The Wisconsin Policy Research Institute

Which Deadly Sins Did Us In?

By Deb Jordahl

The general consensus is that greedy Wall Street lenders and speculators combined with lax regulatory oversight, created the perfect storm and caused the mortgage meltdown. While greed certainly was a factor, several other deadly sins were clearly at play.

Greed:               The desire for material wealth or gain, ignoring the realm of the spiritual.

John McCain said Fannie Mae and Freddie Mac were prime culprits in creating the crisis as their greedy executives walked away with millions in bonuses after falsifying accounting reports to overstate earnings and underestimate risks. McCain to his credit, tried more than once to rein in the organizations.

Barack Obama blamed the greedy speculators and Washington lobbyists, “who bought their way into our government.” Obama failed to mention the $126,000 in campaign contributions he received from Fannie Mae over the last three years.

Pride:   The excessive belief in one's own abilities, that interferes with the individual's recognition of the grace of God. It has been called the sin from which all others arise.

In 1999, experts warned about the consequences of President Clinton’s plan to expand the number of mortgages issued to low income families by easing credit requirements for home loans.

Peter Wallison who served as General Counsel in the Treasury Department during the Reagan Administration said, ''From the perspective of many people, including me, this is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

In 2002, the Bush Administration told Congress that reforms were needed at Fannie Mae and Freddie Mac to avoid a mortgage crisis, and the Wall Street Journal began sounding the alarm about suspect accounting practices.

The resounding response from Democrats in Congress was to deny allegations that the companies were in trouble and to accuse their opponents of being in the pocket of Fannie Mae’s Wall Street competitors.

Yet even after a review by the U.S. Securities and Exchange Commission confirmed allegations about accounting practices, and the seriousness of the company’s shaky finances were made clear, Senate Democrats refused to take action, preventing legislation from reaching a vote.

Envy: The desire for others' traits, status, abilities, or situation.

Far too many people started living beyond their means, and why not? Money was cheap to borrow, and with no money down and little or no credit history required to secure a loan, people took full advantage of the opportunity to live the good life.

Groups like ACORN; (Association of Community Organizations for Reform Now) fanned the flames of envy by staging protests in community banks that refused to issue loans to people with poor credit. Banks succumbed to the pressure to make the loans as Fannie and Freddie promised to back them up.

Ironically ACORN also waged protests against the foreclosures on these bad loans and against the proposed government bailout to address the crisis. The original bailout package would have given 20 percent of the government’s profits for asset sales to the Housing Trust Fund which subsidizes ACORN.

Sloth: The avoidance of physical or spiritual work.

While Democrats are to blame for expanding subprime lending programs and blocking efforts to reform Fannie Mae and Freddie Mac, President Bush and Congressional Republicans squandered opportunities to lead by using their bully puppets more forcefully and effectively.

House Republicans could have raised issues about Barney Frank’s conflict of interest as a member of the House Banking Committee in the 1990’s. The Boston Globe reported that the same year Frank’s live in partner, Herb Moses, was hired by Fannie Mae as assistant director for product initiatives, Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.

It’s easy to understand why Republicans were reluctant to make noise about Frank’s conflicts of interest, and why a decade later they didn’t push harder for reforms while Democrats like Frank accused them of being against affordable housing for poor minorities. But leadership requires a willingness to risk political power to do the right thing, just as John McCain did when he pushed for the troop surge in Iraq.

Republicans lost their power in 2006 because they had abandoned their principles in pursuit of power. Now they have neither, and with four weeks to go to the election, they have very little high ground left on which to stand.

-October 6, 2008

Which Deadly Sins Did Us In?

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