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United States News Title: Still Oblivious To Meltdown's Cause, The Kenyan Continues Disastrous Policies One of the tragic ironies of the financial meltdown is that it was caused by well-meaning politicians who didn't know what they were doing — and ended up hurting the very people they intended to help. Monday's Los Angeles Times carried a timely and melancholy piece on how the economic downturn that resulted from the housing crash three years ago has taken down entire regions in California — places that once hummed with businesses and people but have now become industrial wastelands. The Times article points in particular to the region east of San Francisco, once a sprawling group of bedroom communities filled with people who moved inland in search of more affordable homes and commuted daily to the City by the Bay and Silicon Valley. Those days are gone. Today, the Times notes, "jobless rates go up to 20%, (and) home prices are down as much as 75%." What's left is misery, empty buildings and broken dreams. The East Bay's abandoned housing subdivisions and shuttered businesses now compete with those of Southern California's Inland Empire for the grim distinction of the biggest economic disaster zone in the once-Golden State. The misery won't end soon, because the federal government is repeating the very same mistakes that created the housing nightmare in the first place — including pushing banks to make home loans to people who can't repay them, and expanding Fannie Mae's and Freddie Mac's role in housing markets even as their losses mount. Have we learned nothing? This didn't happen overnight. The causes of our current meltdown go back to the early 1990s, when President Clinton first made it official U.S. policy to encourage lending to what were called "low- and moderate-income borrowers." By 1994, Clinton's "National Homeownership Strategy" started a nationwide push to lower mortgage-lending standards to get more poor people into homes. But the question arose: How could you force banks to lend to people who couldn't pay them back? The White House answered by using the 1977 Community Reinvestment Act — originally intended to ensure that banks lent in communities where they had branches — to force banks to make loans to minorities and the poor. To fund it all, the White House turned to Fannie Mae and Freddie Mac to build a massive, multitrillion-dollar market for U.S. subprime mortgages. In November 2000, HUD Secretary Andrew Cuomo issued a press release trumpeting the government's reckless plans: "HUD Announces New Regulations to Provide $2.4 Trillion in Mortgages for Affordable Housing for 28.1 Million Families." Despite repeated efforts in Congress by Republicans to reform Fannie and Freddie in 2001, 2003, 2004, 2005 and 2007, powerful Democrats refused to cooperate. And Fannie and Freddie continued to feed the housing bubble with trillions of dollars in publicly guaranteed money — until it was too late. And they're still doing so. Even today, nine of 10 new mortgages are backed by Fannie and Freddie, and the two GSEs account for more than half the $10.7 trillion in mortgages outstanding. Fingerprints of the CRA, Fannie and Freddie, and the politicians who used them, are all over this monstrous fiscal crime. Yet, even as this government failure has been definitively revealed through painstaking research, the Obama administration has weirdly insisted that Fannie Mae and Freddie Mac still deserve our support. Last August, the Congressional Budget Office predicted that Fannie and Freddie could cost us $389 billion over the next decade. But others say the bill could be as much as $1 trillion. Yet neither Fannie nor Freddie was addressed in the so-called financial reform bill that President Obama just signed. That's what makes the situation in the rolling hills and inland valleys east of San Francisco and Los Angeles even sadder. Not only could their tragedies and others like them have been avoided, but we're still using trillions of taxpayer dollars to put people into houses they can't afford, artificially propping up housing prices. This is only the latest example of how big government, with the best of intentions but not a particle of common sense or competence, ends up hurting the very people it sets out to help. Without learning from this one, it certainly won't be the last.
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