As our economic crisis broadens, we continually hear calls from Democrats about the need to reach across the aisle in an effort to pass some form of bi partisan legislation which could prevent further bank failures and aide our struggling economy. Prior to yesterdays failed House vote, Nancy Pelosi did indeed reach across the aisle, however the open hand she presented was not in the form of a handshake deal, it was a slap in the face. The need to pass critical legislation in a time of crisis was not enough to override Nancy Pelosi’s need to place the blame squarely on the shoulders of George Bush, while absolving herself and her party of any wrong doing.

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To listen to Nancy Pelosi’s speech, you would think there were no warning signs up until just recently, and there was no way to predict a mortgage market meltdown even a few years ago. She blames Republican free market principles as the cause of the crisis, while ignoring Congress’ role in assuring the “free” market, was anything but. Many economists are now declaring the mortgage crisis was the fault of Congressional legislation, specifically the Community Reinvestment Act, which economists warned at the time, would force banks to make loans to otherwise unqualified borrowers.

As far back as 1999, The New York Times warned us of the implications of lowered credit standards, and the possibility of a Government bailout being necessary if the economy were to slow:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

..By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

The warning signs were there, and went completely ignored by Congress. Lest we forget, in 2003 President Bush warned more oversight of Fannie Mae would be necessary, and Democrats scoffed at him, worried new regulations would reduce home ownership in low income neighborhoods.

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