Wall Street has done more than lay an egg, as the historic headline from the depression era stated. The egg is broken and it stinks.
Mortgages are going into foreclosure, banks are dropping like flies, and the taxpayer is now slapped with the bill to rescue our financial system from certain collapse. Socialists and communists, and, yes, there are both of these in the United States, watch with glee as, from their viewpoint, capitalism fails.
Liberal politicians are using the current financial crisis to put the blame for the mess on the administration of President George Bush. Speaker of the House Nancy Pelosi referred to what she called "the failed economic policies" of the current president in a speech preceding a vote on the bail out plan before the House of Representatives.
Although blaming President Bush is popular, it is far from accurate. The roots of the current financial mess in the United States actually reach to the administration of President Jimmy Carter. In the Carter era, there was tremendous pressure from socialist activists to provide housing for the poor and for minorities living in depressed areas of the nation’s large cities. These families could not qualify for home mortgages under the policies of banks because, quite frankly, they had no resources to pay the loans. Banks were rightfully reluctant to loan money to people who lacked incomes adequate to provide for monthly payments.
President Carter and the Congress responded to the pressures by slapping fines on banks that they accused of being "racist" because they were not making home loans available to minorities. They called it the Community Reinvestment Act, but what it did was send chills through the banking industry. Refusing to loan money to a family with no income and no credit history became a federal crime. Banks had little choice but to begin the practice of making subprime loans, a practice that had 100% chance of financial disaster at some point in the future.
Additionally, Fannie Mae and Freddie Mac, the government-controlled agencies that purchase risky loans from banks in an attempt to allow families to stay in their homes even though they cannot afford them, increased their portfolios of mortgage loans that had practically no chance whatever to be paid off successfully. But the poor had homes, and the liberals had their votes.
This practice was enlarged in the administration of President Bill Clinton. Policies regarding significant down payments and adequate incomes were abandoned in favor of expanding home ownership into depressed neighborhoods. It is a noble idea to want to help families of any income level finance a home. It is a stupid idea to expect that subprime loans can be made indefinitely without paying the price of a failed economy at some point. We are now at that point.
But Peter Wellison, who was at the time a resident fellow at the American Enterprise Institute, and who was quoted in an article published in the New York Times on September 30, 1999, warned that the practice of making subprime loans would eventually backfire on the government. The practice might appear successfull in a strong economy, but if the economy experienced a downturn, which it inevitably does sooner or later, then "the government will have to step in and bail them out." Now, nine years after Mr. Wellison made that statement, it has come true.
The current crisis is not the result of failed policies in the Bush administration. It is not the result of a failed free market system. It may have originally been prompted by humanitarian concerns. But it is the result of liberal politicians, bankers and Wall Street traders who ignored sound fiscal principles in order to provide housing for those who had no means of paying for it. The failure comes from the liberal left. They are the ones who laid the egg this time.
