The (Expensive) Irresponsibility of Our Dear Misleader

(This is being posted late due to a Blogger outage. But since the market went down another 115 points today, it is that much more timely.)

It’s bad enough that Obama began his administration with a roughly 1 trillion dollar stimulus program that has stimulated little but the size of the federal government and its deficits. He has already proven himself the most financially irresponsible president in history – quite an accomplishment for less than 18 months.

But last Wednesday he had to add to his record of financial irresponsibility by touting the upcoming employment number as a big one. Biden chimed in, too. Cheered, the stock market went up 225 Dow points.

But then Friday came, and the job gains were almost entirely census workers. Private employment was anemic. Sorely disappointed, the market went down 324 points.

Obama’s irresponsible talk Wednesday is inexcusable. It is contributing to turmoil in the financial markets. And it was pointless. If the jobs number was going to be so good, then wait until it comes out and then tout it. Don’t set the markets up for a disappointment.

What Obama did is also unpresidential. My memory is not the best, but I cannot ever recall a president touting an employment number beforehand like Obama did. There’s a good reason for that, and we saw it last Friday.

It’s not for nothing that Obama is now dubbed The Great Misleader.

John McCain Was Right on Cox and the SEC.

John McCain took some flak when he called for the firing of the head of the SEC, Christopher Cox. But sadly events have proved him right.

Since McCain’s call for Cox’s firing. Cox has allowed the short sale ban on financial stocks to lift. Now that needed to be done eventually.

But it was lifted yesterday morning. Notice what the markets have done since then? Notice the obvious short raid on Morgan Stanley?

If that raid succeeds, God help us. God help us all.

What Caused the Current Financial Crisis?

I don’t want to oversimplify the causes of the current financial mess. There is more than one cause and a lot of blame to spread around. For one thing, mandated mark-to-market accounting certainly has – and is – contributing. And allowing bond insurance to be separated from the underlying bonds (enabling people to do the financial equivalent of buying life insurance on their enemies) certainly has thrown fuel on the fire.

But probably the biggest problem is the great push, practically mandated by the federal government and Fannie Mae and Freddie Mac, to make massive amounts of sub-prime mortgages. These were an accident waiting to happen – waiting for the next housing downturn. And, sure enough, the first significant housing downturn caused many of these sub-prime mortgages to fail.

Democrats are trying to blame Bush for this (Doesn’t he get the blame for everything?) and to blame McCain, too. But the facts are Bush tried to reform mortgage lending back in 2003 as reported by the New York Times(!). And in 2005, McCain co-sponsored housing finance reform with this prescient warning:

If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

If you want to go further back – and you should – here is one of the better explanations of the sources of the sub-prime mess I’ve come across. Pay particular attention to the following excerpt (I haven’t formatted the links. Those can be found at the above source.).
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A home of your own. It’s part of the American dream. Work hard, save up for a down payment, pay your bills on time and, presto, you, too, can buy a home.

For decades the government has done things to help Americans to realize the dream, e.g., graciously allowing citizens to keep some of their own money to help pay for the interest on a mortgage (the official term for this is a “tax deduction,” but I prefer my locution since it emphasizes the fact that it is YOUR MONEY we are talking about).

But what about people who do not work hard (if they work at all)? What about people who have not saved up for a down payment? What about people who do not pay their bills on time (if they pay them at all)? Why shouldn’t they get to live the American dream?

That was the question that led to
”The Community Reinvestment Act” (see here for more).
* The original Community Reinvestment Act was signed into law in 1977 by Jimmy Carter. Its purpose, in a nutshell, was to require banks to provide credit to “under-served populations,” i.e., those with poor credit.
The buzz word was “affordable mortgages,” e.g., mortgages with low teaser-rates, which required the borrower to put no money down, which required the borrower to pay only the interest for a set number of years, etc.
* In 1995, Bill Clinton’s administration made various changes to the CRA, increasing “access to mortgage credit for inner city and distressed rural communities,” i.e., it provided for the securitization, i.e. public underwriting, of what everyone now calls “sub-prime mortgages.”

Bottom line? It forced banks to issue $1 trillion in sub-prime mortgages.

$1 trillion, i.e., a thousand billion dollars in sub-prime, i.e., risky, mortgages, in order to push this latest example of social engineering.

But wait: how did it force banks to do this? Easy. Introduce a federal requirement that banks make the loans or face penalties. As Howard Husock, writing in City Journal way back in 2000 observed: “Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count.” Way back in 1994, for example, Barack Obama sued Citibank on behalf of a client who charged that the bank “systematically denied mortgages to African-American applicants and others from minority neighborhoods.”
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And guess who else made big contributions to this mess? Among the villains are Barney Frank, Christopher Dodd, and – Surprise! Surprise! – Obama and his favorite community organizing group, ACORN.

Are there Republicans to blame for the current troubles? Oh yes. Did eeeevil Wall Street people contribute? Well, yes. What about predatory lenders? Well, I’d personally like to see some in prison.

But facts are facts. The big push behind the policies that led to the sub-prime mortgage mess came primarily from Democrats . . . though Democrats try to demagogue and distract from that and though the “Mainstream” News Media ignores it.

ACORN’s (and Obama’s) Role in Creating the Current Mess

Here is an interesting article on the role ACORN, with Obama’s support, had in pushing banks to make the bad loans that help lead to the current financial mess.