Put Another Way ...

The tea partiers stopped him cold:

After more than 30 years, Washington has finally gotten to him – particularly this Tea Party class, which he says has done nothing but induce partisan gridlock. “There are people who object to cooperation in principal because they don’t see the need for it,” Frank lamented, “because they believe their side is in the absolute majority. That’s not how Congress works.

For "cooperation" read "surrender." Really, Mr. Frank? Congress seemed to work so well when Democrats had a majority in both houses, didn't it? When only racists and idiots questioned the wisdom of what Fannie and Freddie were doing. Specifically what they were doing at your behest and that of your party and in accordance with the dictates of your politics.

The Community Reinvestment Act encouraged "subprime lending," a politically correct euphemism for lending large sums of money for the noble purpose of buying a home to people who could not afford to repay those loans. It also allowed the government (in the person of Housing and Urban Development) to pressure lenders to make subprime loans. The lenders knew that the borrowers could not repay the loans. The borrowers knew that they could not repay the loans. They could only stay afloat for a few years while the "come on" rates applied or they burned through their savings. The scheme worked as long as home prices kept rising and the increased value allowed the otherwise bankrupt borrower to repay the loan in full.

But the one thing which is always true of markets is that they never, ever proceed in a straight line. There was never any chance that home prices would always rise. When the inevitable happened and prices stopped rising, the bubble burst and many, many subprime borrowers could no longer make the payments on their loans.

By all accounts, Frank is not stupid. If that is true, does it mean he knew what was happening and what would follow? As much as I dislike the man, I find that hard to believe. And there is some evidence that Frank is not the genius he is made out to be.