Thursday, October 09, 2008

Republican Spin: Federal Policy Tried to Change Banks into Charities

Charities? Banks were turned into charities?

That's certainly not my experience!

FDR referred to bankers as "banksters", but the following Republican will try to convince us that CEOs and Wall Street bankers are almost Gandhi-like and portray the CRA and do-gooder policy makers as the guilty parties who paved the well-intended path to Hell.

Russ Roberts, professor of economics at George Mason University is who I am referring, however, he is one of many who actually believe the bank/soupkitchen spin. Here is what he had to say, word for word, in response to guest Danny Schechter, author of Plunder Investigating Our Economic Calamity, on NPR's radio show, On Point,"Investigating the Subprime Scandal."

Roberts: It's true that there were some predatory loans. It's true that some people got rich at other people's expense. There are always people trying to get rich at other people's, the question is, why did things spiral out of control in the last ten years?

The simple answer is, when housing prices are rising steadily like they did from 1995-2005, it's very easy to buy a house with no money down. It's very easy to securitize that, to bundle up a bunch of those mortgages and sell them in a package with some higher quality loans which is what people did. They found out over time that it worked. The people that bought those houses during the last ten years who put very little down were high risk...most of them made their payments. They got to keep their houses and it was a win, win situation, and everybody celebrated it.

However, it's not true that everybody was asleep on the job. Because a lot of people understood that behind this system was a bunch of structural flaws put in place by public policy...well intended...that were allowing people to spend other people's money at the behest of the government, without the government having to spend anything. Fannie Mae...Freddie Mac, and the Community Reinvestment Act...all well intended. Starting in 1995, they pushed increases in home ownership. It was a relentless beat. It was bipartisan. An increase on Fannie and Freddie who were nominally private but as it turns out implicit and really guaranteed by your money and mine to increase home ownership among Americans. They did it. Home ownership went from 64-69%. Over 12 million people got houses that didnt have them before.

Unfortunately, it was only sustainable in the time of rising housing prices and those rises were due to a large extent, not to speculation and greed, but specific public policies.
Schechter, who really knows what he is talking about, however, did not respond directly to what Roberts had to say. This started to frustrate Tom Ashbrook, host of On Point.
Ashbrook said to Schechter: "But Danny, take on the heart of this. You can hear a kind of Republican interpretation and a Democratic interpretation emerging. The Democratic interpretation says this is about greed. The Republican interpretation say this is about do-gooderism...that it was a do-gooder impulse that pushed everything out of the beauty of the market and into this mess. Speak to that specifically..."
Schechter continued to speak but still did not address what Roberts said.
Ashbrook interrupted: But did government policy lead to that dynamic. That's what Russ Roberts is saying.
Schechter continued on, but never took on Roberts insanity. So, Ashbrook turned back to Roberts.
Roberts: This claim that the special interests structured the financial system to engineer an increase in home ownership is...of course some people profited from it and pushed for deregulation. What's missing from the narrative of Mr. Schechter is the special interest that he's missing, something call members of congress and senators. They pushed Fannie and Freddie systematically to increase or stay the same, year after year the proportion of loans they bought from low income and below average income borrowers, which is a lovely idea, but they were doing it with other people's money. It was irresponsible. It was an increase in regulation that caused that...some deregulation too, not much, by the way....

I want people to remember that part of this problem was caused by the seemingly attractive idea of forcing these groups...Fannie and Freddie and this includes banks, who Mr. Schechter portrays as these greedy money making operations, but unfortunately they and we would have been better off if they stuck to making money. Unfortunately, we didn't let them stick to making money, we tried to turn them into charities..."
At this point, Ashbrook talking over Roberts said: "They made an awful lot of money for charities...Danny Schechter, speak directly to that charge! DIRECTLY TO IT...!"

Danny Schechter and Tom Ashbrook continued on with the interview. Russ Roberts disappeared from the show.

Danny Schechter was very good and well worth listening too.


Anonymous,  12:06  

Too funny! Sounds like that Ashbrook guy was really struggling. It's apparent Ashbrook had an agenda and that was for Schechter to set Roberts straight but it didn't work out so he kicked him to the curb. LOL.

Anonymous,  12:07  

I haven't listened to it yet but I'm going too.

12:06 again.

Roth's stepchild 11:18  

It was pretty funny. I love Tom Ashbrook. He does his very best to make people directly respond to what's been said and answer the questions asked, instead of letting them pull a Sarah Palin.

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