Below is a review by George Will of the book Reckless Endangerment — written by a housing finance expert and by a N.Y. Times columnist, no less.

The 1977 Community Reinvestment Act pressured banks to relax lending standards to dispense mortgages more broadly across communities. In 1992, the Federal Reserve Bank of Boston purported to identify racial discrimination in the application of traditional lending standards to those, Morgenson and Rosner write, “whose incomes, assets, or abilities to pay fell far below the traditional homeowner spectrum.”

In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.

There was a torrent of compassion-speak: “Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower-income, and nontraditional consumers.” “Lack of credit history should not be seen as a negative factor.” Government having decided to dictate behavior that markets discouraged, the traditional relationship between borrowers and lenders was revised. Lenders promoted reckless borrowing, knowing they could off­load risk to purchasers of bundled loans, and especially to Fannie Mae. In 1994, subprime lending was $40 billion. In 1995, almost one in five mortgages was subprime. Four years later such lending totaled $160 billion.

As housing prices soared, many giddy owners stopped thinking of homes as retirement wealth and started using them as sources of equity loans — up to $800 billion a year. This fueled incontinent consumption.

Under [James A.] Johnson, an important Democratic operative, Fannie Mae became, Morgenson and Rosner say, “the largest and most powerful financial institution in the world.” Its power derived from the unstated certainty that the government would be ultimately liable for Fannie’s obligations. This assumption and other perquisites were subsidies to Fannie Mae and Freddie Mac worth an estimated $7 billion a year. They retained about a third of this.

Morgenson and Rosner report that in 1998, when Fannie Mae’s lending hit $1 trillion, its top officials began manipulating the company’s results to generate bonuses for themselves. That year Johnson’s $1.9 million bonus brought his compensation to $21 million. In nine years, Johnson received $100 million.

Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the homeownership mania, and spread “charitable” contributions to housing advocates across the congressional map.

By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties.

Morgenson and Rosner find few heroes, but two are Marvin Phaup and June O’Neill. These “digit-heads” and “pencil brains” (a Fannie Mae spokesman’s idea of argument) with the Congressional Budget Office resisted Fannie Mae pressure to kill a report critical of the institution.

“Reckless Endangerment” is a study of contemporary Washington, where showing “compassion” with other people’s money pays off in the currency of political power, and currency. Although Johnson left Fannie Mae years before his handiwork helped produce the 2008 bonfire of wealth, he may be more responsible for the debacle and its still-mounting devastations — of families, endowments, etc. — than any other individual. If so, he may be more culpable for the peacetime destruction of more wealth than any individual in history.

Here’s the Washington Examiner:

Earlier this week in a CNBC town hall meeting a woman, self-described as chief financial officer for a veterans organization with — and this is key as it underscores both her economic class and the key disconnect between liberal Democrats and the rest of America — “two children in private school,” told President Obama that she voted for him but was exhausted from defending him. She further questioned if the American dream was attainable.

You know its bad for the Democrats when on top of their almost 10-percent unemployment rate their top economic adviser, former Clintonite Larry Summers, resigns, and the president’s own economic blue-ribbon panel suggests cutting the corporate tax rate at the very time the White House is publicly demonizing the business sector, particularly when  it comes to tax policy!

Earlier this week a White House spokesperson was quoted saying:

So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax.

This is classic liberal slight of hand — Yes, partnerships, s-type corporations and limited-liability companies (LLCs) do not pay corporate income tax because they pay traditional income tax! The White House wording implies you’ve got the vast majority of business just not paying tax. It’s an outrageous lie, and there’s a 10-percent unemployment rate and failing businesses from Sacramento to Albany to prove it.

And hence the disconnect for the disillusioned CFO with two kids in private school above — she doesn’t realize that she is considered “rich” by the likes of President Obama, Democrats and the IRS. She doesn’t realize that when Democrats are vilifying those who make $250,000, or $125k each for a husband and wife filing jointly, they are vilifying all those entrepreneurs, partnerships, s-corps, and LLCs by placing them in the SAME TAX BRACKET, THE HIGHEST TAX BRACKET, as multi-millionaires like George Soros, Bill Gates, Warren Buffet, et. al.

The small business group, which the White House is implying we punish more in the tax code, is the lifeblood of the American economy. They make up 92% of all business (c-type corporations make up 7.5%); and have created 64% of net new jobs in the last 15 years.

Obama brags about “squeezing” this and that — Wall Street, Pharmaceuticals, Insurance, Credit Card companies. Well, when he squeezes the c-corporations and the truly rich, he’s also inadvertently or not squeezing the non-corporate entities, the small businesses, the job creators, and the exhausted woman who worked her whole life to become a chief financial officer and send two kids to private school.

It doesn’t help matters for Obama when the public recognizes a hypocrite when they see one — Obama has a treasury secretary who cheated on his income tax, and just reported this month, some 41 Obama aides owe $830,000 in back taxes (more than $20,000 each). If they aren’t paying their taxes, why should you and I? And was that aide who bashed small business before the media this week for their supposed tax cheating someone who is an actual tax cheat?

