- The Washington Times - Wednesday, September 24, 2008


Donald Lambro’s enthusiasm for Sen. John McCain’s “tough talk on reforming a bureaucratic, outdated, ineffective regulatory system” is simply misguided. (“Reformist McCain tackles Wall Street,” Commentary, Monday) Today’s crisis was not caused by negligence or malpractice by bureaucrats. It was caused by the policies the bureaucrats are charged with implementing and enforcing. Bureaucrats don’t formulate major policy - Congress and the executive branch do. The pressure these two branches of government brought to bear on mortgage lenders to make loans in “underserved communities” in the interest of providing “affordable housing” is at the heart of the problem. Banks were threatened with prosecution under the Community Reinvestment Act unless they made loans in such communities; Fannie Mae and Freddie Mac were required to fulfill quotas for loans to be made to low-income borrowers. The result was, in effect, a forced deregulation of lending standards and, therefore, loan quality, the effects of which we see now. These were the standards the regulators were charged to enforce.

The problem is not the absence of regulatory action. The problem is that recent regulatory action has been fashioned to advance the agenda of the affordable-housing lobby rather than to protect the safeguards that ensure the safe, efficient functioning of the mortgage-finance market. Warnings and threats by Rep. Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, have far more effect on the regulatory environment than the actions of an agency bureaucrat. It is Congress and the executive branch that shape policy, and it is they who should be held to account.

Victor Cholewicki


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