Whose to Blame -- Norris

Floyd Norris

October 8, 2008, 8:04 am — Updated: 8:29 am -->
Who’s to Blame?
In the debate last night, John McCain blamed the mortgage finance giants Fannie Mae and Freddie Mac for the financial crisis.
“They’re the ones that, with the encouragement of Sen. Obama and his cronies and his friends in Washington, that went out and made all these risky loans, gave them to people that could never afford to pay back. And you know, there were some of us that stood up two years ago and said we’ve got to enact legislation to fix this. We’ve got to stop this greed and excess.”
He added:
“Fannie and Freddie were the catalysts, the match that started this forest fire.”
For his part, Barack Obama blamed deregulation, which he in turned blamed on Senator McCain and President Bush.
To hear some Republicans tell it, all this was caused by the Democrats who wanted to get poor and minority people into homes.
I am grateful to Barry Ritholz for bringing to my attention this transcript of remarks in Phoenix in 2004 by President Bush. Senator McCain was present, and if any part of it bothered him, he does not seem to have mentioned it.
The parenthetical remarks (applause) are from the White House transcript. I have added the italics for emphasis.
I’m going to tell you another statistic, which is an amazing statistic given what we’ve been through. Housing starts in 2003 were the highest in a quarter of a century. Homeownership sales were the highest ever. Sixty-eight percent of homeownership — the homeownership rate is the highest ever. And that’s fantastic news for America. We want more people owning their own home. There’s nothing like saying, this home is my home. (Applause.)
There’s nothing better than somebody over there saying, welcome to my home. And we’re about to talk to some first time homeowners. And I want to share their stories with you — they’re going to share their stories with me, and you’re going to get to hear it.
I do want to talk about a challenge for our country, and there is a minority homeownership gap in America. Not enough minorities own their own homes. And it seems like to me it makes sense to encourage all to own homes. And so we’ve done some interesting things. Again, I want to thank the Congress. But we passed down payment assistance programs that will help low-income folks buy their own home. A lot of times, if you’re trying to buy your own home, you never bought one, the down payment seems like a little much. Some of you know what I’m talking about. It seems to make sense if one of the things we’re trying to do is to get — to close the minority home ownership gap and to get 5.5 new — million new minority homeowners into homes over the next five years, that we ought to help with down payments — and we have.
The state of Arizona is going to have $2.6 million to help people with down payments. (Applause.) I proposed that mortgages that have FHA-backed insurance pay no down payment. That will help 150,000 new homeowners. (Applause.)
. . .
One other thing I’ve done, is I’ve called on private sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good. There’s a lot of people in this — our communities around the country that deeply care about the issue of homeownership, and they’ve been responsive.
Mr. Bush then told how he had converted programs aimed at helping poor people to pay their rent into programs to help them buy homes. He introduced several people who had been able to buy homes with federal assistance, and they described how grateful they were for down payment assistance and counseling. The president added:
You know, I bet somebody is listening out there and wonders whether or not he or she can buy a home. I bet there’s somebody saying, gosh, I don’t think a homeownership is — even though I want a home, I’m not so sure I’m able to do so. I hope you hear the story of Monica and Emily. These are people that had a dream and found help, and are now realizing their dreams. It’s the greatness of America, you know that? Jorge is sitting here. He’s got a family to raise, gets a little extra help, making more money, got him a second home, upgrading, family is better off.
What we want is we want this dream to be extended to every neighborhood in America. We want people owning their own home; we want people getting the skills necessary to make a living. (Applause.)
There is plenty of blame to go around. The bankers let their lending standards vanish, and not just for loans to the poor. The rating agencies and the banks and the regulators believed in computerized risk models that turn out to have been absurd. Reporters, including me, did not ask enough questions. People took out mortgages they could not afford. Fannie and Freddie bought some of those mortgages, but they did not buy the worst of the lot. Those went into securitizations that were sold to supposedly sophisticated investors.
Now the financial system is crumbling. Fannie and Freddie messed up, but the private sector messed up even more. There was not nearly enough regulation, but the regulators — all the way up to the president — thought that what was happening was a good thing.