McClatchy's David Goldstein and Kevin G. Hall report in Private sector loans, not Fannie or Freddie, triggered crisis:
As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.
Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.
Federal Reserve Board data show that:
_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday. . . .
Read the whole thing at the McClatchy website.
Now let's review the supposed culprits Brian Davis has flapped his fingers at, staring with coverage from the Mankato Free Press on September 29:
. . .Walz’s Republican opponent agreed with the vote, but placed most of the blame for the financial crisis on government — including actions by the Clinton administration to promote low-income home ownership — rather than Wall Street.
“I’m pleased to see the bailout was rejected,” said Brian Davis, R-Rochester, not faulting Walz’s vote. “I imagine he and I propose a different solution to all this.”
Davis said large amounts of taxpayer money should not be risked on a bailout plan until underlying causes of the subprime mortgage mess are identified and fixed.
Davis focused first on the Community Reinvestment Act, originally passed in 1977 to prohibit lenders from avoiding offering loans in low-income areas. The administration of President Bill Clinton became aggressive in enforcing the act, pressuring banks to offer mortgages to risky applicants, Davis said.
“That’s what started it,” he said. . . .
We responded in September by citing Business Week's Aaron Pressman in Community Reinvestment Act had nothing to do with subprime crisis. Read the column at Business Week.
More recently, Davis has stopped naming the Community Reinvestment Act, trading it for the House Republican talking points on Fannie Mae and Freddie Mac. Let's take a look at Thursday's debate in Rochester:
Davis, a Mayo Clinic doctor, said the financial crisis had plenty of culprits, including Wall Street banks that were allowed to overleverage and a federal government that pushed financial institutions into subprime mortgage lending.
"I believe a bailout bill must first address some of these underlying problems, including getting rid of the subprime mortgage lending practice," said Davis, who also proposed reforming or dismantling Fannie Mae and Freddie Mac.
From Don Davis's reporting for the Forum newspapers:
Davis calling for an end to subprime mortgage lending and the elimination of mortgage giants Fannie Mae and Freddie Mac.
Readers should get the picture.
Photo: Brian Davis and Michele Bachmann; picture recycled from the post, Economic know-nothingism: Davis blames CRA for market woes.
Comments