Crisis panel's GOP members blame U.S. housing policy for financial plunge
Thursday, December 16, 2010; 12:48 AM
Republicans on a congressionally appointed panel studying the causes of the financial crisis largely blamed federal housing policy in a brief paper Wednesday that highlighted how differently the right and the left view the origins of the crisis.
Splintering from their Democratic counterparts, the four GOP members of the Financial Crisis Inquiry Commission pointed the finger at politicians in Washington for promoting lax mortgage lending standards that allowed lower- and moderate-income people to buy homes beyond their means.
Specifically, they wrote, the Clinton and Bush administrations turned mortgage finance companies Fannie Mae and Freddie Mac, chartered by Congress to expand homeownership, into "two enormous monoline hedge funds" whose "only option available was to invest in mortgages of increasingly lower quality and higher risk to the taxpayer."
While the 10-member FCIC was originally intended to emulate the 9/11 Commission, which released a widely respected study of intelligence failures before the 2001 terrorist attacks, the panel has struggled through political tension and staff turnover, including the departure of the report's lead writer.
The Republican paper preempted a full commission report that was originally to be released Wednesday but was delayed until January because of political disagreements on the panel.
A Republican commissioner, Peter Wallison of the American Enterprise Institute, said that he thinks the panel's Democratic majority is unfairly limiting the expression of the GOP position in the final report.
Other GOP members are Vice Chairman Bill Thomas, a former representative from California, and Bush administration economic officials Keith Hennessey and Douglas Holtz-Eakin.
Republicans and Democrats have agreed that a wide range of players contributed to the financial crisis - from Wall Street banks and credit-ratings agencies in New York to politicians and regulators in Washington, as well as borrowers looking to stretch beyond their means.
One of the main fault lines for years, however, has been the degree to which federal housing policy contributed to the financial crisis. Virtually no one disputes the notion that the government promoted homeownership too aggressively and failed to rein in Fannie Mae and Freddie Mac, the biggest mortgage finance companies.
The debate is about the degree to which these mistakes with Fannie and Freddie sowed the seeds of the financial crisis. In their report, the Republican FCIC members see these policies as the preeminent cause, leading the two companies, carrying the imprimatur of taxpayer support, to buy more and more risky mortgages.
"The government subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system," the GOP commissioners wrote.
Democrats have argued that Fannie and Freddie and other government programs, while full of flaws, were latecomers to the mortgage boom. They fell into trouble only in 2007 and 2008, while the private-sector, particularly Wall Street bankers motivated by lucrative year-end bonuses, started making risky loans to unworthy borrowers much earlier.