Capitol Ideas
Bethell, Yom
caPITol Ideas Crediting the Uncreditworthy by Tom Bethell I bought my condo in Washington, D.C., 25 years ago, for a little over $100,000; two bedrooms, two baths, in a “good”...
...But if we go into debt with a mortgage, inflation will erode the value of what we owe and we get a tax break into the bargain...
...Fannie and Freddie showered Democrats, and to a lesser extent Republicans, with campaign contributions...
...And so the unraveling continued...
...The idea somehow took hold that poor neighborhoods in inner cities were deteriorating because they were being denied credit...
...They have invested in politicians...
...The response was predictable...
...and can’t right now recall whether I decided they would impress these gentlemen more than they would frighten them...
...Like a Ponzi scheme, it seemed to work for a while, but when house prices began to decline everything fell apart...
...But what happens to savers...
...When are they going to reverse this, with savings encouraged and debt discouraged...
...It will permanently stain his reputation for wisdom...
...The New York Times, which was then (30 years ago) a more balanced newspaper than it is today, editorialized that “measures that would weaken standards are dangerous...
...Why be so “rigid” about assets...
...Tom bethell is a senior editor of The American Spectator...
...more recently, one Barack Obama...
...When “redlining” came over the political horizon, I was living in a communal house on Embassy Row...
...I have been thinking about this in light of our credit woes today...
...Some thought of the loan as something that they wouldn’t ever have to repay...
...The following year the Chevy Chase Federal Savings Bank (the largest such bank in Maryland) was accused of racial bias by Janet Reno and the Clinton administration...
...Bankers should “affirmatively help” meet “community credit needs...
...In recent years, the great political promoter of the Ponzi scheme has been the chairman of the House Financial Services Committee,BarneyFrank...
...The association said: “Our institutions are not social service organizations…” Try telling that to Rep...
...He forgot that maintaining a stable dollar was by far the most important part of his job...
...Which I have done (well, almost...
...These communities “need” these loans...
...Credit needs...
...Prices rise, and savings buy less and less...
...It amazes me to read that, until recently, people have been allowed to borrow the full purchase price of a house without showing they could repay it...
...But rest assured, Reagan or Nixon had little to do with it...
...The Republicans have sometimes been worse than the Democrats in this regard...
...That’s just one of the mysteries...
...Without admitting any wrongdoing, the bank settled, agreeing to open branches in poor neighborhoods and by making $140 million in concessionary loans available to the alleged victims of “discrimination...
...The truth is that the nation’s financial system has been run for many years with a great deal of irresponsibility...
...There is far too much reliance on credit, for one thing...
...the variables are confounded...
...The Times, by now sounding a more familiar note, warned in 1994 that the Community Reinvestment Act “requires banks to meet the credit needs of all neighborhoods in a bank’s service area...
...An insinuation of the law, unstated, is that lenders are inclined to be racist...
...New York Times financial columnist Peter Passell, who is now with the Milken Institute, said that banks would find “that the path of least political resistance is simply to shovel enough money into minority projects to make the regulators go away...
...I do have Judy Miller stories, along with Nixon correspondence stories, but I guess they will all have to wait...
...That no doubt persuaded the moneylenders that I had every intention of repaying the loan...
...By 1993, with the advent of the Clinton administration, the Washington Post began publishing articles about racial disparities in mortgage loans in the Washington area...
...As Times newcomers must, Judy went to the metro desk—this was many years before she became a famous foreign correspondent for the paper, with (it turned out) some influence over how our Iraq Misadventure was to be interpreted...
...As a freelance writer I had no salary, but I qualified for a mortgage all the same...
...It’s high time...
...Soon she joined the New York Times...
...Congressional Democrats increased the pressure for politically subsidized loans...
...two bedrooms, two baths, in a “good” part of the city (meaning safe, about a mile north of Georgetown...
...Our most famous tenant was Judy Miller, who was then with the Progressive magazine...
...William Proxmire, massaged by Walter Mondale, and signed into law by Jimmy Carter...
...So Congress enacted a new law, the Community Reinvestment Act (1977...
...The regulation of mortgage loans was about to be undermined by the insistence Tom beTHell that banks and S&Ls could no longer be too fussy about borrowers’ credit-worthiness...
...Meanwhile, the puny interest we may receive on savings accounts will be taxed away as unearned income (one more opportunity to punish “the rich...
...The government allows the dollar to fall, year after year, thereby repudiating its debts...
...The chevy chase bank has survived, but recently posted a quarterly loss of $5 million on assets of $15 billion...
...The then Fed 42 THe amerIcaN sPecTaTor November 2008 chairman, Alan Greenspan, contributed to the problem by holding interest rates too low for too long...
...It declared “redlining” to be illegal...
...But I would like to bring up one of the least discussed roots of the crisis...
...Since 1989, Connecticut’s Sen...
...How come...
...By 2006, the median down payment for first-time home buyers, once 20 percent, had sunk to a mere 3 percent, probably with a variablerate mortgage...
...Redlining means denying a mortgage because the applicant lives in a particular geographic area...
...I debated whether to include my Nixon letters (written after he was president...
...I particularly liked the following paragraph in Judy’s story: The Savings Bank Association of New York contended at the hearing last week that the law’s goal of encouraging lenders to meet credit needs of the entire community “is entirely at variance with the business of banking in a free enterprise system...
...How could supposedly intelligent people have believed that house prices would keep climbing forever...
...Of course, if race and financial assets are correlate (as they are), then insisting on assets as a precondition for a loan could look a lot like racism...
...caPITol Ideas Crediting the Uncreditworthy by Tom Bethell I bought my condo in Washington, D.C., 25 years ago, for a little over $100,000...
...Bad policy...
...They would buy up these mortgages, call them “assets,” and sell them to investment bankers who believed that they were worth a lot more than they turned out to be...
...By far the most important consideration was that I had put up 50 percent of the purchase price...
...How long before needs would become rights...
...Going along with the political pressure, as the Chevy Chase Bank had done, would “buy them friends in high places,” according to the American Banker...
...Chris Dodd has been the top recipient...
...In an early redlining story for the Times, Judy wrote that the new law “has been creating some tough problems for the nation’s bank regulators...
...They would just walk away if the value of the house declined...
...I was deemed qualified...
...November 2008 THe amerIcaN sPecTaTor 43...
...Mortgage risks could be passed on to the secondary mortgage market by Fannie Mae and Freddie Mac in Washington, D.C., backed by an implicit federal guarantee...
...New York’s savings banks already hold large numbers of defaulted mortgages, including many inner city properties.…We raise a strong word of caution against the expectation that bank credit is a substitute for the wages, salaries and other income that are needed to keep a community alive economically...
...She got that right...
...Well, when I went to see the moneylenders I brought along some letters, including one I had received from Ronald Reagan (written before he was president) and from one or two other political notables as well...
...I wonder how many of these borrowers even knew what that meant...
...People should be encouraged to save money, not to rely on loans at every turn...
...GOP treasury secretaries are inclined to think it is their job to help business, and so they imagine that a sinking dollar will encourage exports...
...Barney Frank...
...It was dreamed up by Sen...
...In cash...
Vol. 41 • November 2008 • No. 9
