Notes from the Publisher

How Race-Baiting is Destroying our Financial Markets

JB

Most people are familiar with the mother-of-all-bailouts being pondered by Congress.  Nearly $1 Trillion dollars in debt being purchased by the government.  However, watching the debates, interviews with the candidates, and the pundits, I was awestruck that few of the members of the mainstream media ever looked into the over-arching causes of the financial meltdown.

Many members of the media criticized McCain because he deregulated the banks.  And, using mainstream media logic, this means that the loans failed because of lack of regulation.

In fact, the opposite was true - the loans failed because the government was over-involved.  Why was the government involved?  Because of the race-baiters.

Let me give you a generalized sequence of events as I understand them:

  1. Race-baiters use severely flawed studies to indicate that minorities were being denied credit because of their race (no one bothers to mention that asians actually get more loans than whites, or that the default rate is the same for all races, indicating that the lender's criteria is actually correct)
  2. Race-baiters pressured congress to "fix" the "problem"
  3. Congress responded by having Freddie and Fannie (you know - the two failed institutions) offer to buy loans to at-risk borrowers that lenders wouldn't otherwise make (which would include the low-income groups that the race-baiters were saying were being treated unfairly); they would then bundle these together and offer them as semi-government-backed bonds
  4. Race-baiters picketed any bank which refused to involve themselves with this scheme
  5. Freddie and Fannie's offer to purchase the idiotic loans meant that banks could make loans that the banks thought were irresponsible and make money off of them anyway, and keep the race-baiters off of their backs.  
  6. Because these loans were instantly profitable for the banks, were available to a lot more people, and required a lot less work for everyone, they flooded the market (in retrospect, I think my first mortgage was a Fannie mortgage).  Because Freddie and Fannie were semi-government-institutions, the market trusted that their lending practices were sound.
  7. Most conservatives sounded the alarm on this multiple times.  This includes the Wall Street Journal, Bush's Economic Advisers (note - Bush is still largely culpable in this - see here), and John McCain.  The democrats would not listen, and especially not the race-baiters.  Some RINOs (Republicans-in-Name-Only) were also oblivious.
  8. The rules became so lax (in order to include illegal immigrants) that they also became easy to do fraudulent loans (illegal immigrants were used as pawns in fraud schemes to purchase housing).
  9. When the housing market slowed down, many people simply walked away from their housing investments - they had no money themselves in the house, so they just stopped paying.  Since the housing market decreased, selling the home wouldn't recoup much of the money for the loan.
  10. Not surprising to anyone, Freddie and Fannie fell over because of both fraud and the failure of loans to people who should not have been borrowing money.  The only surprising factor (to some) was how quickly the rug got pulled out.
  11. As another interesting point-of-fact, "mortgage counseling" has been a mechanism by which many radical left-wing groups have obtained funding, and some versions of the bail-out bill give them even more.

For those of you who want to read more, here are some conservative commentators who have shed light on the problem:

And we'll end with a nice parable from Michelle Malkin.

Our current crisis is simply the natural result of what happens when government tries to do the market's job, especially responding to phony problems from race-baiters.  I fear the result of what congress will do.  As Sowell pointed out, the 1987 Wall Street crash was just as big as the 1929 one.  However, the government didn't do anything about the 1987 crash, and so we got a decade of growth.  The government tried to "fix" the 1929 crash, and we got the Great Depression.

It will be bad for congress to do nothing.  It will be worse if they do something.