Scroll For Updates: Yes: McCain Attacks The Dems For Fannie And Freddie!

Posted by Pam on 10/6/2008

Ed asks a good question: Was sub-prime lending ever a good idea? In this audio clip, Obama defends the idea of subprime lending just over a year ago:

Obama: Subprime lending started off as a good idea – helping Americans buy homes who couldn’t previously afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories and spread them out among investors around the country and around the world.

In theory, this should have allowed mortgage lending to be less risky and more diversified. But as certain lenders and brokers began to see how much money could be made, they began to lower their standards. Some appraisers began inflating their estimates to get the deals done. Some borrowers started claiming income they didn’t have just to qualify for the loans, and some were engaging in irresponsible speculation. But many borrowers were tricked into glossing over the fine print. And ratings agencies began rating bundles of different kinds of these loans as low-risk even though they were very high-risk.

Most everyone knew that some of these deals were just too good to be true, but all that money flowing in made it tempting to look the other way and ignore the unscrupulous practice of some bad actors.

Ed further points out:

This leaves out a couple of crucial factors. “All that money flowing” came from Fannie Mae and Freddie Mac, which created a boom market in the sub-prime market at the behest of Congress. They wanted to increase the market for subprime loans, and they did so by essentially creating profit on every loan, whether it made sense or not. Fannie and Freddie removed all of the normal correctives of the market by ensuring a short-term profit on almost every piece of paper written.

The second factor is that subprime lending is almost by definition not a good idea. While most people would agree that home ownership is a benefit to the individual as well as the community, the lending of money to people who can’t afford it is a fundamentally destabilizing practice.

In response to this, and all the finger pointing by the Democrats, McCain finally pushed back with this:

Our current economic crisis is a good case in point. What was his actual record in the years before the great economic crisis of our lifetimes?

This crisis started in our housing market in the form of subprime loans that were pushed on people who could not afford them. Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread. This corruption was encouraged by Democrats in Congress, and abetted by Senator Obama.

Senator Obama has accused me of opposing regulation to avert this crisis. I guess he believes if a lie is big enough and repeated often enough it will be believed. But the truth is I was the one who called at the time for tighter restrictions on Fannie Mae and Freddie Mac that could have helped prevent this crisis from happening in the first place.

Senator Obama was silent on the regulation of Fannie Mae and Freddie Mac, and his Democratic allies in Congress opposed every effort to rein them in. As recently as September of last year he said that subprime loans had been, quote, “a good idea.” Well, Senator Obama, that “good idea” has now plunged this country into the worst financial crisis since the Great Depression.

To hear him talk now, you’d think he’d always opposed the dangerous practices at these institutions. But there is absolutely nothing in his record to suggest he did. He was surely familiar with the people who were creating this problem. The executives of Fannie Mae and Freddie Mac have advised him, and he has taken their money for his campaign. He has received more money from Fannie Mae and Freddie Mac than any other senator in history, with the exception of the chairman of the committee overseeing them.

Did he ever talk to the executives at Fannie and Freddie about these reckless loans? Did he ever discuss with them the stronger oversight I proposed? If Senator Obama is such a champion of financial regulation, why didn’t he support these regulations that could have prevented this crisis in the first place? He won’t tell you, but you deserve an answer.

Moe Lane at Red State has more thoughts, as does Jim Geraghty.

Michelle: