With the one-month anniversary of the Occupy Wall Street protests having come and gone, no end for the movement is in sight. In fact, it seems that not a day goes by without reports of citizens voicing their displeasure at the greedy businessmen and women of Wall Street for the tough economic times our country is going through. But the source of these protestors' anger is misplaced. If they want a scapegoat, they should try packing up their bags and heading from Zuccotti Park to 1600 Pennsylvania Ave., the true source of our high unemployment rates and faltering economy.
The real causes of the recession and the aftermath that has ensued are the Clinton and Bush administrations. Each president made it his priority to increase home ownership throughout the United States, falsely believing that such a change would usher in a new era of prosperity and equality. These two administrations set quotas for Fannie Mae and Freddie Mac to direct over half of their mortgage financing to borrowers at or below the median income level. Whereas the Department of Housing and Urban Development had initially set Fannie and Freddie's quota for low and moderate-income mortgage purchases at 30 percent of all total mortgage purchases in 1992, a number that rose to 50 percent by 2000 and 55 percent on the eve of the 2008 subprime mortgage crisis. These changes in HUD quotas had their desired effect mortgages became easy to obtain with little or no money down, even for people with questionable credit, and home ownership rates climbed to 70 percent.
But as Fannie Mae and Freddie Mac guaranteed more and more subprime mortgages, regulated banks as well as savings and loan associations were mandated to make similar, risky loans under the Community Reinvestment Act. In addition, laws in 2000 and 2004 allowed credit default swaps the sale of a guarantee on a loan's credit worthiness to go on unregulated, paving the way for brokerage firms to borrow more than 30 times their capital and further encouraging potentially poor decisions. As all this went on, few saw the situation for what it really was: a financial crisis waiting to happen.
As long as home prices rise, as they did in the early 2000s, subprime mortgages tend to be a valuable investment, since the mortgaged property's increasing value will safeguard the investor from losing money in the case of a default. But when the housing bubble burst in 2007, people's mortgages were worth more than the houses themselves. Instead of paying off their mortgages, borrowers began defaulting at historic rates. This forced corporations around the world to write off massive losses on investments into subprime mortgages that for years had seemed safe and very profitable. In turn, investor confidence fell, companies were forced to lay off thousands of workers and we have yet to recover. Despite a stimulus bill of upwards of $700 billion, unemployment is still unacceptably high and people are not happy.
But through these tough times, we must remember that it was government housing initiatives, with unreasonable expectations for home ownership rates in the United States, that are the true culprits. Private financial institutions were not being greedy in their questionable decisions to purchase mortgages that in hindsight were poor investments. They were simply following Fannie Mae and Freddie Mac's lead in purchasing subprime mortgage-backed securities for fear of losing out on a growing, seemingly profitable sector of the mortgage market opened up by Washington.
But the failures don't end there. Now, as the debate over Obamacare rages and the Dodd-Frank Wall Street Reform and Consumer Protection Act has established new regulations throughout our economy, employers are afraid to hire because they are unsure of what these new pieces of legislation will cost them.
Maybe we should reconsider who we're blaming our current economic problems on, and instead direct our anger toward the lack of foresight in the Clinton and Bush administrations and President Obama's ineffective efforts to get the economy back on its feet.
