The Community Reinvestment Act Comes Full Circle
As Michael Lewis documented extensively in 1989's Liar's Poker, in the 1970s and early 1980s, while Mike Milken was discovering the myriad wonders of the junk bond market, Salomon Brothers were concurrently creating a system by which previously sleepy S&Ls could quickly bundle their mortages and trade them as just another government-backed bond:
Ranieri & Co. [Lewis Ranieri, then of Salomon Brothers, and the bond traders who worked under him] intended to transform the “whole loans” into bonds as soon as possible by taking them for stamping to the U.S. government. Then they could sell the bonds to Salomon’s institutional investors as, in effect, U.S. government bonds. For that purpose, partly as the result of Ranieri’s persistent lobbying, two new facilities had sprung up in the federal government alongside Ginnie Mae. They guaranteed the mortgages that did not qualify for the Ginnie Mae stamp. The Federal Home Loan Mortgage Corporation (called Freddie Mac) and the Federal National Mortgage Association (called Fannie Mae) between them, by giving their guarantees, were able to transform most home mortgages into government-backed bonds. The thrifts paid a fee to have their mortgages guaranteed. The shakier the loans, the larger the fee a thrift had to pay to get its mortgages stamped by one of the agencies. Once they were stamped, however, nobody cared about the quality of the loans. Defaulting homeowners became the government’s problem. The principle underlying the programs was that these agencies could better assess and charge for credit quality than individual investors.
Back in late September of 2008, just as the financial crisis was simultaneously devouring Wall Street and paving the way for their preferred candidate's victory a month later, Kevin D. Williamson wrote at NRO that for the left, the Community Reinvestment Act was a can't-lose proposition:
Imagine if the housing bubble hadn’t burst, but there hadn’t been all those dodgy subprime loans made and then securitized. We’d be reading stories about how America is having a wonderful housing boom but the poor and minorities are being left out. There’s lots of greed and stupidity in this story, but we shouldn’t ignore the fact that a big part of what is wrong comes from bad public policy designed to encourage homeownership, particularly among the poor. Unintended consequences are not to be denied.
But we’re not going to hear much about ACORN’s role in all this, or, by extension, Senator Obama’s.
That could be changing, Walter Russell Mead recently noted:
According to the Washington Post, President Obama has decided to support a continuing government role in the housing market and plans to keep Fannie Mae and Freddie Mac operating with government guarantees into the indefinite future.
The decision is a GOP dream come true and could play a significant role in the campaign.
If you wanted to link ACORN and community organizers with Wall Street profiteers and nationally unpopular liberal icons like Barney Frank, handing the Fannie Mae issue to the GOP in 2012 is the way to do it. Gretchen Morgenson and Joshua Rosner laid out a GOP roadmap in Reckless Endangerment. According to their (controversial) account, Fannie Mae was a kind of Democratic Enron as poverty hustlers united with Wall Street profiteers to rape the Treasury while abusing the poor; the net cost to the taxpayers for Fannie and Freddie could well reach $389 billion.
Imagine the ads.
As I said on Tuesday, lots of material in this 2008 video to work with, if anybody in the GOP has the brains (yes, that's a risky proposition right there) not to let this crisis go to waste: