Washington is where the culprits are

Jonah Goldberg:

BLAME for the financial crisis is settling on those old standby scapegoats, Wall Street fat cats. So: Who should go to jail?

The answer, as far as I can tell, is: No one - at least no one on Wall Street.

That may turn out to be wrong. But even if a bad penny or two is in the pile, nobody will say this CEO or that banker is responsible for the mess. And so far nobody's aimed a bony finger of condemnation at any Wall Street fat cat who did anything criminal.

Criminal stupidity is another issue entirely. But the beautiful thing about our economic system is that bad decisions are punished in the marketplace.

The starting line for the parade of falling dominoes doesn't begin on Wall Street. Nor, alas, will the parade end there. But it really begins on the Capitol steps.

The self-proclaimed angels in Washington will tell you they've been working tirelessly to expand the American dream of homeownership by making mortgages available to people unable to plunk down 20 percent on a house. Franklin Raines, the Clinton-appointed head of Fannie Mae from 1998 to 2004, made it his top priority to make mortgages easier to get for people with poor credit, few assets and little money for a down payment.

The fine print to this noble intent was an ill-conceived loosening of standards. For instance, the Clinton administration re- interpreted the Community Reinvestment Act to politicize lending practices. Under the CRA, the feds forced banks to prove they weren't "redlining" (i.e., discriminating against minorities) by approving loans to minorities and various left-wing "community groups," bad risks or not.

Sen. Phil Gramm called it a vast extortion scheme against America's banks. Still, the banks were perfectly happy to pass the risky loans to Raines' Fannie Mae, which was happy to buy them up.

That's because Raines was transforming Fannie from a boring but stable institution dedicated to making homes more affordable into a risky venture that abused its special status as a "government sponsored enterprise." Fannie bought the bad loans and bundled them together with good ones. Wall Street was glad to buy up these mortgage securities because Fannie was deemed a government-insured behemoth "too big to fail." And others followed Fannie's lead.

The current crisis stems in large part from the fact that people who shouldn't have been buying a home, or who bought more home than they could afford, now can't pay their bills. Their bad mortgages are mixed up with the good ones. And thanks in part to new post-Enron accounting rules, the bad mortgages have contaminated the whole pile.

...

Some people warned us. In 2005, Fannie Mae revealed it overstated earnings by $10.6 billion and that it didn't really know what was going on. The Bush administration pushed for reforms, but those efforts were rebuffed by Congress, with Democrats Barney Frank and Christopher Dodd taking point, because Fannie and Freddie have spent millions in campaign contributions.

In 2005, John McCain sponsored legislation to thwart what he later called "the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole."

Barack Obama, the Senate's second-greatest recipient of donations from Fannie and Freddie after Dodd, did nothing.

...

I wish John McCain could state his case as well as Goldberg does for him. He has made the mistake of going after the SEC when the best target is right in front of him. Goldberg goes on to point out that Raines made $52 million of his $90 million compensation package based in part to fraudulent earnings statements. Not even the Enron guys could pull off such a scam, much less be protected by the Democrats in Congress.

In fact Republicans in all there races should be hammering the Democrats on the embedded corruption that produced this mess. McCain has finally gotten focused on the issue with the ad he ran last night, but he needs to hammer it and tie the fallout from this mess to what is happening on Wall Street. The case is there to be made and he has a few weeks to make it.

Corruption can be the most potent issue in this election. By putting Palin on the ticket McCain is poised to take advantage of it. He should turn her loose on the subject too.

technorati tags:
political news | news | world news
More at: News 2 Cromley