How a Bill Doesn’t Become Law

The news was mostly relegated to the back pages and the scroller at the bottom of the cable news screens, what with the fired Federal Bureau of Investigation director’s testimony and all the resulting presidential “tweets” taking up all the good space, but the House of Representatives last week passed a bill that would largely repeal and replace the Dodd-Frank financial reform law.

The Dodd-Frank financial reform law is the dry and complicated and downright boring sort of thing that would get more attention during a typical presidential administration, which makes us all the more nostalgic for those good old days before President Donald Trump. We never liked the Dodd-Frank bill, so far as we can tell the repeal-and-replace law would be a significant improvement, and in a more normal news cycle a well-spoken Republican president would be able to enjoy a winning political argument. Instead, the matter is relegated to the back pages and the scroller at the bottom of the string, and the bill will probably be stalled in the Senate.

The few stories on bill note that Dodd-Frank was passed in the aftermath of the 2008 financial meltdown with the aim of preventing it from happening again, and for the sake of argument we’ll stipulate the Democrats’ good intentions, but the few allotted inches can’t make a case that the legislation did any good. Ostensibly in order to prevent the big banks from making reckless bets on subprime mortgages Dodd-Frank imposed thousands of pages on new regulations to prohibit commercial banks from certain kinds of “proprietary trading” and investments in hedge funds and private equity transactions, but none of that had anything to do with the financial meltdown. All the restrictions are imposed on commercial banks rather than the investments banks that were most involved in the crisis, and all of them had been compelled by the Carter-era Community Reinvestment Act that the Clinton administration started enforcing with crazed vigor, and most of those risky subprime mortgages were held by the quasi-governmental Fannie Mae and Freddie Mac outfits, and the Democrats should be glad they don’t have to talk much about that.

Nor did the bill do anything at all about those “too big to fail” banks that the Democrats were so worked up about when Dodd-Frank was passed by Democratic majorities in the House and Senate and signed by a Democratic president, and it wound up hampering the small banks and credits unions that Democrats have been romanticizing since before Frank Capra filmed “It’s a Wonderful Life.” The damned thing even forced us to spend an hour filling out forms to excise a nickname from a 47-year-old checking account a while back, and one can only guess at the extraordinary amount of time and money that the overall economy has spent on complying with all those thousands of pages of regulations. Banks will be able to accumulate more reserves to deal with shocks under the House Republicans’ alternative, which also wisely lets the bankruptcy courts sort out the inevitable failures, and the freedom and competition it allows would likely have a stabilizing effect on the financial system.

That’s hard to explain in the 140-character “tweets” and fourth-grade level orations that Trump favors, though, and these days he has other things to “tweet” and talk about. The press has plausible reasons for relegating it to the back pages and the scroller at the bottom of the screen, and it’s hard to imagine the general public taking a sudden interest in financial regulatory reform. The House bill now goes to the same Senate where the House’s Obamacare repeal-and-replacement bill currently languishes with 12 percent approval ratings, and the rules are different there and the Republican majority is slimmer and the Republican incumbents up for re-election in 2018 have their own reasons for striking a bipartisan pose, so this might be the last your hear of it.

— Bud Norman

Getting Back in Our Subprime

Those who cannot remember the past are doomed to repeat it, according to George Santayana’s famous adage, but those who remember the past incorrectly are likely to create brand new catastrophes. The Obama administration’s current efforts to re-inflate the housing bubble through the same old subprime lending methods will eventually demonstrate the point.

Surely our youngest and most oblivious readers will vaguely recall the Crash of ’08, the unhappy effects of which still linger today, but even at the time it was not widely understood what had caused it. The worst economic downturn since the Great Depression occurred at the end of George W. Bush’s administration, and after eight years of relentless criticism of everything from his Iraq War policy to his decades-old Air National Guard service records to his mangling of the word “nuclear” most people readily accepted the explanation that he was solely responsible. How he had managed to bring down the American economy was never specified, but candidate Obama and his many friends in the American media were happy to allow a a consensus to form that it must have had something to with that Republican fetish for de-regulation or the tax-cuts-for-the-rich or just an inclination to let those greedy bankers get ever richer by making huge loans to people who would never be able to re-pay them. That there had been no significant de-regulation of the financial sector and instead thick book of new regulations from Sarbanes-Oxley had been added, along with a few new battalions of regulators to enforce them, did not matter. Nor did the fact that the tax cuts had been for everybody, including the half of the country that did not pay federal income taxes, or that they had increased the federal revenues as promised. The obvious illogic of greedy bankers giving hundreds of billions of dollars in mortgage loans to people who were bound to default didn’t make much difference, either.

Already forgotten at that point was the decades of criticism those greedy bankers had endured for failing to make loans to people who couldn’t pay them back, and that at some point in ’90s they were cajoled, incentivized, and ultimately compelled to do so. When it all started President Bill Clinton and his Housing and Urban Development Secretary, Andrew Cuomo, were quite pleased to let people know they had threatened legal action against various banks with the Community Re-Investment Act, which had been passed in the waning days of the Carter but lightly enforced during the years of Reagan and the elder Bush, and they even set up agencies to let targeted groups such as single women know that they banks were now obliged to dole out money to people with poor credit ratings. The mortgage kings Fannie Mae and Freddie Mac were directed to invest half their portfolios in subprime loans, Activists groups such as ACORN also got in on the action, picketing and squatting in banks that were so stodgy they would only loan to the credit worthy, and an obscure civil rights attorney and former community organizer named Barack Obama was among those who sued banks to force loans to people who would wind up in default and disastrous financial circumstances. This was known as “affordable housing policy,” much as Obamacare would later be dubbed The Affordable Care Act, and when it’s only obvious effect was a suspiciously steep spike in property values it was considered proof of Clinton’s economic.

When interest rates finally rose and the prices finally flattened and those borrowers less-than-credit-worthy borrowers ran out of gimmicks and started defaulting in droves and leaving the banks with hundreds of billions of losses, it was naturally taken as proof of the younger Bush’s hilarious stupidity. Never mind that Bush and Senators John McCain and Elizabeth Dole had made a futile effort to reform the policy and was blocked by Rep. Barney Frank of Massachusetts, Sen. Chris Dodd of Connecticut, a Congressional Black Caucus that it racist to deny a minority member a loan just because he could not pay it back, and the rest of the Democratic party. the greedy banker and his laissez faire Republican enablers was just too familiar a cliche to resist. The man who had sued a bank to force them to make loans to his indigent clients won election to the presidency on a vow to fight “predatory lending,” Bush was vilified and McCain and Dole both went down to defeat, Cuomo became Governor of New York, Dodd and Frank got to re-write pretty much the entire financial code, and four years later Obama won re-election on the argument that electing a Republican would be like handing the keys over to the fool who had run the car into a ditch.

All in all, the “affordable housing policy” proved such a smashing success for the Democrats that they’ve decided to do it again. It didn’t work out so well for the country at large last time around, and there’s no reason to believe it will work out any better this time, but if history can repeat itself precisely the crash won’t come until some after Hillary Clinton has finished a second term and some Republican with peculiar pronunciations is conveniently installed in office. If all goes according to plan the public still won’t wise up, and that is something they really can bank on.

— Bud Norman

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