Word has gotten out that the Financial Crisis Inquiry Commission (FCIC), a bipartisan panel of 5 Democrats, 4 Republicans, and an Independent, has suffered a fracture in its efforts to write a report to explain the financial crisis. Given how the deficit reduction commission recently fumbled the ball I guess this shouldn’t be too big a surprise.
It appears that the Republicans on the commission have decided to issue an alternative report written by just the 4 of them, which will blame the government for the financial crisis. Namely, Fannie & Freddie Mac and the 1970s Community Reinvestment Act, which mandated lending to minorities.
The narrative here is that Fannie & Freddie, driven by the CRA, lead the charge into subprime lending and took the financial system down with them. It’s a complete fiction. Well, not complete. Fannie & Freddie did play a role and the CRA did encourage lending to minorities, but it was a minor role at most.
Here’s the thing. Well, a couple things. First of all, Fannie & Freddie don’t originate loans. They purchase loans, sometimes risky ones, from loan originators to help those originators make more loans by taking current risk off their books. They do this to free up the mortgage market. And here’s the other thing … by 2006 – the peak of the subprime mortgage boom – Fannie & Freddie had essentially left the market. They were purchasing less than 10% of subprime mortgages. Most of these toxic loans were being bought up by the big banks as fast as they could be initiated so that mortgage bonds could be created. See my previous post on how all of that works.
Additionally, by 2006 – the top of the boom – just 6% of subprime mortgage loans were originated by lenders subjected to the rules of the Community Reinvestment Act. So 94% of subprime mortgages were being originated by lenders with no government mandate to initiate these loans. Should I even comment on the underlying racism that assumes the subprime loans were going to minorities? Plenty of white folk got caught up in this predatory lending too, you know.
But there’s a kicker. This Republican contingent is made up of some pretty smart and presumably reasonable men. Namely, FCIC vice chair Bill Thomas (former House Ways & Means Chair), former Congressional Budget Office head (Douglas Holtz-Eakin), former head of President Bush’s National Economic Council (Keith Hennessey), and former general counsel for the Treasury Department (Peter Wallison) . That’s a lot of brain power. A lot of people with a lot of experience with the financial markets.
And this is what they did. At an FCIC meeting they brought up a vote to the commission to ban the worlds “Wall Street”, “deregulation”, “shadow banking”, and “interconnection” from the final report. They actually wanted to censor the report from using words that might help explain what happened – and might put some of the blame on the banks that gambled heavily on the subprime mortgage market and lost badly.
Do these people live in a backwater where its still okay to ban books and censor documents? I don’t want to make it personal, but let’s make it personal for a minute. Why the hell would you try to ban words from a report on the biggest financial meltdown since the Great Depression? Why would you try to hide the real reasons for the crisis behind the obscurity required by a word ban?
I’ll let you work out why they want to ban these words. And it isn’t pretty.
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