The all-purpose excuse

We're going to have to get used to seeing that every criticism of Barack Obama being twisted into accusations that the critic is playing on racist tensions within the country. We saw this with the stupid analysis by Douglass K. Daniel at the Associated Press this weekend that when Sarah Palin raised the issue of Barack Obama's past associations with William Ayers is actually a racist attack because saying domestic terrorist makes people think of Arab terrorists who are darker-skinned. Whatever. James Taranto had a wonderful send-up of this malarkey.

Now we're seeing this all-purpose excuse being expanded to answer criticisms of Congress for not exercising sufficient oversight of what was being done with these sub-prime mortgages. Ed Morrissey has the story. Barney Frank is now lashing out at people who are critical of Congress's role, spurred on mostly by Democrats, of encouraging subprime loans to poor people, many of whom were black. Morrissey explodes this piffle.

In that sense, the CRA [Community Reinvestment Act] is a bit of a red herring. The real cause of the collapse was the Congressional push for Fannie and Freddie to support subprime lending by purchasing the paper from lenders, which is related to the same policies that generated the CRA but isn’t the CRA itself. Lenders make money one of two ways: keeping the paper themselves and getting the interest over the term of the loan, or selling the paper to someone else for a guaranteed short-term profit. When Fannie and Freddie began buying all of this paper, they created a huge demand for subprime loans — and lenders responded by offering easy money to almost anyone who applied. They threw out income requirements and equity thresholds (such as down payments) and generated tremendous short-term profits for themselves … while Fannie and Freddie assumed all the long-term risk.

Had the risk remained at Fannie and Freddie, the problem would never have gone beyond their collapse. Unfortunately, Congress also pushed the GSEs to securitize the debt in order to spread the risk. Investors considered those mortgage-backed securities a safe bet, backed by the US government. That’s the direct cause of the financial collapse, along with the collapse of housing prices that resulted from the sudden deflation of demand.

Congress — and specifically Frank himself — had plenty of warning that this would happen. The anger generated from that information has nothing to do with racism, and everything to do with the breach of trust between Congress and its constituents. Frank, Chris Dodd, and others like Lacy Clay and Maxine Waters tried the racist meme out on regulators who tried to warn Congress of the pending collapse. They have to smear their critics. They certainly can’t admit that Congress failed spectacularly. Racism is the last refuge of scoundrels in 2008, and not surprisingly, we find most of those scoundrels in the Democratic Party.