On Philisophical Issues and Racism

Some people are adopting Congressman Simpson’s Meme that the opposition of Bill Sali and 31 members of the RSC who signed a letter in opposition to this bill are entirely philosophical. Let’s take a look at the letter itself. From the letter:

We have little doubt that in many cases the motivation of regulators has been a fervent desire to preserve market stability and avoid tumultuous disruptions and systemic risk. To that end, such motives are commendable. Yet the fact remains that these massive federal bailouts have exposed taxpayers to literally tens of billions of dollars of new risk, diluted the incentive for the private sector to make the difficult but necessary decisions to address its fiscal problems, and created a sizable moral hazard where companies are absolved, not punished, for excessive risk taking.

While there are likely many causes that contributed to this economic turmoil we are now facing, it is clear that at least some part of it has been furthered by the moral hazard created by the potential for government intervention. For decades and more acutely in recent years, we witnessed how the formerly implicit, now explicit, government guarantee behind the GSEs Fannie Mae and Freddie Mac allowed them to swell to stratospheric and ultimately unsustainable financial heights. Regrettably, the GSE precedent and the March Bear Stearns bailout might have spurred other companies likewise to conclude that they, too, were “too big to fail” and prevented them from acknowledging the true gravity of their financial situations.

As tempting as it is to resort to federal intervention as a bailout for fiscal problems, the blunt truth is that the federal government cannot afford to be the automatic savior for every company facing financial peril. Look at the facts: in 2008, the federal government through its various agencies has taken on $9 billion of losses from the collapse of IndyMac, $29 billion of risk from the Bear Stearns bailout, $85 billion of risk from the AIG bailout, and at least $200 billion and potentially trillions of dollars of risk from the Fannie Mae/Freddie Mac bailouts. Those figures do not even include the $300 billion of exposure to expand the FHA to refinance problem mortgages or a reported $25 billion loan being considered for big Detroit automakers.

All of these financial commitments come on top of a projected budget deficit of $407 billion in FY08, a national debt of $9.6 trillion, and over $640 billion in proposed tax increases passed by the House of Representatives this Congress. Add to that record energy prices, increased labor costs, the assault on private pools of capital and foreign investment, trade agreements long ignored, and a host of new government mandates on everything from cars to light bulbs. These conditions have lumped together to create a perfect storm of financial uncertainty for nearly every segment of our economy and a resulting scarcity of liquid capital and available credit…

It is evident that no one wants to be the one who says no to a fiscal rescue when there is so much at stake. But the reality is that actions like federal bailouts taken to delay short-term financial pain often end up producing long-term damage to our entire economy. One need only look to Japan and the banking crisis that led to its ‘Lost Decade’ of recession and stagnant economic growth from which it has still failed to recover. The IMF has called those economic problems “a failure to deal proactively with the impact of the collapse in asset prices” that has led to real GDP growth only averaging 1 percent a year over the past decade.

These objections aren’t philisophical, they are fiscal objections. What’s happening here is poor fiscal policy, not because it violates something in a book by Adam Smith or Ayn Rand, but because fundamentally, it’s unwise, unsound, and has put our nation at a huge risk. You can argue with it, but it’s a fiscal issue.

Yeah, there are philisophical issues in the letter. The argument that bail outs can be a creep towards socialism is a philisophical point, but it’s hardly the only point in the letter. And the idea of destroying the free market economy in this country in principle is something that’s worth considering. Though obviously, when it’s not practical, we can feel free to discard every principle that made this country great. (Sarcasm off.)

On a related note, Bryan Fischer at the Idaho Values Alliance wrote:

The current crisis in America’s financial industries has been created by the federal government. At its root is a Clinton-era directive to mortgage lenders to make race-based loans to non-credit-worthy customers under threat of punishment from the federal government.

Banks were directed to ignore historic yardsticks such as credit history, sources of income and amount of down payment and ordered to underwrite risky loans or face potentially crippling class action discrimination lawsuits.

These loans defied common sense, fiscal prudence and every standard banking practice. Artificially low interest rates, created by the Federal Reserve, added to the problem by giving lenders another incentive to make logic-defying loans.

At Huckleberries, liberal commenters jumped on the statement:

The wing nut email system must have burnt up over the weekend, first Gary Ingram and now Bryan “The Hater” Fischer are pimping the “it’s all the minorities fault” line of reasoning…

In one sentence Fischer blames the current crisis on Clinton and racial minorities!..

Wow! Just when I thought Fisher couldn’t get any worse, now he’s blaming Wall Street’s recent collapse on minorities? Outrageous!!!!…

This is honestly the first time I’ve read this sort of racist BS given as a reason for the current crony capitalist bailout of Wall Street.

Isn’t being able to cry racism a wonderful thing? It means that you don’t have to actually think.

The piled on charges of racism miss the point that Fischer didn’t say, “It’s the fault of Black people or Hispanics.” He didn’t blame minority borrowers. He blamed federal policy.

He said, “It’s the fault of federal policies that made banks give loans to uncreditworthy borrowers.” People are questioning Fischer’s statement all over the place without even bothering to research its truth. Actually, slightly less than 9 years ago, Fannie Mae announced a program and it was covered by the New York Times:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

(emphasis mine.)

So, in part due to pressure from the Clinton Administration to increase minority home ownership, thus began an increase in sub-prime loans. Bryan Fischer has his facts straight unlike those who are attacking him. However, this gets more juicy because the author of the piece, Stephen Holmes saw a danger:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

Don’t argue with Bryan Fischer, please, send your letters to the New York Times alleging they are racist.