5 I The Behrend Beacon The First Amendment to the U.S. Constitution: Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof: or abridging the freedom of speech, or of the press: or the right of the people peaceably to A different perspective By Frank Weltner contributing writer fvwsoo2@psu.edu "Government is not part of the answer, it's part of the problem." I often hear conservatives utter this sentiment. Governor Palin said something to that effect in this year’s Vice Presidential debate. It has been the conservative’s rallying cry for quite awhile. Every time I hear it, part of my brain locks up and I think; what the hell are you people talk ing about? Every time I hear this phrase, it's like hearing someone proclaim, “Curse those who have paved our roads. Curse those who send our children to school. Curse those who put the police on the street. Curse those who defend the coun try.” When it comes down to it, almost every teacher, policeman, fireman, sol- V to the current market value of their bad debt Then we'M buy up'r| so we will, in fact, get Y done! v Secretary Paulson and Fed Chair Bernanka try to sell the bailout to Main St. Editorial Rebuttal: The subprime meltdown - greed or government? The verdict is in and politicians are already writing the storyline: the sub prime mortgage meltdown was a failure of capitalism caused by corporate greed combined with a lack of government regulation. Major newspapers are demanding more government oversight and an entire revamping of our financial sector in order to reel in Wall Street greed. Fortunately (or unfortunately), this condemnation of capitalism is incorrect. In fact, it was government regulation that precipitated this crisis with the Community Reinvestment Act (CRA). CRA required our nation's banks to make high-risk loans to unqualified bor rowers or face sanctions by the govern ment and community activist groups. Under CRA, equal opportunity lending was no longer sufficient. CRA' and community activist groups demanded mortgage lending rates for low-income minorities and “communities of color” (term used by CRA activists) that mir rored the rest of middle class America, regardless of credit scores. A Harvard study shows that from 1995 to 2005, minorities made up 49 percent of the 12.5 million new home owners. CRA provided no exemptions for homeowners with poor credit scores or low income. Banks that did not meet the social engineering goals of CRA were punished and downrated. In 1995, a large community activist group called Association of Community Organizations for Reform Now champi oned changes to the CRA to obtain bil lions of dollars in additional mortgage Beacon Thumbs Up Beacon Thumbs Down ~ Submission Guidelines: & S & Jm JS tvfp Letters should be limited to 350 words and commentaries 700 words. The more &< V w v concise the submission, the less we will be forced to edit it for space concerns and the ~P * more likely we are to run it. - New layouts The Beacon does not publish anonymous letters. Please include your major, faculty or - Odd number of pages administration position, and semester standing. Deadline for any submission is 3 p.m. - Buffalo Chicken pizza Thursday afternoon for inclusion in the Friday issue. - Cheaters The Behrend Beacon reserves the right to edit any submissions prior to publication. - High school dance music Please keep complaints as specific as possible. ' Dear John letters Email submissions to jdjso6l @psu.edu or drop them off at the Beacon office. . . - -Candy Com -Candy Corn dier is almost exclusively employed through some form of government. Outside of the entertainment business, the most venerated professions in our culture tend to be jobs that exist solely due to the government. Government provides the essential services that our country could implode without. Government protects us from all sorts of danger and in general promotes our well being. A little example: this summer I attended Bonnaroo 'OB, a large Woodstock type music festival located in Tennessee. Eight of my friends and I lived in a makeshift refugee camp with 80,000 other people for four days. It was anarchy. I’m not talking, ‘let’s go spray paint something and flip a car over’ type anarchy, but anarchy in the classic sense. Government essentially ceased to exist in that little bubble of our refugee camp. One sign of its disappearance Hey. Hank someone Vou fe | ks SUIe do l ook jus* put the theme SUIIS from Derive ranee on the loans for otherwise unqualified borrow- You may recognke ACORN because a community organizer by the name of Barack Obama happened to be a leading member of this organization. Under the Clinton administration, Fannie Mae and Freddie Mac reserve requirements were reduced to only 2.5 percent versus ten percent for banks. Now, at the behest of ACORN and other community activist groups, Fannie and Freddie were able to package larger quantities of CRA subprime loans into mortgage-backed securities sold on Wall Street to insurance companies, banks and investment houses. The infection had begun. For many years, Fannie and Freddie mortgage-backed securities were con sidered low yield, low risk investments preferred by banks, retirement accounts, and insurance companies