, are the key congressional players charged with "reforming" them. And so the foxes will stay in charge of the henhouse.

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