Reasons Behind the Financial Crisis

Frank Mazur's letter to the editor of the Burlington Free Press published on October
succinctly portrays the root causes behind the financial mess. There are other
reasons, too, including the greed of the mortgage brokers and home buyers who
were flipping (speculating) properties in the runup of housing prices in the the past decade encouraged by low interest rates sponsored by then-"saint" Alan Greenspan.

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Bailout Rewards Bad Behavior

"Deception and greedy lenders forced the federal government to intervene and rescue Wall Street from a financial meltdown. Most of the blame rests on political meddling in the decisions of lenders.

The problem started in the Carter years and exacerbated in the Clinton administration when lenders were encouraged to give loans to people with poor credit and low income levels. Congress clearly advocated the importance of minority and low-income home ownership. This helped create the market for risky sub-prime loans that were bundled and sold with the expectation of being paid back. Many defaulted and the current crisis emerged.

In 2003 President Bush presented reform measures which Congress ignored. John McCain also sponsored a strong reform bill in 2005, but Democrats opposed it because it would mean fewer loans to poor people.

It's not the failure of capitalism that caused this meltdown. It's political interference and regulators who promoted bad loans, and greedy lenders who ignored common sense in approving them. Freddie and Fannie were also mismanaged by Clinton cronies who overstated earnings and shifted losses so senior executives could earn big bonuses. These quasi-governmental agencies are also big political contributors to Sens. Dodd, Obama, and Clinton who contributed to the current trillion dollar federal bailout by succumbing to affordable housing lobbyists.

When Enron defaulted and caused financial pain to the market, a special prosecutor was created immediately. We need a special prosecutor to investigate what laws were broken and by whom. Under no circumstances should they profit by taxpayers absorbing this debt."

FRANK MAZUR
South Burlington

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Here is Rich Tarrant's take on the mess (Rich ran unsuccessfully against Senator Bernie Sanders in the last election)

Government meddling, not deregulation, caused the financial meltdown

by Rich Tarrant

"The United States is facing a very serious financial crisis. While we need
both sides of the aisle to put politics aside and work together to craft a way
forward, it is also important to examine how we came to be in this mess in the
first place. If we are serious about a real and lasting fix to our economy, we
must first be committed to separating facts and records from partisan spin.
Otherwise, we are doomed to allowing the same people to make the same mistakes
all over again at our considerable expense.

A popular theme in the media is that the financial meltdown was a failure of
the “free market.” A careful look at events, however, shows that this is not
true. In fact, the origins of this crisis can be traced back to the exact
opposite of free market principles: government meddling in which politics
trumped sound business practices.

This started with The Community Reinvestment Act in 1977. Jimmy Carter signed
this bill into law, caving in to grassroots political pressure for more
affordable housing in low-income communities, which sounds nice and is very
politically correct. However, it ignored the staunch opposition of the banking
community.

Far from jumping into the sub-prime market with dollar signs in their eyes
and greed in their hearts, banks wanted nothing to do with this scheme. In fact,
ACORN (Association of Community Organizations for Reform Now) liberal activist
Martha Talbot noted proudly that her organization and political allies were
"dragging banks kicking and screaming" into making these loans – hardly the free
market at work. For voicing what turned out to be very legitimate concerns,
banks were labeled “racist” by the same political opponents who are now blaming
them as “greedy.”

More government meddling occurred in 1999 under President Bill Clinton in
regard to the Government Sponsored Enterprises (a concept antithetical to the
free market), Fannie Mae and Freddie Mac. As The New York Times reported,
“Fannie Mae, the nation's biggest underwriter of home mortgages, has been under
increasing pressure from the Clinton Administration to expand mortgage loans
among low and moderate income people.” Again, this was government
intervention and political motives prevailing over and distorting the
free-market. Just recently, Bill Clinton himself said the Democrats who opposed
reform during his administration were at fault.

As for the charges that “deregulation” of the banking industry by Republicans
led to this mess, the facts again do not back up the charge. President Bush
raised red flags as early as April 2001, warning that the situation with Fannie
and Freddie could “cause strong repercussions in financial markets.” In 2003, it
was Bush who called for a new federal agency to regulate and supervise Fannie
& Freddie. In 2005, Alan Greenspan testified, “Enabling these institutions
to increase in size … we are placing the total financial system of the future at
a substantial risk.”

It was Senator John McCain who co-sponsored S.190, the Housing Enterprise
Regulatory Reform Act of 2005. Among other measures, this would have established
a Federal Housing Enterprise Regulatory Agency. Had it passed, this organization
could have stopped the current crisis in its tracks. But, S.190 didn’t pass.

Why? According to the records, Democrat opposition fueled by millions of
dollars in lobbying and campaign contributions by Fannie and Freddie Mac,
coupled with left-wing activist pressure from organizations like ACORN.
According to Open Secrets’ review of FEC records, Barrack Obama received more
campaign contributions from Fannie Mae and Freddie Mac than any other politician
except Christopher Dodd. However, Obama amassed his pile of cash in just three
years, whereas Dodd accumulated his loot over two decades. Today, two of
the Fannie/Freddie executives under investigation are advisors to the Obama
campaign.

This crisis has elicited a massive political smokescreen to hide and protect
some influential politicians. But, we as voters and citizens have a
responsibility to cut through the rhetoric, look at the records, and reward
those who showed insight, foresight, and took action to attempt to fix this
problem before it became a problem. "