with conser vative risk-averse portfolios. They were certainly not the diet of choice for greedy investors seeking high returns. Unfortunately, thanks to CRA, these portfolios had become heavily “pollut ed” with risky subprime paper. With millions of new but unqualified borrowers in the housing market, demand for houses skyrocketed and prices reached record highs. Of course borrowers, especially minorities, were also defaulting at an alarming rate, but this was of little concern because it seemed that every foreclosed home could be resold at a higher price. Ongoing support of reckless lending policies by Fannie and Freddie under Perspectives assemble, and to petition the Government for a redress of grievances. was the drug dealers. People would come walking through the packed campsites yelling "Eddies." or some other code for drugs. One would Hag one of these people to enter their camp site. The 'Eddy' dude would display his wares. Transactions were made. At first, my drug-purchasing friends were quite happy. Without government around, they could easily purchase a myriad of stuff not usually permitted (people like to make up absurd names for whatever strain of marijuana they are selling. I couldn't tell if they were selling a plant or a Rainbow Brite char acter). Their ecstasy quickly turned to disap pointment as most of the substances purchased turned out to be little more than expensive placebos. And while the placebo effect can be quite strong, it's not going to help you "trip balls." My friends had discovered that, in the absence of government, not only can the oversight of the Senate Banking Committee, chaired by Senator Chris Dodd (D-Conn.), enabled them to create even larger portfolios of mortgages that injected more liquidity into the housing market, allowing banks to provide more mortgages to unqualified borrowers. This was further compounded by a continuous stream of cheap credit pro vided by the Federal Reserve under both Alan Greenspan and Ben Bernanke. All of these factors created a huge housing bubble that inevitably popped and creat ed today's crisis. Now that the subprime spigots are dry. the abundant supply of houses is leading to a precipitous drop in prices, further aggravating the situa tion. This brings us back to the question at hand. Was it greed and a failure of cap italism that created this problem'.’ At worst, banks may have been accomplices in the subprime meltdown. However, liberal government interfer ence, driven by community activist groups with politically correct agendas, were the root causes of this disaster. Demanding more government oversight to fix this problem is akin to pouring gasoline on a fire. Banks know how to qualify and underwrite loans. Only government interference in otherwise viable private capital markets, for purposes of social engineering could create a mess of this magnitude. on government people freely sell illegal drugs but they can also freely sell you lake illegal My friends were happy that the prohi bitions of certain substances were gone but they failed to realize that consumer protection from charlatans and tricksters evaporated as well. Due to our govern ment's legacy of protecting consumers, people expect to get what they pay lor. People in our country tend to sell slult that does what it's advertised to do. Otherwise, the government brings the hammer down on them. Want proof. ’ The CEO of F.nzyte just got fined $93,000 and was sentenced to 25 years in jail because En/.yte won't give vou that desired erection with lasers. GPS. and OnStar IM that you’ve always want ed. Consumer protection and drug prohi bition are a few ol the small facets ol our society created and entorced by government for our benefit. If you stop In "On the Brink of Collapse (9/27)." I made the argument that it would "be till text easy to blame '[xxir people who bought houses they couldn't afford' when the prob lem is deeper than that" for our current eco nomic crisis. Ultimately, there is more than enough blame to go around for the econom ic crisis we find ourselves in. That seems to lie as far its Brad is willing to go with his edi torial rebuttal. His response, like the conservative clarion call, said that the Community Reinvestment Act (C'RA) is to blame for our economic cri sis entering risky territory, one in w hich rea son could lie used to mask racism. If left unanswered, it could easily precipitate preju dice and hate. Brad's logic, while creative, distorts the reality of the situation and is fatallv Hawed. Such logic would have you believe that a law passed in 1977 lies at the heart of an eco nomic crisis 71 years later: that poor people who Ux>k out loans they couldn't afford brought the world's economy to its knees. Imagine that. If the sheer absurdity of this conclusion doesn't make you skeptical, hopefully w hat follows will? What is the CRA? According to testimo ny in Congress by Michael S. Bair. Professor of Law at the University of Michigan. CRA "encourages federally insured hanks and thrifts to meet the credit needs of the communities that they serve, including low ;uid moderate-income areas, consistent with sale and sound banking prac tices." Contrary to Brad's analysis. CRA did not