Who Is To Blame For The Great Recession?

A recent Rasmussen poll reported that 49 percent of Americans blame President Bush for the mayhem caused by the recession, however, very few citizens can elaborate on what policies of his actually led to the economic collapse. Most liberals throw out the typical arguments such as the cost of the two wars in Iraq and Afghanistan and the Bush Tax Cuts of 2001 and 2003 only being “for the rich” as if the president had a nefarious intent.

Liberals also claim that the deregulation of big corporations during Republican presidencies was a contributing culprit, but it in fact, it was the regulation of financial institutions by the federal government that created this mess. Though Mr. Bush is partially to blame for the recession, so is every president since Jimmy Carter.

For decades, the federal government has pressured private financial institutions to make loans to individuals who would not normally be qualified. The first effort by the government to interfere with private banks lending policies was the Community Reinvestment Act of 1977, which was passed under President Carter. According to the Long Island Business News, The Community Reinvestment Act, “has required banks to offer loans in low-income neighborhoods where they take deposits.”

In 1996, under the Clinton administration, the Secretary of Housing and Urban Development Cisneros, set a quota mandating that 42 percent of mortgage loans be made through Fannie Mae and Freddie Mac to moderate to low income earners. Fannie Mae and Freddie Mac are government-sponsored enterprises. However, they are stockholder owned corporations that acquired approximately 40 percent of all “subprime” mortgages to families in the low to moderate-income bracket by 2007. In 2000, Secretary Cisneros’ successor, Andrew Cuomo, raised the quota to 50 percent.

Lastly, in 2002, under the Bush administration, Congress passed the American Dream Down Payment Act, which lowered the standards for perspective homebuyers by letting them place zero down on mortgages with low interest rates.

After three years of subprime mortgage lending, families began to receive large unaffordable interest rate increases, leading them to mortgage defaults. Housing values began to decline and the mortgage values exceeded the values of the homes. Bank balance sheets turned negative producing “toxic assets,” driving their portfolios into the red. Banks stopped lending as credit became unavailable, causing companies to go bankrupt and unemployment to rise. This, in fact, was the beginning of the recession.

Our current economic climate was contrived by liberal policies of both Republicans and Democrats. “Genius” politicians thought that their meddling in the marketplace, forcing banks to lend to unqualified individuals, providing them with new homes and cars they couldn’t afford would magically solve the perceived problems of a segment of the American population. They were wrong and Americans are paying the price.

It should be imminently clear that government interference in the marketplace has contributed to failure after failure. Government ineptitude is leading Medicare, Medicaid, Social Security, and the U.S. Postal Service into bankruptcy. The Obama health care plan will certainly follow suit.

References

Morris, Dick, and Eileen McGann. Catastrophe. New York: HarperCollins, 2009. Print.

Sowell, Thomas. The Housing Boom and Bust. New York: Basic Books, 2009. Print.

LaFemina, Lorraine. "Community Reinvestment Act Under Fire." Long Island Business News May 2007. EBSCO. Web. 9 Nov. 2009.