Levin’s housing crisis cover-up (The Michigan View 04.15.11)

Posted by hpayne on April 15, 2011

For the last two decades, Sen. Carl Levin and other Washington politicians forced banks and federal mortgage houses to finance thousands of risky loans to homeowners in Metro Detroit and beyond, setting the nation on course for the 2008 financial crisis. Now, incredibly, Levin is demanding an investigation of mortgage lenders to divert blame for a disaster that he and his colleagues created.

“This was a man-made crisis, the product of reckless risk-taking and rampant conflict of interest,” Levin said this week. “Had tougher regulations been in place earlier, it’d be a heck of a lot less severe.”

More precisely, it was a Washington-made crisis – the result of Levin & Co. softening regulations that corrupted the mortgage market. Give the senator the Cover-up of the Year Prize.

Levin’s permanent subcommittee on investigations have found what everyone knows – that nearly a third of Metro Detroit mortgages during the height of the real estate bubble fell into foreclosure by 2008. Though Wall Street banks and investors bear plenty of blame for the speculative housing bubble, at its root are Washington pols who watered down the lending standards of the twin federal mortgage giants, Fannie Mae and Freddie Mac, and used the Community Reinvestment Act (CRA) – long championed by Levin – to force lenders into distressed communities under the false premise that lenders were denying the poor the American Dream of owning a home.

Levin’s investigation paints “a disturbing picture of how investment bankers orchestrated what ended up being a foreclosure factory in many major cities, Detroit being one,” writes The Detroit News.

In fact, it was Levin & Co. who orchestrated a dangerous scheme forcing banks into risky loans so that Levin and his colleagues could take credit for rising home ownership.

“Congress designed Fannie and Freddie to serve both their investors and the political class,” writes George Mason University economist Russell Roberts in The Wall Street Journal. “Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget. It was a political free lunch.”

To help facilitate these sham loans, Levin’s colleagues (most famously Massachusetts Democrat Barney Frank) then forced Fannie and Freddie to take on quotas of risky low-income loans, lowering their threshold of down-payments from 25 to less than 10 percent in violation of long-held standards.

This allowed mortgage lenders to immediately dump their risky loans into the secondary market, beginning a domino effect that would ultimately crush U.S. capital markets.

“The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters — their bottom line and the so-called common good,” continues Roberts.

And who was one of the CRA’s greatest champions? Senator Carl Levin.

“The Community Reinvestment Act is a way to encourage banks to live up to their public obligation,” roared Levin in 1999 in opposing efforts to scale back CRA as evidence mounted it was a house of cards. “Nationwide the CRA has been recognized as an effective way to increase credit availability in underserved areas. CRA has also encouraged a dramatic increase in home ownership by low and moderate income individuals.”

Levin claims the risky loans were packaged and sold to investors as solid investments, the result of collusion between ratings agencies and Wall Street. What Levin does not say is that he himself encouraged this collusion.

“Both small and large banks in Michigan have received outstanding CRA ratings,” said Levin in 1999, praising the very same rating agencies. He explicitly opposed attempts to scale back the CRA’s power to force lenders into risky areas. “I will not support a bill that weakens a program that has been so important to community development efforts in Michigan and nationally.”

Now, Levin is trying to disguise himself as a cop stumbling on a crime – the better to scrub the scene of his fingerprints and plant evidence that it was all the lenders’ fault. But watchdogs are barking. On WJR-Radio Thursday. Frank Beckmann read from the 1999 evidence of Levin’s crime.

“Can you spell hypocrisy?” concluded Beckmann on WJR.

That’s L-E-V-I-N.

 

 

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