A Multicultural Banking Crisis

This editorial from Investors Business Daily traces the roots of the current banking crisis that we have been dealing with for the last year or so, and which again burst into the open with yesterday's market sell-off. Back during the Clinton administration, democrats brought us multicultural lending standards that have, over time, undermined the stability of our credit system. Simply put, the liberal left thinks that it is unfair if you happen to be poor and a person of color and you don't also own your own home. They had good intentions you see. And so they pointed a gun at the banks and demanded that they lower the standards for lending. Thus was born the sub-prime market.

Now there is nothing wrong with owning your own home if you can afford to make the payments. Ownership is part of the American dream and a long term way of accumulating assets is to buy property. Wealth is a good thing if you have earned it honestly. But as noted above, you have to be able to make the payments. Unfortunately, multicultural lending standards were quite a bit lower than conventional standards would otherwise have been. They would have to be in order to make it possible for poor minority people and illegal aliens to be able to get any kind of mortgage at all. Thus we saw a proliferation of new and bizarre types of mortgages in the last few years that were designed to make it possible for anyone with a pulse to get a loan if they wished it. And many people did just that.

The results are now coming home to the economy with multiple bank failures caused by a large number of mortgage defaults. The people who were the target of the liberal's social meddling are now unable, or unwilling, to pay their bills and banks are finding that they can no longer manage their cash flows. This is what happens when you lower standards based on the liberal utopian fantasy.

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.