WSJ suggests Democrats contributed to causes of crisis
This WSJ Opinion piece is scathing about the role of politicians, Democrats like Obama in particular, in being contributors to the financial melt-down.
At the October 7 Presidential debate, John McCain said that Barack Obama had encouraged Fannie Mae and Freddie Mac to make risky loans, and that Mr. Obama was the second largest recipient of campaign cash from the government mortgage giants.
Obama responded:-
that he “never promoted Fannie Mae” and that “two years ago I said that we’ve got a subprime lending crisis that has to be dealt with.” And that’s not all. “I wrote to Secretary Paulson, I wrote to Federal Reserve Chairman Bernanke, and told them this is something we have to deal with, and nobody did anything about it,” said the Illinois Senator.
There’s more. Mr. Obama’s March 2007 letter included a stirring call to “assess options” and boldly suggested that the two men “facilitate a serious conversation” about housing. He was even brave enough to suggest that “the relevant private sector entities and regulators” might be able to provide “targeted responses.” Then in paragraph four, the Harvard-trained lawyer dropped his bombshell: a suggestion that various interest groups get together to “consider” best practices in mortgage lending.
Some may find it hard to believe that Mr. Obama had nothing to show for this herculean effort to shake up Washington. They may be shocked as well that such passionate language didn’t move the Fed and Treasury to action
My didn’t he do well to point all this out.
Then the WSJ notes:-
For our part, we note that nowhere in his letter did Mr. Obama suggest that the government should stop subsidizing loans to people who can’t repay them.
This is the latest fad among Beltway liberals who spent years encouraging noneconomic mortgage loans. They now proudly announce that at critical moments they issued a press release, or wrote someone, suggesting that somebody do something. Since soured mortgage loans are a root cause of this panic, and since Democrats did so much to encourage mortgage lending, the most politically useful of these archived warnings are the ones blaming something other than housing.
Ah, the tried and tested diversionary tactic.
The WSJ notes that the left seeks to portray derivatives as the real cause,
The left’s hope is that derivatives are so poorly understood that people can be convinced that turmoil in the market for credit default swaps — an effect of soured mortgage loans — is actually a cause of this crisis. Credit default swaps (CDS) are insurance policies against companies or investment vehicles going bankrupt and being unable to pay their creditors. This insurance is cheap when things are going well, and very expensive when investors expect the relevant entities to fail.
Rather acidly the WSJ pointedly notes:-
Turns out that the markets for CDS and other derivatives not tied to the housing crisis are functioning normally
Then the WSJ opines:-
Meanwhile, in an amazing coincidence, it is the failure — or the expected failure — of entities with heavy exposure to toxic mortgages that is putting extreme financial strain on those who sold insurance. But the problem can’t possibly be the toxic mortgages encouraged by Washington, according to the politicians. It must be the system of insuring against the collapse of those who bought the mortgages.
To the politician it is not the risk that is the problem but the fact that it eventuated and was insured. The fact that the risk was toxic in the first place due to political meddling is not the cause. Piffle.
Did many sellers of credit default swaps make horrendous judgments in assessing the likelihood of defaults? Yes, and they were encouraged to make these poor judgments by government-approved credit-rating agencies stamping approval on mortgage-backed securities. If an investment or commercial bank was holding assets branded rock-solid by government’s anointed judges of creditworthiness, who wouldn’t feel comfortable insuring against their failure?
The piece concludes:-
If Barack Obama wants to write any more letters, he should urge his colleagues in Washington to focus on the causes of this crisis, not the effects. Unlike Senators, Presidents are expected to solve problems, not merely write about them.
There were mistakes by many, but the politicians bear their share for encouraging government anointed credit raters to approve these securities. It could be said that the politicians drive for affordable housing was the primary initial cause. In that case it could be suggested that it was Democratic politicians who are as responsible for this crisis as much as, if not more so than bankers and brokers etc.
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I would not disagree!
Jesse W.
http://www.subprimeblogger.com
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