Political Watchdog: Economy: Who is at Fault?

President Bush has been blamed repeatedly for the current economic crisis that this nation, and the world faces. An LA Times article states that 75% of Americans believe that George W. Bush is the cause of our current situation. ¹ Who really is to blame and how would Barack Obama's policies affect the current status of our economy?

Before we can assign blame you must first understand what has caused this economic crisis. Every economist alive points a finger at the predatory lending practices of certain financial institutions. ²These "subprime loans" that we all hear about, and most don't understand (typically Adjustable Rate Mortgages with a 2 or 3-year fixed rate that adjusts to a much higher rate at the end of the fixed term - offered to borrowers who would not qualify for a conventional loan due to poor credit), are at the heart of this lending crisis. So, why were banks allowed to offer loans like this, and why didn't anyone see this coming?

Well first, lenders weren't 'allowed' to do this, they were forced. And secondly, many people did see this coming, including John McCain. How were they forced? It all began in 1977 with Jimmy Carter's Community Reinvestment Act. ³ What was founded on good intentions, forced lenders to offer mortgage loans to individuals who did not qualify for them conventionally. Unfortunately, this well-intended law eventually led to a housing boom based on shoddy loan practices, a subsequent bust, and the financial mess that we are in today. ⁴ The next boggle came in 1999 when Bill Clinton proudly signed into law the Fair Housing Act. This Act forced lenders to give "$6.5 billion in home mortgages and extra effort to help 78,000 minority and low-income families to unlock the door to home-ownership." ⁵ The announcement of this effort coincidentally fell during a time in Clinton's presidency when he was on trial in the US Congress.

In 2005 and again in 2006, John McCain and a group of Republican Senators warned against the lending practices caused by the combination of these two Acts and the unscrupulous dealings of certain lenders. Since McCain made this claim, certain "factcheck" websites, like politifact, have called him a liar... however we have the actual letter sent to the Senate leadership. ⁶

The point here is, Barack Obama wants to repeat the economic practices of Jimmy Carter and Bill Clinton. He wants to raise taxes and increase spending during a time of economic turmoil. When Carter did this in the late 70's, he was fortunate to only get a recession in return. Only ONE OTHER time in history has a president raised taxes during an economic downturn, and Herbert Hoover ended up with the worst depression in US history. ⁷

Do we really want a repeat of this?

How much more proof do we need?