There is a rather remarkable phrase that has crept into common usage, thanks to the genius of the mainstream media: “predatory lenders”. It is a matter of unquestioned fact, according to the self-appointed defenders of truth and justice at the New York Times, CNN, etc., etc., that the current financial crisis can be laid at the feet of “predatory lenders”, along with the idiots (at best) or thieves (at worst) at investment houses who supported their nefarious schemes.
It’s a remarkable phrase; “predatory lender”. According to Princeton, a predator is “someone who attacks in search of booty”. This leads us to a conundrum. If lenders, like Countrywide Financial, were indeed predators, where exactly was the booty supposed to come from? The ultimate, uncomfortable conclusion is that the victims are you, me and every other responsible, hard-working tax-payer in the United States who harbor the old-fashioned notion that one should not purchase a home until one can actually afford to do so.
An aside first. I use Countrywide as the example here because they are the most notorious, and the biggest, of the so-called predatory lenders. Since purchased by Bank of America, Countrywide holds about 17% of the nation’s mortgages, and nobody made more questionable loans.
The uncomfortable fact, the fact that Democrats desperately don’t want you to know, is that lenders like Countrywide weren’t preying on anybody, they were following orders – orders that originated with the administration of one William Jefferson Clinton and that were perpetuated by a compliant, Democrat-controlled Congress, throughout this decade.
Back in 1993, the Clinton administration decided to solve the problem – or rather the assumed problem – of discriminatory lending practices. It had been noticed that certain minorities didn’t participate in home ownership at the same rate as white folks. This in turn, was traced to the fact that said minorities were denied mortgages at a higher rate than white folks.
Since it was inconceivable that the reasons for the discrepancies might be related to – oh, I don’t know – individual differences in income maybe? – or an applicant’s credit-worthiness possibly? – it was concluded that this was another example of the subtle racism infecting America.
The solution? Out with those old financial standards! All that 20 per cent down stuff was fine for your grandfather, but it being the 1990’s that concept was now squaresville man. No money for a down-payment? No problem. Forget about it. Can’t afford your payments? Just pay the interest. We’ll worry about principal down the road. After all, your home will keep appreciating in value. You have a crappy credit history? Don’t sweat it! Just lie – we won’t check!
Fannie Mae and Freddie Mac thought that Countrywide was just the pooh, giving them preferred access to the cash they needed and praising them for offering “nontraditional credit” to “applicants who have no established credit history”. Other lenders rushed to follow Countrywide’s example, both because (so long as home values continued to climb) it was profitable and because not to do so was, well, racist.
Now some institutions prudently felt that it was better to endure being called a bigot than it was to abandon every sound financial practice established since the days of Adam Smith. JP Morgan Chase and HSBC, for example, wanted no part of the scam and both remain quite healthy, thank you very much, and wholly without the need for any sort of government bail out.
Investment firms bought into the scheme, and why not? Fannie and Freddie were fueling the fun and, as government sponsored enterprises, they weren’t going bankrupt, right? Well, as it turns out, they weren’t. Fannie and Freddie were simply too big, too important to the financial system, to allow them to fail. But somebody had to pay for all those bad loans – and the chaos they caused – and that somebody turns out to be you and me.
Somebody should have figured this out long ago, right? Lots of people did. They were shouted down, labeled “racists” for daring to point out that this particular house of cards was going to fall apart with a resounding boom.
Today, the popular wisdom, the New York Times/Democrat Party wisdom, is that the meltdown was the inevitable result of corporate greed, providing unquestionable evidence of capitalism’s shortcomings.
Bull. The meltdown, at its core, is proof of what happens when government sticks its nose into private enterprise in order to perform social engineering. The Bear Stearns of the world should be criticized for being dumb enough to invest in worthless paper, but it’s the government of the United States of America, and most especially the Clinton administration and the Democratic Congress, that bears the responsibility for creating that paper to begin with.
In other words, my friends, the true predators are not the financial institutions that were the tools of government-sponsored social engineering, but our elected representatives, who were supposed to protect us from this kind of foolishness.