force hanks to nuike risky loans and engage in risky activity. Far from being unprofitable or risky. "Federal Reserve research suggests that CRA covered institutions (that | have been able to extend such loans profitably and that the performance of such loans is about the same its that of other mortgage loans.” according to Sandra F. Braunstein. Director of the Division of Consumer and Community Affairs at the Federal Reserve in 2(X)8. There is little evidence to suggest a link between CRA and the increase in subprime lending. First. Robert Gordon, a senior fel low' at the Center for American Progress, notes that much of CRA related activity trailed off sharply in 2(X)I. Gordon also notes that weakened CRA regulations by the Bush administration pulled "small and mid sized banks out from under the law's tough est standards. Yet subprime lending contin ued. and even intensified." Lastly. Bair noted again in his testimony that "more than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal super vision; another 30 percent...were made by affiliates of banks or thrifts." Brad would like you to assume that every bank and lending institution has to meet CRA regulations. But this isn't true. The CRA only applies to federally insured banks, which, as noted above, did little of the risky lending. Brad PSU parent The blame game By Christopher Brown contrihntint> writer cmhs3l3(? psu.edu Friday, October 10, 2008 and think about all that government does for us. it's pretty clear: govern ment can be totally awesome. So please, don't tell me that government is the problem. There may be problems with the government, but it is also the solution to so many of America's prom lems. Everyone should keep in mind that we live in a democracy. If we want some thing. we can eventually get it. If the people of our nation decided that they wanted "Super Freak" by Rick James to he our national anthem, then it would be. In a democracy, government can become WHATEVER we want it to be. I think as a nation we should he more aware of this fact. In summation: I heart government. And since 'heart' is not a verb, maybe I should say that I love government. The market is not the solution to our cur rent problem; in many ways it is the source. The commercial mortgage market didn't exist as it does Uxlav until the mid 19905. Before then, buying "securitized’ debt involved a great amount of risk. According to Marcia Clemmitt in the CQ Researcher, "during the 19905. however, financial insti tutions became more adept at 'structuring' the securities: slicing up a single mortgage package - totaling hundreds or thousands of loans - into several investment vehicles, or tranches, with it range of risk." This is w here the government should have stepped in and started regulating: Wall Street w as not effec tively assessing the risk involved in sub prime mortgages. But. resistance to regulation was met at every avenue. As early as 1992 the General Accounting Office, according to The New York Times, wanted regulators about the risk involved. Alan Greenspan. Federal Reserve Chairman through the 1990'5, wouldn't have any of it. In Congressional testimony in 2(X)2. Peter Fisher. Undersecretary for Domestic Finances. Department of Treasury, said, "...bringing mortgage-backed securi ties market into the registration process would be counterproductive...it would be potentially disruptive." In other words, it might slow down the mortgage market and hurt the profits of lenders. Mortgage companies weren't making these loans because they were forced to but because they were profitable. Brad also overestimates the impact of Fannie Mae and Freddie Mac. though by all means their hands arc in the mud as well. As Janies K. Galbraith. Professor of Economics at the Ly ndon B. Johnson School of Public Affairs at the University 1 of Texas at Austin, wrote, they 'checked on borrowers' credit and they weren't giving out subprime, low doe. or no-doc infiated appraisal loans." Fannie Mae and Freddie Mae lire at Fault just as intteh as any other hank in that they got away with as ntueh as they could. Like every other investor, they bought up MBS front other lenders, whielt is where they real ly got hurt, as explained in a Business Week article from Sept. 26. Brad's solution would he less government intervention. ;utd while not explicitly stating such, the only logical conclusion to be made from his argument is that the government should repeal the CRA. Given the dubious connection between CRA lending institu tions and the current economic crisis, doing so would be morally irreprehensible. In fact, it could exasperate the liquidity crisis. According to the Joint Center for Housing Studies at Harvard University, the direct result of the CRA has been positive on the economy, with the equivalent of reducing unemployment by 1.3 pereenutge points, boosting the accessibility of credit for busi nesses and increasing payrolls and reduced bankruptcies for small businesses in low income areas. Without government intervention in this area, lending institutions would ignore these businesses and people. That would be unac ceptable: a permanent underclass would be created.
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