Sub-Prime Commission

Some quotes from an article in the Investor's Business Daily, on commission member, Peter Wallison, former Reagan Treasury official.

Wallison doesn't blame unscrupulous mortgage brokers. Or greedy investment bankers. Or incompetent rating agencies. Or foolish investors. Or whiz-kid investors of complex derivatives.

Instead, he blames Washington for encouraging all of them to do what they did. Government policy, he says, manipulated "the credit system to force more lending in support of affordable housing."

This crisis wasn't a failure of capitalism, Wallison argues. It was a failure of government.

An early critic of the Community Reinvestment Act, a banking rule that socializes mortgages, Wallison argues too much regulation caused the mortgage meltdown.

As we've detailed on these pages, President Clinton strengthened the CRA (by requiring, for the first time, numerical quotas for affirmative lending) and used it to pressure banks into making risky loans and to adopt "flexible" lending standards.

The same pressure was brought to bear on Fannie and Freddie. Those agencies adapted their underwriting standards so they could accept the loans made under the CRA and other loans that did not conform to what had been considered sound lending practices.

Outrageously, Clinton's HUD required Fannie and Freddie to underwrite fully half of their mortgages for lower-income, higher-risk borrowers — a quota that remained in effect several years into the Bush administration.

"The crisis has its roots in the U.S. government's efforts to increase homeownership, especially among minority and other underserved or low-income groups," Wallison concludes.

Americans deserve an honest airing of government's role in the mess. But don't expect the commission, which will hold hearings and release a report next year, to give Wallison (who's already being demonized by liberal bloggers as the "backer of the CRA myth") much running room.

The panel is top-heavy with Democrats, and Chairman Phil Angelides is a big fan of the CRA. Tragically, they're modeling the panel after the Pecora Commission, created in the wake of the Great Depression to highlight Wall Street excesses and justify major new banking regulations.

If this 9/11-type commission were truly independent, its first recommendation would be reforming U.S. housing policy, starting with the onerous CRA, before we court another disaster in the name of "affordable housing."

Wonder why uber-non-partisan-above-reproach James Baker isn't on the panel. s/off