Business on the Government Tit

I have watched the progress of the bailout, and the only thing that gives me hope is that the Democrats are playing politics with this. It's the best chance we have of this falling through and the misguided attempt at throwing money at the problem may go away. But the real problem is that we got in to this insane situation in the first place.

Now I have always expressed my trust in private business over government. Why? Because the private business will do what is in its best interest to survive and thrive. A business is selfish, but in our economy it cannot use force to produce a gain. When a bank, for example, lends money, they expect to get that money back, with a percentage of profit. A bank that extends too much credit for the amount they have on hand runs the risk of failure. This is one reason there are some good government regulations that limit the banks from crossing that line.

So this begs the question: Why were these businesses making bad loans that were bound to not get paid back? Let's start with the Community Reinvestment Act.

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.

Essentially, it's a measure designed to create "affordable housing" for people who can't get loans. Sounds stupid yet? Well, this gem was dropped back in 1977 to combat the practice of redlining. That is a noble goal in a sense, but it created the need for banks who wanted to move into poor areas to take on bad debt as the price of moving into those areas. But this was only the beginning.

The law was revised in 1995 under the Clinton Administration, creating even more loans for poor people.

In 2003, the Bush administration attempted to revise the act, but it failed under a party-line vote. The change was to get some control over the guarantors of many of these loans, the now-failed Fannie Mae and Freddie Mac. Representative Barney Frank (D-MA) claimed of the thrifts "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing. [emhasis added]"

In 2005, even more revisions came, which I haven't been able to verify. Somehow, I doubt they were good.

Another aspect of this is trying to determine who decides when banks are ignoring or evading the CRA. Enter organizations like Inner City Press and the infamous ACORN (article does suffer some neutrality issues). Essentially, it gives an activist group the ability to force a bank to either give out loans or stay out. So the cost of getting into an area may be to take on shitty loans in the hopes that may fail. But there's Fannie, Freddie, and the federal government, who have shown a propensity to bail people out.

So 2007 came and the housing market began to crash. This hit the subprime loans. That crushed Fannie and Freddie. Now we're to major Wall Street Banks. And each time, the government has swung in to throw money at the problem, further entangling everyone in more regulation and politics.

Now this is not the whole picture, as this post would get really damned boring if I went through everything. But the pattern we see here is the continued infusion of politics and government into a loan system that had some issues, but was relatively stable since the end of the Great Depression. So the impulse to call for more regulations on top of the shit we have, and for the government to chuck the green bandage on this mess si absolutely the worst thing we could poissibly consider.

I'll admit I don't have the answer to this mess. I hate financial stuff. I gave up trying to balance my checkbook years ago. And I'd be lost if it weren't for online banking. So if this is obvious to me, why can't the financial experts that aren't already paid political bitches figure this out?