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the big lie

September 14, 2014

Here’s the reality. In addition to redistributing wealth and income (welfare) and redistributing outcomes (affirmative action), Democrats sought to redistribute home mortgage loans, which I call “affirmative credit”.

With the naming in 1999 of long-time Democrat operative Franklin Raines as its CEO, Democrats turned Fannie Mae into a campaign machine. They redistributed hundreds of billions in mortgage credits by undercutting traditional credit standards… reducing down payments to zero, weakening income and credit score requirements; creating “Liar’s Loans” and “No Docs”. The goal was to make credit available to people who could never have qualified for a mortgage before, and it succeeded.

This created a huge swell of new housing demand, which drove the housing market into the bubble we all recall. Weak borrowers, however, always create delinquencies, then foreclosures, which destroyed the mortgage derivatives those “Alt-A” and “Sub-Prime” loans underwrote, which in turn destroyed the financial institutions that held the derivatives.

It blew up in the Democrat’s faces. “Banksters” and George W. Bush, naturally, got the blame.

Those under-qualified buyers were given loans by political decree. Any “bankster” refusing to make these economically stupid and financially deadly loans was subjected to Congressional and regulatory assault for “discriminatory credit practices”. No rational banker refused. George W. Bush tried three times to stop this corrosion through Congressional action and each time was crucified by Democrats, led, you will recall, by Barney Frank in the House and Chris Dodd in the Senate.

An honest diagnosis is that the bastardization of the mortgage credit system was done for progressive political purposes; extending loans to people who would never have qualified for them previously in order to buy votes. When that “affirmative credit” lending stopped in early 2007 housing demand died. The bubble popped. Prices collapsed. Foreclosures soared.

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