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Blame for financial crisis seems
widespread
By Kelly Brinkerhoff
October 6, 2008 | A firestorm of blame is targeted
at President Bush as this economic crisis unfolds. The
critics fingers automatically point at the Bush administration
as if they are on autopilot. Both sides of the aisle
are in the midst of trying to win a presidential election.
This in turn causes the finger to be pointed at the
other side before the whole situation has been diagnosed.
The cloud of guilt on Capitol Hill is growing thick
and the blame can not be pointed with one finger.
The Republican mindset of smaller government and deregulation
may be in part to blame for this downward spiral of
catastrophe, but this problem was sparked long before
President Bush took office. To be fair, Bush was following
a deregulation pattern set up by Clinton, allowing banks
to expand into investment banking and insurance.
Fingers can be pointed at a long list of responsible
parties: lenient home lending industries, Congress's
laziness when it came to regulating these financial
industries and the American citizens irresponsibility
when paying back loans. For years, warnings were clear
and evident, but a call for action was never taken.
It is the job of the Bush administration to look after
the American people by managing federal agencies, making
sure everything is in check and balance, and trying
to prevent economic problems from occurring. Since this
is what Bush administration signed up for, they did
begin to alert of a possible financial crisis starting
in 2001.
In 2002 the Bush administration warned that the size
of Fannie Mae and Freddie Mac could turn into a possible
problem. If either one of these banks ever had financial
trouble, there would be serious consequences in the
financial markets.
In 2003, the warning was raised and Congress was strongly
urged by the Bush administration to create a new agency
to administer Fannie Mae and Freddie Mac, but Congress
blocked the progress of regulation.
In 2005, Federal Reserve chairman Allen Greenspan
spoke up about Fannie Mae and Freddie Mac saying that,
"Enabling these institutions to increase in size...and
they will once the crisis in their judgment passes...
we are placing the total financial system of the future
at a substantial risk."
The blame also falls on the American homeowners for
taking out loans on homes they couldn't afford. This
in part comes full circle to the Massachusetts Congressman
Barney Frank, who encouraged Fannie and Freddie to help
out the low-income families in America and get them
into homes.
The Community Reinvestment Act of 1977 requires that
these banks offer equal access to lending. This includes
the low-income communities and minorities. In 1995 this
act was revised by President Bill Clinton, which allowed
the lending to low-income communities and minorities
to increase considerably.
The Bush administration should have regulated tougher
on Wall Street. Vince Reinhardt, a former Federal Reserve
economist said, "it would have helped for the Bush administration
to empower the folks at Treasury and the Federal Reserve
and the comptroller of the currency and the FDIC to
look at these issues more closely."
In 2005 the chairman of the Securities and Exchange
Commission, William Donaldson resigned after facing
opposition from the Republican members of Bush's administration
who criticized his defense for stronger regulations
on different kinds of funds.
The finger pointing critics should first consider
all of the red flags that were raised. The Bush administration
warned of a potential crisis, but Congress prevented
progress of regulation from occurring. The Community
Reinvestment Act allowed lower-income Americans to take
out loans to buy houses. The homeowners who defaulted
on their loans were never in a position to pay them
off, while some never intended to pay them off. Greenspan
warned about a possible financial crisis due to the
size of Fannie and Freddie. Why should we put our trust
in the government to fix this problem when we can't
even pinpoint what caused it?
NW
MS |
