Litany Of Lies

Did you listen to the slick presentation of the Republican electoral campaign after the Romney wins in DC, Maryland and Wisconsin Tuesday night? First Paul Ryan, presumably now the front-runner for the VP nomination, and then Romney himself. It was just a conservative festival of unrestrained distortion and Madison Avenue-inspired hype and hatred. It's going to be a long, ugly slog to November. Romney and Ryan lie with alacrity-- and it's what Republicans want to hear.

In the video above, President Obama makes the case for reality. Will your brother-in-law pay attention? Will he be spewing right-wing talking points he gets from Hate Talk Radio when you see him at dinner on Easter Sunday? My antidote-- read and reread Joshua Holland's riveting book, The Fifteen Biggest Lies About The Economy. If you're traveling in areas where malaria is prevalent you take chloroquine, doxycycline, mefloquine or primaquine. If you're likely to be in an enclosed area where someone will be repeating Romney/Ryan lies, Holland's book serves the same purpose.

No doubt you've heard the case that it wasn't the Wall Street banksters and the one percent who caused the mortgage meltdown. Corporate lawyer-- whose clients are primarily hedge funds, private equity funds and other dangerous financial predators-- makes the GOP case: "It wasn’t greed that caused the mortgage mess. In large part, the mess was the product of government policies designed to increase home ownership among the poor and ethnic minorities." Easy to understand and it feeds right into comfortable prejudices people most prone to spend hours a day listening to Fox "News" and the likes of Rush Limbaugh and other hate talkers. But it's not related to reality, no matter how any times or how loudly they repeat it. Holland:

Perhaps the most pernicious right-wing lie of late is that the Wall Street hustlers who came close to bringing the global economy to its knees in 2008 were just innocent victims of government-sponsored programs that forced them to lower lending standards in a misguided effort to increase home ownership among the poor (read: dark-skinned).

It’s an alluring story line for those who are ideologically predisposed to blame “inner city” people instead of MBAs in suits roaming the executive suite. It’s also patent nonsense-- a Big Lie that has nonetheless become an object of almost religious belief for some on the Right.

Jeb Hensarling, a notably obtuse Republican back-bencher from Texas [who sits on the House Financial Services Committee and has taken $3,754,778 from the Finance Sector], wrote that “the conservative case is simple”:

The [Community Reinvestment Act] compelled banks to relax their traditional underwriting practices in favor of more “flexible” criteria. These subjective standards were then applied to all borrowers, not just low-income individuals, leading to a surge in lower-quality loans... Blame should [also be] directed at Fannie [Mae] and Freddie [Mac], and their thirst for weaker underwriting to help meet their federally mandated “affordable housing” goals... This distortion has had seismic consequences as market participants, wrongly believing GSE-touched loans were sanctioned by the government and therefore safe, began to rely on a government mandate as a substitute for their own due diligence.

This tale has everything a conservative could want-- Big Government overreach, well-intentioned but out-of-touch liberals causing devastating unanticipated consequences with their social tinkering, and even their favorite bogeyman, ACORN, and other low-income housing advocates that have pushed for increased home-ownership among the poor.

The narrative gained steam with an influential op-ed in the Wall Street Journal by Peter Wallison, a fellow with the American Enterprise Institute (who, according to his bio, “had a significant role in the development of the Reagan administration’s proposals for the deregulation of the financial services industry”). Wallison found that “Almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations.”

The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA-- all government agencies or private companies forced to comply with government mandates about mortgage lending.


The sleight-of-hand here is pretty straightforward. The U.S. government regulates lenders and provides deposit insurance to banks, which means that a large chunk of all home loans-- good, bad, and in between-- have some connection to a government program. It’s like saying that the government is responsible for pollution because the EPA regulates industrial emissions.

Yet no bank has ever been “forced to comply with government mandates about mortgage lending.” There are no “government mandates,” and there never were. In order to qualify for government-backed deposit insurance-- a benefit that banks aren’t forced to accept but enjoy having-- the Community Reinvestment Act and similar measures designed to prevent discrimination in lending (to qualified individuals) only encourage banks to lend in all of the areas where they do business. And Section 802 (b) of the Act stresses that all loans must be “consistent with safe and sound operations”-- it’s the opposite of requiring that lenders write risky mortgages.

There are no penalties for noncompliance with CRA guidelines. The only “stick” hanging over banks that fail to meet those standards is that their refusal might be taken into account by regulators when they want to open new branches or merge with other financial institutions. What’s more, there are no defined standards for CRA compliance, and within the banking community, the loose guidelines are considered to be somewhat of a joke.

As Sheila Blair, the chairwoman of the FDIC, asked in a December 2008 speech, “Where in the CRA does it say: make loans to people who can’t afford to repay? Nowhere! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth... pure and simple.”

Fannie Mae and Freddie Mac were created by an act of Congress, but they are (or were, until being taken over in the wake of the housing crash) private, for-profit entities whose dual mandate was to increase the availability of mortgages to moderate- and low-income families, and at the same time turn a profit for their shareholders. Fannie and Freddie did end up with a very large portfolio of subprime loans, with a high rate of default, but they didn’t get into the market because the government mandated it. They dived in deep because there were profits to be made as the housing bubble expanded. As Mary Kane, a finance reporter for the Washington Independent, put it:

Neither the Community Reinvestment Act-- the law most cited as the culprit-- nor other affordable housing goals set by the government forced Fannie, Freddie or any other lender to make loans they didn’t want to. The lure of the subprime market was high yields and healthy profit margins-- it’s as simple as that.