What Caused This Financial Crisis?

Who is to blame for the recent fiasco in the financial sector of our economy? If you haven’t heard, the U.S. government is pledging hundreds of billions to bail out mortgage giants Fannie Mae & Freddie Mac and AIG (the nation’s largest insurance provider). Just this week, we witnessed the largest bankruptcy in American history (Lehman Brothers). Merrill Lynch — a premier brokerage firm — has been bought out, and several other financial companies now appear concerned about their own solvency.

All of the economic analysts on television admit that this was all triggered by the mortgage industry, but what exactly happened to the mortgage industry?

Ever since the mid-1990s, there has been a push to expand and extend mortgage loans into low-income and minority communities. In 2000, Fannie Mae announced an initiative “to provide $2 trillion in private capital for 18 million minority and underserved Americans.” Likewise, in recent years, Democrats in Congress and President Bush have pushed hard for more increases in minority homeownership.

While it is a certainly a noble goal to seek broader homeownership in America, the naïve liberal belief that everyone is entitled to everything has ultimately led us into this crisis. Quite frankly, some people simply cannot afford a home. For example, my family is still renting our home for that very reason. But that did not stop Fannie Mae from encouraging banks to push mortgage loans on millions of our Americans who are poorer than I am.

These mortgages came in all shapes and sizes. Some were made available to those who could pay “interest-only.” Other loans lured irresponsible borrowers with payments that would “balloon” over time. Still other mortgages were known as “NINJA” loans, because they required No Income, No Job, and No Assets. And now the liberals are furious at Republicans, because those same people cannot pay their mortgages — and the American economy is convulsing as a result.

In the words of my dad, “DUH!”

The entitlement philosophy of our nation makes it seem as though everyone is entitled to own a house. Impoverished communities were flooded with hundreds of billions in loans. People with unstable finances qualified for hundreds of thousands of dollars in loans. This excess and borrowed cash artificially drove the housing market through the roof, as too many dollars were chasing too few homes. Eventually, the housing market peaked, interest rates climbed, and the economy grew sluggish. ARMs (adjustable rate mortgages) began creeping north, and millions of poor people realized the obvious: they could not afford their homes.

As more and more poor people continue to default on their loans, our nation continues to set records for foreclosures. As a result of these foreclosures, houses have flooded the market, and the housing prices have plummeted. Now a bank, which originally loaned out $400,000 for a house, is lucky to collect $300,000 in a post-foreclosure sale. Multiply such losses by millions of unqualified borrowers, and you can understand why our economy is in deep trouble. Banks are suffering massive losses.

John McCain may not be an economic guru, but he is one of few politicians who spoke out about this problem over two years ago. In May of 2006, McCain was warning about problems with the mortgage industry giants — Fannie Mae & Freddie Mac. On the floor of the Senate, he declared, “These are entities that have demonstrated over and over again that they are deeply in need of reform.” Unlike Barack, this is not a new speech for him. He was ignored, and that reform never came in the Democratic-controlled Congress. Now, our economy is convulsing.

As Americans suffer the consequences of utopian liberalism, Obama and the liberal Democrats are now trying to claim that all of our problems stem from the GOP’s economic policies of deregulation and “favoring the rich.” WRONG, WRONG, WRONG. This financial “crisis” is due to the failed policies of liberalism that flooded poorer Americans with insurmountable debts.