Obama's hypocrisy on mortgage reform

Peter Wallison has an important column today in the Wall Street Journal. First he exposes the malarkey that the Democrats have been pushing that all our problems today are due to deregulation. They seem to be pointing their fingers at the 1999 Gramm-Leach-Bliley Act, a bill signed by President Clinton, that allowed banks and securities to be affiliated. That has nothing to do with today's problems.

Allowing banks and securities firms to affiliate under the same holding company has had no effect on the current financial crisis. None of the investment banks that have gotten into trouble -- Bear, Lehman, Merrill, Goldman or Morgan Stanley -- were affiliated with commercial banks. And none of the banks that have major securities affiliates -- Citibank, Bank of America, and J.P. Morgan Chase, to name a few -- are among the banks that have thus far encountered serious financial problems. Indeed, the ability of these banks to diversify into nonbanking activities has been a source of their strength.

The problems with the banks that have been having the problems that necessitated this giant bailout are the ones that invested in bad mortgages.

Most important, the banks that have succumbed to financial problems -- Wachovia, Washington Mutual and IndyMac, among others -- got into trouble by investing in bad mortgages or mortgage-backed securities, not because of the securities activities of an affiliated securities firm. Federal Reserve regulations significantly restrict transactions between banks and their affiliates.

In 2005, Republicans, including John McCain, tried to tighten regulations on Fannie and Freddie. But the Democrats blocked that bill from coming to a vote on the floor of the Senate and the opportunity to decrease the bad mortgages that were at the heart of today's meltdown failed.

Today Senator Obama is trying to say that he was on the case back then because of a letter that he wrote. Wallison exposes the hypocrisy of Obama's defense.

In the summer of 2005, a bill emerged from the Senate Banking Committee that considerably tightened regulations on Fannie and Freddie, including controls over their capital and their ability to hold portfolios of mortgages or mortgage-backed securities. All the Republicans voted for the bill in committee; all the Democrats voted against it. To get the bill to a vote in the Senate, a few Democratic votes were necessary to limit debate. This was a time for the leadership Sen. Obama says he can offer, but neither he nor any other Democrat stepped forward.

Instead, by his own account, Mr. Obama wrote a letter to the Treasury Secretary, allegedly putting himself on record that subprime loans were dangerous and had to be dealt with. This is revealing; if true, it indicates Sen. Obama knew there was a problem with subprime lending -- but was unwilling to confront his own party by pressing for legislation to control it. As a demonstration of character and leadership capacity, it bears a strong resemblance to something else in Sen. Obama's past: voting present.

This fits right into the argument that Obama never, ever has stood against his own party or tried to moderate their dangerous tendencies that have harmed our economy. And with an undivided government, we won't see anything different. We won't see change - just more of the same policies that Nancy Pelosi and Harry Reid have been advocating all along.