Of History and Housing

Much has been said lately about President Barack Obama’s unreliable knowledge of history. Some have chided him for his recent suggestion that mass-murdering Vietnamese dictator Ho Chi Minh was a Jeffersonian democrat, others for his apparent belief that every advancement in the history of the American economy was a government creation. These errors can easily be attributed to his relative youth and naïve faith in Howard Zinn’s oft-assigned “A People’s History of the United States,” but there’s no explaining how he can get the recent financial meltdown so very wrong.

Obama was still coughing out bong hits with the Choom Gang when Jimmy Carter planted the seeds of the crisis by signing the Community Reinvestment Act way back in the ‘70s, but he was already playing his own small role in the debacle as a bank-suing lawyer when Bill Clinton got the subprime mortgage industry going in earnest and he was there to vote “present” as a Senator when it all came crashing down. He should know as well as anyone that the government employed a variety of both sticks and carrots to induce America’s banks to lower their credit standards and make the hundreds of billion dollars worth of loans to subprime borrowers which inflated a housing bubble whose popping brought down the international financial system. During a speech Tuesday in Phoenix, however, Obama blamed the whole affair on “recklessness on the part of lenders who sold loans to people who couldn’t afford them, and buyers who knew they couldn’t afford them.”

The speech was full of similar howlers. He boasted of a robust recovery creating jobs without mentioning that most of them are part-time and low-paying, touted investments in new energy technologies without mentioning the resulting bankruptcies, talked about a boom in natural gas production as if he had anything to do with it, and repeated his complaint about “phony scandals” as the incompetence and lies of the Benghazi debacle and the Internal Revenue Service’s targeting of his political opponents were matters of no importance. More nonsense came in the form of a five-point plan that he believes would simultaneously increase property values and make housing more affordable.

Step one is for Congress to pass “a good, bipartisan idea” that would allow every homeowner to finance his mortgage at today’s rates. He did not mention which government regulations are preventing homeowners from doing so, if there are any, so we assume that the banks have some reason of their own for denying re-financing to certain customers. Perhaps it is the same capitalist greed that prevented them from loaning to unqualified borrowers until the government intervened, but it might also be the same sensible desire for self-preservation.

Step two is to “make it easier for qualified buyers to buy home they can” by simplifying regulations and cutting “red tape.” This is a surprising suggestion, regulations and red tape being Obama’s preferred solutions to most problems, but his complaining about “responsible families” who “keep getting rejected by banks” makes it sound a lot like the old policy of imposing the government’s notion of a good loan on lenders.

Step three is the Senate’s immigration reform bill. Apparently a massive influx of uneducated and unskilled workers with no assets and limited incomes is the fix for a sluggish housing market.

Step four is to “put construction workers back to work repairing rundown homes and tearing down vacant properties.” Obama didn’t mention who would do this, so we assume he meant the government. We’ve been procrastinating on a need repair to our garage, so if he wants send over some federal employees to attend to that he is welcome to do so.

Step five is the one that’s been getting most of the attention from the media, which has been somewhat limited given that the address was advertised as yet another of his “major” ones. Obama proposed that the government begin “winding down” the New Deal-era Fannie Mae and Freddie Mac programs, an idea that was laughed at as a “gaffe” back when Sarah Palin proposed it in ’08, and denounced as racist when the agency’s finances came under congressional scrutiny, then declared that the private sector should play a leading role in providing financing for home ownership. With typical presidential snarkiness Obama added that “I know that must sound confusing to the folks who call me a raging socialist every day,” but he also added that the government should play a “limited role” that would be “just like the health care law that set clear rules for insurance companies and make it more affordable for millions to buy coverage on the private market.” The folks who call Obama a raging socialist every day will not be reassured.

Although Obama sounded almost Hayekian in his denunciations of the old regulatory regime and his praise for private enterprise as the “backbone” of the housing market, and sternly warned against any bail-outs of the sort that he had earlier boasted of providing to the auto industry, it was nonetheless clear that he intends for the government to resume its role of ensuring loans for anyone who might vote Democrat. Fannie Mae and Freddie Mac would at long last go away, but the government would continue to secure loans and provide a secondary mortgage market. The names will change, just as liberals now call themselves “progressives,” but the policies and their unhappy effects will remain the same.

Those who cannot remember the past are condemned to repeat it, as George Santayana famously warned, and those who remember it incorrectly are likely to make things even worse.

— Bud Norman