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As for preventing another collapse, Fannie Mae and Freddie Mac — the “government-sponsored entities” primarily responsible for the housing meltdown — are now completely taken over by government. They own or guarantee 40 percent of the country’s mortgages — which they bought from institutions, repackaged and then resold, with an implicit guarantee by the federal government against default.
The Community Reinvestment Act mandated lenders to grant loans to otherwise unqualified buyers. It remains on the books. And the Federal Housing Administration continues to back loans taken out by home purchasers who otherwise would not and should not be able to purchase homes.
Wall Street can therefore continue to pass along the damage done by its risky behavior to the taxpayers. It fulfilled its version of the Hippocratic oath: Congress, do us no harm. The regulations prevent no practice that a few sharp accountants, lawyers and traders haven’t already figured a way around.
The Democratic spokeswoman asserted that “it’s no secret the big banks were against (the regulations).” Really? The proposed regulations preserve the options for bailouts of institutions considered “too big to fail.” And some firms are bigger now than ever. Reason Foundation’s Nick Gillespie says: “One of the major reasons why financial institutions played Russian roulette with the economy was because they were betting they would get bailed out. Which is precisely what happened. The new rules codify the idea that the government will make sure certain institutions can never fail. And if you think the big boys won’t game that system, then you don’t understand how well Citigroup, Goldman Sachs and others have come through the current meltdown.”
How do the new regulations hamper Wall Street? Regulations, in general, tend to fight yesterday’s war. Financial services, like everything else in this digital age, are in a constant state of innovation and reinvention. The new regulations will induce new financial products and new ways of doing business unanticipated — if not caused — by Congress in its attempt to “rein in bad practices.”
To reduce the possibility of a future meltdown, Congress could have forced the players to play with their own money by shutting the escape hatch of government guarantees and bailouts. It did not. Pass the Champagne.
Larry Elder is a syndicated radio talk show host and best-selling author. His latest book, “What’s Race Got to Do with It?” is available now. To find out more about Larry Elder, visit his Web page at www.WeveGotACountryToSave.com.
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