PRUDEN: Time to bail, saving the villains

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By Wesley Pruden

ANALYSIS/OPINION:

Bankers, like politicians and lawyers, are immune from the kinder, gentler impulses that quicken conscience in the rest of us. But sometimes a banker, even on Wall Street, can be thought of too harshly. (Lawyers, not so much. Politicians, never.)

We're coming off a roaring credit drunk, and the worst of the hangover lies still ahead. With the price of houses soaring by 15 percent a year, we thought we would live happily ever after in the Land of Oz. Bankers were confident of selling trash mortgages forever. P.T. Barnum, the patron saint of high finance, had got it right with his observation that "there's a sucker born every minute." The bankers sold the booze, true enough, but they had willing buyers.

But where were the congressional bank examiners? Nobody is more culpable than a handful of Democratic politicians who pose, to the applause of the mainstream media, as deliverers and protectors of poor folks who could own their own homes if only they weren't oppressed by evil rich folks.

Barney Frank and Maxine Waters, shining exemplars of our only native criminal class, together with Chuck Schumer, a paragon on Senate ethics (you could ask him), saw the crisis building and did nothing but encourage it. They're certainly not alone in their mutual connivance in catastrophe, but their sins and shortcomings are most vividly on the record.

The pertinent excerpts from the transcript of a session of the House Financial Services Committee on Sept. 10, 2003, tells enough, if not all. The men and women in charge at Fannie and Freddie, particularly Franklin Raines at Fannie Mae, are the closest we have to authentic villains in this piece. They imagined they were conductors on a gravy train to Easy Street, where only certain congressmen could afford to live. These Democrats stood firm against Republican reformers trying to correct the most egregious abuses of Mr. Raines and his accomplices.

"I worry, frankly," said Rep. Barney Frank on that September morn, "that there's a tension here. The more that people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios."

A few days later, he told another hearing: "I want to roll the dice a little bit more in this situation towards subsidized housing."

Rep. Waters, who praised "the outstanding leadership of Mr. Frank Raines," demanded to know why, "if it ain't broke," anybody wanted to fix it.

You're not eligible to serve in Congress if you're a quick learner; it's apparently in one of the penumbras to the Constitution. Three years later, as the great housing Ponzi scheme accelerated, Sen. Chuck Schumer, reprised Barney Frank's casino bravado at a session of the Senate banking committee.

"I'll lay my marker down right now, Mr. Chairman," he said. "I think Fannie and Freddie need some changes, but I don't think they need dramatic restructuring in terms of their mission, in terms of their role in the secondary mortgage market, et cetera. Change some of the accounting and regulatory issues, yes, but don't undo Fannie and Freddie." The et cetera could be left to the senators enjoying the largesse of Fannie and Freddie.

There were a few dissenters to the Ponzi scheme.

"What we're dealing with is an astounding failure of management and board responsibility," Sen. Chuck Hagel of Nebraska told the panel. "Driven clearly by self-interest and greed. And ... the best we can say is, 'it's no Enron.' Now that's a helluva high standard."

So now the rest of us must collect the debris, patch up the system, and send a $700 billion Valentine to the very rogues, incompetents and buffoons who brought all this on the rest of us.

But it's also true that, as the Wall Street Journal says, we're actually bailing out ourselves. The wild ups and downs of the market, if that's all the crisis were about, could be left to inflict pain only on the deserving who should have known better. But it's worse than that, and Congress, beginning with the senator, has an obligation to hold tightly to its nose, vote for the bailout - and hide their faces in mortal shame on behalf of their guilty colleagues.

• Wesley Pruden is editor emeritus of The Times.