I quote the headline from a Daily Republic letter to the editor that published Wednesday. It was from a reader who, like many conservatives, believes that our housing collapse occurred because President Bill Clinton wanted to increase homeownership for subprime borrowers.
I usually don’t respond to letters where the writer attacks my column. They typically self-destruct when exposed to light, but I do enjoy poking holes in conservative bubbles.
This “Clinton was responsible” myth has been peddled and perpetuated by right-wing propagandists since the crash of 2008 because it resonates well with their Ayn Randian, “unregulated market good / government bad” mantra.
This myth springs from the 1994 Home Ownership and Equity Protection Act, which was signed into law by President Clinton.
In September 2008, Michael Hirsh wrote in Newsweek: “Under the Home Ownership and Equity Protection Act enacted by Congress in 1994, the Fed was given the authority to oversee mortgage loans. But (Fed Chairman Alan) Greenspan kept putting off writing any rules.
“As late as April 2005, when things were seriously beginning to go wrong, he was saying that subprime lending would work out for the common good – without government interference. ‘Lenders are now able to quite efficiently judge the risk posed by individual applicants,’ he declared at the time. So much for his feel. New regs (regulations) didn’t get put into place until this past July – long after the crash had come, under Greenspan’s successor, Ben Bernanke. The new Fed chief’s ‘Regulation Z’ finally created some common-sense rules, such as forbidding loans without sufficient documentation to show if a person has the ability to repay.”
The Home Ownership and Equity Protection Act instructed Fed chairman, Alan Greenspan, a conservative Ronald Reagan appointee, to write rules regulating the mortgage industry. He refused, feeling that a freer, less-regulated banking system would effectively police itself.
Greenspan was quite contrite, however, while testifying before Congress on Oct. 23, 2008: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
Greenspan apparently believed that our noble, selfless bankers would “protect the shareholders’ equity,” rather than greedily milk the system for all it was worth, destroying our economy in the process.
In the early 2000s, bankers lobbied the Republican-run Congress for less restrictive mortgage rules. They wanted to expand their markets by being able to lend to less creditworthy borrowers, with smaller down payments, larger mortgage amounts and lower fractional reserve requirements. With Fed money below 2 percent and home loans selling above 6 percent, bankers made huge profits during the housing boom on both interest-rate spreads and those enormous, multiple-point loan origination fees.
These substandard, subprime loans were bundled together and quickly sold-off to workers’ pension funds, Fannie Mae or Freddie Mac, recycling the bankers’ money and permitting them to milk their cash cow again and again. Since these loans were sold to somebody else, a “greater fool,” why would they care if the borrowers couldn’t repay?
When the last unqualified homebuyer signed on the dotted line, when the bankers’ vaults and craws were crammed to capacity, the Federal Reserve raised their discount rate from 2 percent to 6.25 percent. Mortgage rates rose and, with money tight and far fewer buyers in the game, the housing market crashed, our economy collapsed and we workers suffered. Look around you here in Fairfield and you’ll see the aftermath of all of the banks have accomplished. Yes, Solano County’s housing market is improving, but home values remain a far cry from their pre-crash levels.
Remarkably, even today, Republicans still staunchly advocate for the same laissez-faire banking policies that enabled predator lenders to gut our nation’s economy.
“No bombs fell from the sky. No blood soaked the ground. But just as sure as the hand of God, they brought death to my hometown, boy. Death to my hometown.” – Bruce Springsteen.
Mike Kirchubel grew up in Fairfield and is the author of “Vile Acts of Evil – Banking in America.” He can be reached at [email protected]