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Is Clinton responsible for Fannie and Freddie? October 3, 2008

Posted by sliceof in American Politics, Economics.
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There is a claim running around Republican apologist circles that Cliton is respnosible for Fannie and Freddie’s fallout.  Here is the old NYTimes article going around:


The problem wasn’t that F&F were lending to poor people, it was that Fannie and Freddie and many others lent more to poor people than they could pay back with the hopes that they would be indebted for the rest of their lives.  It may seem appealing if you want to shift the blame to Clinton, but it is doesn’t explain away the real problems in the market.

The push by the federal government, supported by both Bush and Clinton, to expand Fannie and Freddie was to expand lending to lower income people.  The LENDING PRACTICES and the handling of debt were the problem.

Here is a bit from a non-partisan capitalist economics article.

“The proximate cause of current Housing situation (and eventual Credit crunch) stem primarily from 3 significant errors of the 2000:

1) Grenspan’s FOMC: Took Interest Rates taken to 1%, and kept their for over a year;

2) Banks and Mortgage Underwriters: Abdication traditional lending standards, and ignored the traditional principle that loans should only be made to those who can reasonably repay them;

3) Federal Reserve: Failed to adequately supervise banks; I consider this to be Greenspan’s Nonfeasance.

About the regulations which expanded F&F, done by BOTH Bush and Clinton, they say “While there is some merit to the argument that this movement impacted the housing market, it is for the most part significantly overstated, given what we now know about abdication of lending standards and the issuance of mortgages over the past 6 years.”

I am not blaming Bush and I am not absolving Democrats.  What I am saying is that the dominant Conservative Republican Ideology of refraining from regulating the market to allow it to grow quicker is flawed.  Regulations level out the economy.  With every windfall is a crash and we can level out the market to prevent such big spikes.

What could leaders have done differently?  Well instead of crafting legislation to spur growth in the economy in 2001, they could have left it alone.  The economy was in a natural cycle.   Perhaps lowering interest was helpful, however it was left low for too long and, In my opinion, left too low for political reasons.  It is not politically easy to add regulation to the market when it is steadily growing.

Why does most of the blame get assigned to the Republicans?

1. They were in charge of the House, Senate, and the White House until 2007.

2. Deregulation and less constraints on the market are an essential aspect of the Republican ideology.

I am primarily attacking the ideology.  This idea of putting regulation at the bottom (consumers and individuals) and removing regulations at the top is flawed.  I think it is remnant of Reganomics.  And while you may not agree, but the economic changes from Reagan era dominate the Republicans to this date.

There is a double speak with Republicans.  Republicans say less government, less spending, less taxes.  The Republican ideology is more government control at the executive level, excessive spending to the point the it nearly adds 50% to the defecit, and more taxes for the middle class while less for the richest in the country.