I guess every few years, civilized society has to put up with some new crop of ignoramuses who want to tear things down and rant against things they do not comprehend.
No matter what the “Occupy Wall Street” lost-souls think, for those readers who really want the truth, this column’s for you. It is the first in a series.
It’s the American way for people to stand on street corners with placards or bullhorns. But with the current bunch, the real question for mainstream Americans is whether the cries of the protestors are based on facts or contrived fiction. We’ll explore their claims over the next few weeks.
The protestors villainize “Wall Street” for current economic ills. They promote the amusing notion that Wall Street “controls” government. If they had one whit of sense, they would know that 90% of Wall Streeters want maximum distance between them and most federal politicians, and consider Washington a highly toxic poison to the free market system.
The Washington political class has lied to you about the causes of the financial crisis, aided with cheerleader reporting by their allies in the leftist press. The current mortgage meltdown and credit crisis is directly traceable to the federal government’s historical meddling, starting with the Community Redevelopment Act of 1977, a well-intended Carter-era law designed to encourage minority homeownership. Yet, Obama’s Administration, Congressional leftists, and media pundits now blame the crisis on a failure of capitalism and free-markets. That’s a travesty and a lie. Free markets and capitalism were not allowed to work.
Our American financial markets are the most regulated in the world. Every financial sector operates under the constraints and laws of a web of local, state, and federal regulators and regulations. The SEC has closely regulated the securities markets since 1934. The SEC and each state have an elaborate regulatory apparatus over banks and brokerage firms. The Treasury closely regulates banks, and guides the value of the dollar. The Federal Reserve controls monetary policy, regulates money-center banks, raises and lowers interest rates, and lends money to banks. Federal law has empowered credit rating agencies like Moody’s, to pass judgment on the risks of debt securities.
Capitalism is a marvelous process by which money usually moves from weak hands to strong hands. Capitalism rewards the wise. Fortunes are made or lost because one person is more skillful than another person, or one nation chooses smarter fiscal strategies than another. Success is based on merit, not government decree.
The root cause of how and why it came to pass that the mortgage housing industry destroyed itself rests with the actions and failures of the federal government.
Congress legislated us into this mortgage-lending mess in the 1990s, starting with President Clinton’s 1994 re-write of the CRA Act. The Clinton administration, obsessed with multiculturalism, dictated where mortgage lenders could lend, and helped create the market for the high-risk subprime loans that infected the financial system. Clinton put the CRA Act and HUD on steroids in overdrive.
The result? Government mandated mortgage companies to make loans to low-income, high-risk borrowers and penalized the companies that didn’t. When these borrowers couldn’t afford to pay, they stopped their mortgage payments, causing foreclosed homes to come on the market in droves. The result was a landslide of failed loans that congressional liberals and protestors now blame on “greedy Wall Street fat cats” and “predatory” mortgage lenders.
Yet it was Congress that stoked the crisis and set the stage with a flawed structure. Congress spring-loaded the funding of quasi-government mortgage giants Fannie Mae and Freddie Mac, dictating the kinds of mortgages they were required to buy. Government politicized the process. Fannie and Freddie were commanded to change their mission of making federal funds available for soundly structured mortgage loans, to launch “the core mission of affordable housing.” Fan and Fred were turned into social-engineering financial machines, politically driven with a mandate to provide houses to low-income Americans, hang the consequences.
The housing meltdown and vast scandal was preventable. Never again should we permit financially illiterate politicians and bureaucrats to make decisions that undermine free markets.
With a few basic rules, financial markets can regulate themselves effectively under a free market, providing government doesn’t muck it up. Looking back, it’s shiny clear that government and political interference precipitated the current crisis. Now, this country is being pushed by the enemies of capitalism to travel the low road to European socialism. The protestors are occupying the wrong place. They should be storming Capitol Hill.