"'Twas The Poor Who Killed the Economy!"

Neil Cavuto: "Loaning to minorities and risky folks is a disaster."

Daniel Gross has a great piece over at Slate detailing and rebutting the right's unsubtle attempt to lay the present crisis at the feet of the Democrats by way of pinning the whole thing on Fanny Mae and Freddie Mac, as well as the Community Reinvestment Act, a piece of a Carter-era legislation requiring depository banks to make greater efforts to lend to minority and low-income Americans. Many of his points are simple common sense: most of the prominent players in the mortgage crisis weren't regulated under the CRA, and certainly nothing in that legislation required them "to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets." Mortgage lenders lent money recklessly because they thought they could make more money doing so. That so-called "free marketeers" would imply, as Fox Business News' Neil Cavuto did, that "[l]oaning to minorities and risky folks is a disaster," is not only a borderline racist smear, it's manifestly untrue. The CRA has been in effect largely without incident for over thirty years - it's only in our era of extreme deregulation, when financial institutions have been free to operate unfettered by meaningful oversight, that all of the sudden, mortgages have found their way en masse into the hands of unqualified borrowers on one end, and mystery-meat complex derivatives on the other.

The best part of Gross's piece, though, is his righteously indignant counterpunch:

On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33 to 1, which instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients' money, and that required its septuagenarian CEO to play bridge while his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Bros. to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default-swaps business with abandon because Association of Community Organizations for Reform Now members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private-equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?

The "old capitalist" maxim was that "he who reaps the profits shall bear the losses." Considering that our federal government no longer believes in that principle, at least when it's multi-billion dollar corporations doing the losing, perhaps, at least, we can change it to "he who reaps the profits shall bear the responsibility." But as long as Wall Street and its fellow travelers on the right insist on palming off the blame on the poor while pocketing six-figure bonuses and strapping on platinum parachutes, you can be sure that that ain't gonna happen.