The Ideological Subtext to the Financial Crisis
Yesterday I talked to an old libertarian banker friend. He dislikes the whole idea of a bailout, but reluctantly admits that the economy probably needs it in order to slow and contain the crisis. By his estimate, it would take the economy 20-30 years to sort itself out without the bailout. (Reasoning: it took us 3-4 years to get over the tech-bubble bursting, and those were goods that were only to last 3-4 years. In the present crisis, homes are durable goods, lasting 20-30 years. I'm not entirely sure I buy this argument, as it seems that houses resell better than computers, and people don't necessarily own a house for that long.)
Much more interestingly, he observes that some of the economic weakness originates in way that banks were ideologically forced to make loans to people with bad credit. Community groups (including the ACORN group with which Obama worked) sued banks for not making enough loans to racial minorities.1 The banks weren't singling out these people; it's just that minorities tend not to have as good credit (doesn't make them bad people). Since banks couldn't have special lower standards only for minorities, they had to lower their standards for all loans. Thus they were forced by "community" groups to make bad loans.
My friend estimates that these loans amount to about a tenth of the current economic crisis.
Of course people with bad credit who get a loan they can't handle end up much worse off when they default on the loan than if they had no loan in the first place. Ironically the real victims of this liberal strategy were these people they were ostensibly helping. This is similar to the students who get into a prestigious college, not because they are qualified, but simply because of institutionalized racial preferences. How does it help them when they have to drop out?
Once again we have an affirmative-action type of plan using heavy-handed tactics to ruin things for everyone, but especially for the people they were supposedly helping. For liberals, the motivation seems to be not so much actually helping people, but feeling like they are helping people.
Notes
1. Hopefully this doesn't sound like a white supremacist argument. Even a stopped clock is right twice a day, and unfortunately liberals seemed to be determined to make them right more often.
Update (Oct 2): More on the mortgage crisis and the Obama connection here.
2 comments:
Here you go.
Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?
These arguments are generally made by people who read the editorial page of The Wall Street Journal, and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice.
http://www.newsweek.com/id/162789
Conservatives like to pretend that greed is really a form of compassion. I'm not buying it. But, hey, maybe I'm just not wealthy enough to sympathize with the claim.
As far as Presidents are concerned, take a look at the Bacevich article linked from the previous post. I suspect you'll be surprised.
I've never said (because I don't believe) greed is a form of compassion; that's not a conservative tenet, despite what some businessmen try to dress it up as.
If you want real conservatism, read Russel Kirk, Richard Weaver, and other authors you can find out about through ISI. Don't take the word of the bimbos at NRO or WSJ.
Notice I said a 10% effect. You might find the ideas in this item from The American Conservative magazine familiar:
Usual Suspects
Who’s to blame for the unfolding financial crisis? According to many conservatives, poor black people and, of course, Democrats.
National Review Online indicts President Carter’s Community Reinvestment Act for the meltdown. The CRA emboldened community organizers—like you-know-who—to force banks to make loans to uncreditworthy minorities, you see. Terry Jones of Investor’s Business Daily blames Clinton’s “multicultural housing policy” and his mandates to increase home ownership among blacks and Hispanics.
But as economist Michael Barr points out, about half of subprime loans came from mortgage companies that were unaffected by CRA’s mandates. Perhaps only a quarter of all subprime loans were made by banks governed by “multicultural housing” policies. Nothing excuses politically correct credit, but did community organizers really force lenders to infect all financial markets by repackaging their bad mortgages into securities? Did poor blacks invent credit default swaps?
Of course not. While these so-called conservatives criticize the misguided do-goodism of Democrats past, they ignore the present Republican administration that is pioneering socialism for the rich.
Bush proposed an “ownership society,” saying that Americans would prosper when they were given more economic freedom and accountability. Now the same administration insists that prosperity depends on bailouts, that accountability means disaster. Instead of Americans owning their own homes as free individuals, the Bush administration has made all of us collective owners of the worthless banks and lenders that ruined the real estate market. Never have so many owed so much to so few.
LG
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