A5

CHARLES MOORE
AT LARGE

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With the U.S. federal government proposing a $700 billion bailout to purchase "toxic" mortgage debt from foundering banks being stymied by "Main Street's" evident inabilty to grasp how much pain inaction could inflict on ordinary people, and Canada's treasury pumping billions into our credit market in hope of warding off a similar meltdown here, the question is begged as to why such a vast amount of money was ever lent to people with no realistic prospect of being able to keep up with payments in the inevitable event of rising interest rates.

While the finger of blame is being pointed at "corporate greed" and Wall Street fat cats lining their pockets, and there's certainly something to those accusations, some analysts argue it wasn't too little government intervention that caused the U.S. mortgage meltdown, but too much. Social engineering agendas pursued by legislators pressuring the monolithic U.S. mortgage companies Freddie Mac and Fannie Mae which carry the lion's-share of American mortgage holdings into unsound - albeit politically-correct - lending practices. What needs underscoring and emphasis is that there's nothing "conservative" or "capitalistic" about lending to bad repayment risks (ie: "sub-prime borrowers). That was policy promoted by progressives, leftists and other socialists.

A World Net Daily report last week quotes University of Texas at Dallas economics professor Stan J. Liebowitz, from his forthcoming book, Housing America: Building out of a Crisis, arguing that the U.S. federal government pushed the mortgage industry so hard to get minority homeownership up that it undermined America's financial foundations to achieve that social objective.

"In an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s," Liebowitz contends. "The decline... was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, (government-sponsored enterprises) and housing activists. Although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise."

"As homeownership rates increased there was self-congratulation all around," Liebowitz concludes. "The community of regulators, academic specialists, and housing activists all reveled in the increase in homeownership."

John Lott, a senior research scientist at University of Maryland, told Fox News last week that the Federal Reserve Bank of Boston produced a manual in the early 1990s counselling mortgage lenders to no longer deny urban and lower-income minority applicants on such 'outdated' criteria as credit history, down-payments or employment income. The inevitable result of that guidance is the proverbial "Ninja" mortgage-holder - "no income, no job, no assets."

World Net Daily cites a chillingly prophetic observation from a Sept. 1999 New York Times article warning that: "In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."

The "damn the consequences" social engineering agenda of the "progressive" left in this sorry equation was captured in comments by left-leaning Congressman Barney Frank, D-Mass., quoted by the The Wall Street Journal in 2003 chiding fiscal conservative worries "about the tiny little matter of safety and soundness rather than 'concern about housing.'" Frank, now chairman of the House Financial Services Committee, rejected as an assault on the poor Bush administration and Congressional Republican proposals to subject Fannie and Freddie to what they termed "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis," in September of that year. He reportedly said, "These two entities - Fannie Mae and Freddie Mac - are not facing any kind of financial crisis," adding, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

It was attributable in no small part to prodigally irresponsible liberal policies backed by the likes of Barney Frank and fellow-traveling lefties that Between 2000 and 2006, the average home price in the United States rose by some 93 per cent.

Current Republican presidential candidate John McCain, on the other hand, tried to reimpose some rationality on the process back in 2005, co-sponsoring the Federal Housing Enterprise Regulatory Reform Act, assailing Fannie Mae and Freddie Mac's policies as exposing the market and the taxpayer to untold risk, which became told as interest rates returned to more realistic levels and people who had been persuaded to buy homes they couldn't rationally afford started defaulting on their payments. Demand slowed and home construction along with it. Existing home prices collapsed, lenders found themselves holding "toxic debt," and here we find ourselves.

Socialist ideology, not capitalist greed, got us into this mess.

Charles W. Moore is a Nova Scotia based freelance writer and editor. He can be reached by e-mail at cwmoore@gmx.net. His column appears each Thursday.