EDITORIAL: The road to disaster

Politicians continue doing their best to obfuscate why the mortgage giants Fannie Mae and Freddie Mac collapsed, leaving taxpayers with a massive bill.

In large part, this disaster has resulted from ill-considered federal policies pursued by the administrations of Bill Clinton and Jimmy Carter - the last two Democrats in the White House. The goal of these policies was to increase the percentage of Americans owning homes - regardless of whether the beneficiaries were creditworthy.

We previously noted the role of the Community Reinvestment Act (CRA), signed into law by Mr. Carter in 1977 to spur banks to make loans to people living in poor areas. Enforcement remained sporadic until the 1990s, when Mr. Clinton and his HUD secretary, Henry Cisneros, decreed a tough new strategy (much of it implemented administratively) to force banks to meet specific performance goals for making loans to persons living in poor, "underserved" communities - many of them with bad credit records.

The Clinton administration complemented this policy by pressuring Fannie Mae to make more loans to subprime borrowers. In 1999, Franklin Raines, picked by Mr. Clinton's to head Fannie Mae, embarked on a program to loosen credit requirements on loans his firm would purchase from banks and other credit institutions. Mr. Raines remained at the helm until 2004, when he was forced to resign due to an accounting scandal. Congressional Democrats' reaction to the scandal can be seen on the You Tube video of a 2004 House Financial Services Committee hearing where Reps. Maxine Waters and Gregory Meeks praised Mr. Raines and berated a federal regulator who criticized his stewardship.

Last week the Bush White House issued a lengthy rebuttal to an editorial in The Times suggesting that both the administration and Congress should have done more to prevent the implosion at Freddie and Fannie. In its defense, the administration points to a long list of legislative proposals and statements about the problem dating back to 2001 that were disregarded by Congress. Leave aside the reality that Republicans held the White House and majorities in both houses of Congress for much of the past seven years: A simple Google search reveals that the Bush administration pursued and took credit for its own all-out push to increase homeownership rates which brought the country to the abyss. On June 3, 2005, to cite just one example, HUD Secretary Alphonso Jackson boasted at a White House meeting that minority ownership "is at an all-time high."

We now know, of course, that these figures - peddled by Democratic and Republican administrations alike - were bloated by the inclusion of many people who lacked the creditworthiness and judgement to obtain these homes. When "homeownership" is divorced from genuine personal responsibility, the result is the disaster we are witnessing today.