The Case for Obama (and a few comments from me) Part I

I like jazz and classical music. I have a college degree. I'm under 35, drink imported beer, drive an economy car, and (obviously) have a blog. I have never made over $250,000 in a year, have never started a business, and bought my house on a subprime program. And I think my health insurance costs too much. If we were punching these data points into a computer, it would certainly calculate me as a prime supporter of Obama.

So why don't I support Barack? I think I've laid out my thinking in numerous ways, but is there a blind spot in my thinking? Am I missing something? It would be terribly arrogant for me to think I have all the answers and don't need another perspective. Fortunately for me (and for the one or two people who actually read this blog), I have been blessed with a few smart and rational liberal friends. Smart and rational - meaning they can articulate a position that is based on something other than rhetoric, talking points, and inflamed passions. Friends - meaning they still speak to me even though we get into it pretty good at times. And, even though we typically agree to disagree, the discourse is valuable as it shapes and strengthens our respective knowledge and positions. And they're all women. Funny how things work out. I always wanted to arouse strong passions in the opposite sex and to have them hanging on my every word. Instead I've got a pack of fired up liberal ladies looking to hang me for every word. Close enough, says I.

We'll start with some words from Dr. A. Dr. A. is a New York liberal who I happened to converse with recently. She's a Barack supporter who gave me permission to reprint her comments here. She started with a round of general criticism over the current administration and really the Republican Party in general. I won't devote a lot of time to these, since they aren't central to her argument. She criticized the Republicans for invading the wrong country (I'd devote an entire series to debunking this, if it weren't so 2004), authorizing torture (irrelevant since McCain has come out in opposition to waterboarding), refusing to grant rights to POWs at Guantanamo (not true, and even less true now that the Supreme Court has given detainees standing to file suit), and for destroying the greatest economy of our generation (an economy that was the result of Reagan's fiscal policies, which were in large part undone by the Clinton Administration, as evidenced by the recession prior to the 2000 election).

Like I said, I won't devote a lot of time to those issues, but there was one criticism she put forth that I can't walk away from. To quote: "[The Republicans] allowed massive corporate deregulation that led to the current financial disaster..." I know I heard that same sentiment on an Obama radio ad, but it just doesn't hold up to scrutiny.

Banks and other lending institutions loan money to people based on their ability to pay it back. Someone who is a low risk would get a lower interest rate, while higher credit risks pay a higher rate or are simply disqualified. In addition to the borrower, the lender has to evaluate the property, the neighborhood, and the likelihood that the investment will retain its value over time. That's a classical model of lending. It is not always equitable, and tradition has it that many minorities and many depressed neighborhoods were left out of this lending equation. To respond to this, the Fair Housing Act of 1968 and the Community Reinvestment Act of 1977 were signed into law. These made it illegal to discriminate in the sale of a home or the extension of credit for a home based on race or neighborhood. (Sidenote: I have been told the California home in which I grew up had a provision in the deed that said it could only be occupied by persons of the Caucasian race. While it was not legal or enforceable when we lived there, it was a relic from the 1940s when the home was built.)

Eliminating discrimination is a good thing, but by the late '90s, there was mounting pressure from the White House to increase lending to low- and moderate-income borrowers. This would allow the Clinton legacy to include higher rates of home ownership. There was also pressure from banks for Fannie Mae and Freddie Mac to ease their lending restrictions. This would allow banks to lend money to less qualified borrowers and then sell the high-risk (subprime) mortgages to Fannie and Freddie. Fannie and Freddie eased their restrictions, and the Federal Reserve Bank cut interest rates. Benefits overflowed. Banks got to sell more mortgages. Builders and developers got to sell more homes. Demand for homes went up dramatically, which in turn caused home values to soar. Low-income consumers were able to buy homes where they couldn't before. High-income consumers were able to buy investment properties and bank on the market continuing to rise. Profits at Fannie and Freddie shot up as the balloon continued to rise. Financial services companies grew in value, creating a windfall for investors on Wall Street. Everyone wins, right?

Wrong. The gains were based on bad paper, just like the stock market in 1929, the NASDAQ in the late '90, the S&L industry in the late '80s, and so on. As the value of homes stopped rising, consumers could no longer refinance their way out of trouble. Foreclosures began at an alarming rate. The more foreclosures happen, the more the supply-and-demand of the housing market gets out of whack, and home values continued to fall. Lenders were left with assets that couldn't cover their capital outlay, and it was clear the party was over.

To quote Kevin Bacon, "These are the facts of the case, and they are undisputed." Democrats are quick to blame Republican deregulation efforts, but it was the Clinton Administration that eased lending rules for Fannie and Freddie. It was Clinton who signed the Taxpayer Relief Act of 1997, opening up the market to more home ownership for investment purposes. It was Barney Frank who in 2003 opposed the oversight of Fannie and Freddie by an independent agency, saying the Bush Administration was overstating the potential for trouble. It is Left-wing organizations like ACORN who have mounted campaigns against lenders who do not have a sufficiently diverse mortgage portfolio. ACORN and Fannie Mae have made significant donations to the Obama campaign. And let's not forget that conservatives (I'll stop short of saying Republicans, because the two are not synonymous lately) warned of the potential for problems by easing restrictions. Peter Wallison, senior fellow at the conservative American Enterprise Institute said of the relaxed lending restrictions in 1999, "This is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry."

And, of course, it was John McCain - current Republican candidate for President - who co-sponsored the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have tightened up lending policies for Fannie and Freddie. Said McCain, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole." However, the Democrat-controlled Congress did not support this bill.

So we have McCain, who spoke out about the coming crisis, even though at the time, it was a vastly unpopular position. And we have Obama, who cashed in the crisis, receiving more contributions from Fannie and Freddie in three years than 98 other Senators have received in the last 19 years. We have McCain, whose connections with people like Mitt Romney and Steve Forbes give him proven and successful free-market thinkers to help with the current crisis. And we have Obama, whose connections to people like Tony Rezco and Bill Ayers give him great options for socialism and corruption.

Who would you rather have overseeing the financial system in this country?