INVESTOR'S BUSINESS DAILY | Posted Thursday, June 25, 2009 4:20 PM PT
Mortgage Meltdown: Rep. Barney Frank has yet another bright idea: make it easier to buy condos, even in financially troubled developments. Look for Frank's picture in the dictionary right above the word "chutzpah."
If you were to choose just one member of Congress most to blame for the mortgage meltdown that begat our current financial crisis, it would be the utterly shameless chairman of the House Financial Services Committee.
Though instrumental in causing our housing market to cave, he remains unrepentant — continuing to push for the same failed policies that brought us nearly all our current financial ills.
This week, Frank put forward another dangerous plan, as Reuters noted, "to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery."
Here we go again. In his peddling of economically dangerous ideas, Frank seems downright indefatigable — not to mention chronically unable to learn from his past mistakes.
As Frank once said: "The private sector got us into this mess. The government has to get us out of it." This is the political equivalent of the old joke, "I'm from the government and I'm here to help."
In fact, the private sector was a tool used by opportunistic Democrats like Frank to enact their grand social-engineering schemes.
Primary among those was the Community Reinvestment Act, passed with the best of intentions to encourage banks to lend more to low-income, minority and "distressed" neighborhoods.
During the Clinton years, two government-sponsored enterprises — Fannie Mae and Freddie Mac — were enlisted to do the work. The two GSEs loosened the rules under which mortgage lenders could make loans. Even welfare checks and unemployment benefits qualified as "income" for a loan.
The role Fannie and Freddie played was crucial, since they bought loans off private banks and repackaged them for sale to the private sector as secondary securities. By 2006, Fannie and Freddie controlled half of the $12 trillion U.S. mortgage market.
The subprime loan market that Fannie and Freddie encouraged ended up sinking both the U.S. housing market and global financial markets. This is where Frank comes in.
It's safe to say he was Congress' top supporter of Fannie and Freddie, standing athwart nearly all efforts to reform them until it was too late. For the record, here's a brief recent history:
• In 2000, when a bill including tough new oversight for Fannie-Freddie was proposed in Congress, Frank strongly opposed it saying there was "no federal liability there whatsoever." Words that have come back to haunt all Americans.
• In 2002, he denied there were any problems with Fannie or Freddie. "I regard them as great assets," he said then.
• By 2003, President Bush, alarmed at the explosion in GSE lending that created an implicit taxpayer risk, put forward a plan to place Fannie and Freddie under the watchful eye of the Treasury Department and rein them in.
Frank threw a fit, saying: "These two entities . . . are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
• In 2005, Republicans put forth a comprehensive plan, the Federal Housing Enterprise Regulatory Reform Act of 2005. Debate on it lasted well into 2006. In May of that year, Sen. John McCain warned: "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole." Prophetic words, as it turns out.
If that bill had passed, the financial meltdown may never have occurred. Unfortunately, it met a Democratic wall of opposition led in the Senate by current Banking Committee Chairman Chris Dodd, and in the House by — who else? — Frank.
Apart from the trillions spent trying to escape the financial crisis, we can also thank Frank and friends for the $200 billion bill they ran up trying to rescue Fannie and Freddie. Heckuva job, Barney.
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