The crises of recent years tend to erase from memory those that preceded them.
One, as you may recall, was the financial collapse of 2008—a collapse deemed by many as the worst since the Great Depression.
That collapse swept into power a government like the one we have now—the White House and both houses of Congress controlled by Democrats.
Newly elected President Barack Obama appointed then-Rep. Rahm Emanuel as his chief of staff, who made popular the saying, “Never let a serious crisis go to waste.”
Indeed, the new Democrat administration followed this advice and used the financial crisis as an opportunity for a major expansion of government.
Democrats wasted no time to ascribe the financial collapse to business greed and insufficient regulation of banks and other financial institutions. In 2010, the 2,300-page Dodd-Frank Act was passed—with no Republican votes in the House and three in the Senate—adding 400 new regulations on financial institutions.
Included in this tsunami of new financial regulation was the creation of a new independent agency—the Consumer Financial Protection Bureau. The agency, originally the brainchild of Sen. Elizabeth Warren, was conceived with her view, shared by Democrats on the far left, that disparities in financial results between different communities must be due to racism and discrimination. So, needed, in their view, was an all-powerful bureaucrat in Washington to level the playing field.
Now our financial institutions—banks, securities firms, credit unions, payday lenders, etc.—fall under the purview of the Consumer Financial Protection Bureau and must submit to its scrutiny and oversight.
The CFPB has just announced sweeping new changes in its “supervisory operations to better protect families and communities from illegal discrimination.”
Firms must make available to CFPB “their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups.”
We might summarize this as financial markets gone woke.
Can a government bureaucrat really determine why a banker did or did not make a loan, and should the heavy hand of government be involved here?
Can it be the same thing when government intervenes in how financial institutions do their business as when government intervenes regarding who sits at a lunch counter?
We can learn something about this from the financial crisis of 2008.
According to the work of American Enterprise Institute’s Peter Wallison, the crisis was not the result of insufficient regulation of business but of government excess.
It all started, according to Wallison, with government mandated Affordable Housing Goals in 1992. These mandated that the two giant government-backed mortgage companies—Fannie Mae and Freddie Mac—set a quota of 30 percent of all mortgages they acquired from mortgage originators to be targeted to low- and moderate-income borrowers.
By 2008, this was up to 56 percent.
In order to meet these quotas, lending practices were dramatically relaxed. Down payment requirements dropped from 10 percent to 3 percent; credit score requirements were relaxed, as were debt-to-income requirements for borrowers.
By 2008, according to Wallison, just before everything collapsed, “More than a majority of all mortgages in the U.S. financial system was sub-prime, required low or no down payment, or were otherwise risky.”
With the collapse of lending standards, housing demand and prices went through the roof, and then the bubble exploded.
Who suffered the most in the ensuing recession? Per Pew Research, “Blacks and Hispanics have borne a disproportionate share of both job losses and housing foreclosures.” The low-income Americans government most wanted to help were those who were hurt the most.
Today, Democrats are back at it.
CFPB Director Rohit Chopra is gearing up to use his almost unilateral power to show he knows better than business and the marketplace what is good for consumers.
Surely, once again, those who will suffer the most will be our struggling low-income citizens.
