Wall Street Journal Corroborates Independent Institute Study of Causes of Sub-Prime Meltdown
By David J. Theroux • Tuesday January 6, 2009 9:24 PM PDT •
After many months of the “mainstream” media refusing to discuss the real causes of the sub-prime financial crisis, the deafening silence has finally been broken in a January 5th front-page article in the Wall Street Journal (WSJ) that begins to unmask the truth. In “Housing Push for Hispanics Spawns Wave of Foreclosures,” Susan Schmidt and Maurice Tamman report that the sub-prime mortgage meltdown was directly caused by government policies on behalf of various interest groups in the cynical name of “opening the doors to the American Dream” for America’s poor and minorities. This article corroborates the pioneering work of Independent Institute Research Fellow Stan Liebowitz in his Independent Policy Report, Anatomy of a Train Wreck: Causes of the Mortgage Meltdown, which was released throughout the media on October 3rd and featured in a cover story in National Review. As the WSJ article states:
An examination of that borrowing spree by The Wall Street Journal reveals that it wasn’t simply the mortgage market at work. It was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.
The network included Mr. Baca, chairman of the Congressional Hispanic Caucus, whose district is 58% Hispanic and ranks No. 5 among all congressional districts in percentage of home loans not tailored for prime borrowers. The caucus launched a housing initiative called Hogar—Spanish for home—to work with industry and community groups to increase mortgage lending to Latinos. Mortgage companies provided funding to that group, and to the National Association of Hispanic Real Estate Professionals, which fielded an army to make the loans.
Predictably, Congressman Baca has tried to deflect any blame for the crisis onto others:
In a written statement, Mr. Baca blamed the foreclosure crisis among Hispanics on borrowers’ lack of “financial literacy” and on “lenders and brokers eager to make a bigger profit.” He declined to be interviewed for this story.
But to its credit, the WSJ article does not hesitate to dig deeper:
But a close look at the network of organizations pushing for increased mortgage lending reveals a more complicated picture. Subprime-industry executives were advisers to the Hogar housing initiative, and bankrolled more than $2 million of its research. Lawmakers and advocacy groups pushed hard for the easy credit that fueled the subprime phenomenon among Latinos. Members of the Congressional Hispanic Caucus, who received donations from the lending industry and saw their constituents moving into new homes, pushed for eased lending standards, which led to problems.
. . .
The Congressional Hispanic Caucus created Hogar in 2003 to work with industry and community groups to increase mortgage lending to Latinos. At that time, the national Latino homeownership rate was 47%, compared with 68% for the overall population. Hogar called the figure “alarming,” and said a concerted effort was required to ensure that “by the end of the decade Latinos will share equally in the American Dream of homeownership.”
Hogar’s backers included many companies that ran into trouble in mortgage markets: Fannie Mae and Freddie Mac, both now under federal control; Countrywide Financial Corp., sold last year to Bank of America Corp.; Washington Mutual Inc., taken over by the government and sold to J.P. Morgan Chase & Co.; and New Century Financial Corp. and Ameriquest Mortgage Corp., both now defunct.
Going into revealing and politically incorrect detail regarding the connections between particular government officials, minority activists and private interests, this exceptional article confirms that federal officials and agencies (and not “the free market”) deliberately created the sub-prime financial bubble and continue to try to evade any responsibility for the disaster that has resulted, especially for the many millions of disadvantaged Americans whose lives are now being ruined. As Dr. Liebowitz carefully shows in Anatomy of a Train Wreck:
[I]n an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.
With the sub-prime mortgage disaster’s extensive corruption and the enormity of the economic upheaval that has been produced worldwide, will anyone be held accountable? This article and Dr. Liebowitz’s Policy Report will hopefully begin the process. However, so far under George W. Bush, only huge bailouts, nationalizations, and financial debasement of the dollar by the Federal Reserve have been pursued. And President-elect Barack Obama has given every indication that he wants far more of the same.