And so the misnomered “Tea Party” isn’t a party at all, isn’t something that one can pin down, has no national committee like the DNC or RNC, but is rather just a bunch of ordinary Americans — and a slew of exhausted business owners — sick and tired of the high taxes, egregious spending and draconian government policy imposing in their life. All the things Obama seems to favor.

Mr. Obama seems steeped in self-pity of late, noting how hard this recession was. Well, the United States has had far harsher recessions — at least Obama hasn’t had to deal with inflation or stagflation or 1970s gas lines –  but which lasted less time precisely because those presidents helped the job creating abilities of the private sector instead of looking to “squeeze” them.

The simple truth is that the Tea Party movement could be defanged in a matter of months were the Democrats simply to choose economic common sense over leftist economic ideology.

So long as they don’t, well… we can see November from our houses.

Here’s Duncan Currie:

Here’s one thing you won’t find in the 2,300-page financial-overhaul legislation that passed the Senate Thursday afternoon: any serious reform of housing giants Fannie Mae and Freddie Mac, the longtime “government-sponsored enterprises” (GSEs), both of which have been in federal conservatorship since September 2008. Last summer, the Congressional Budget Office (CBO) estimated that the cost of subsidizing the GSEs would amount to $389 billion through 2019. This figure accounted for “substantial losses on the entire outstanding stock of mortgages held or guaranteed by Fannie Mae and Freddie Mac at that time.” In January, the CBO updated its forecast, projecting a total price tag of at least $373 billion through 2020. By comparison, it now expects the much-maligned Troubled Asset Relief Program to cost just $109 billion.

Those numbers help put the GSE bailout in perspective, yet they tell only part of the story. Fannie and Freddie currently own or guarantee roughly $5.5 trillion worth of mortgages — over half the residential market. If these liabilities were included in the federal budget, Americans would better appreciate the true fiscal impact of rescuing the GSEs.

But Fannie and Freddie are not counted in the budget, a maneuver “worthy of Enron’s playbook, except not quite so hidden,” as Bloomberg columnist Jonathan Weil has written. Their exclusion “makes a joke” out of the U.S. balance sheet, says former SEC commissioner Paul Atkins. The argument for bringing them on budget became even more compelling in December, when the Obama administration removed a cap on their Treasury Department credit line, essentially giving the GSEs a blank check. A few months later, after House Financial Services Committee chair Barney Frank (D., Mass.) suggested that GSE debt obligations were not backstopped by the federal government, Treasury spokeswoman Meg Reilly affirmed that “there should be no uncertainty about Treasury’s commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market.”

… In December 2008, mortgage-finance consultant Edward Pinto, who served as Fannie’s chief credit officer from 1987 to 1989, told Congress that “Fannie and Freddie went from being the watchdogs of credit standards and thoughtful innovators to the leaders in default-prone loans and poorly designed products. They introduced mortgages which encouraged and extended the housing bubble, trapped millions of people in loans that they knew were unsustainable, and destroyed the equity savings of tens of millions of Americans.”

In a new paper, George Mason University economist Russell Roberts points out that the GSEs bought roughly twice as many home-purchase loans made to below-median-income buyers in 2003 as they had in 1997. It was during this period — from the late 1990s through 2003 — that “Fannie and Freddie played an important role in pushing up the demand for housing at the low end of the market. That in turn made subprime loans increasingly attractive to other financial institutions as the prices of houses rose steadily.” From 2004 to 2006, Roberts adds, commercial and investment banks played a larger direct role in the subprime market than the GSEs did, though Fannie and Freddie were still very active in the mortgage markets in ways that contributed to the subprime problem. In 2006, they bought 390,000 loans with less than 5 percent down, compared with just under 269,000 two years earlier. In 2007, they purchased more than 608,000 such loans.

It’s said that all history occurs twice, first as tragedy and second as farce. That bears repeating with at least one element of the proposed “financial overhaul,” the Dodd-Frank Wall Street Reform Act. That element, writes Eugene White, is the “Financial Crisis Fund,” a fund in which Sens. Dodd and Frank propose strong banks will pony up for a $19 billion “war chest” to be reserved for the next banking crisis, supposedly also aimed to “protect the taxpayers.” Aren’t Misters Dodd and Frank so kind… if only they’d apply that same thinking to the Bush tax cuts scheduled to expire in 2011, creating the single largest tax increase in American history.

The problem facing Dodd and Frank Democrats, says White, is that we tried this before, in 1893, and the same economic arguments that lead to its defeat then have not been solved today.

When [William Jennings] Bryan [(D, Neb)] presented his bill to the House committee, he was met with skepticism from both Democrats and Republicans. One critic, Nils P. Haugen (R., Wis.) quickly pointed out that many recent bank failures were quite large, “and that would be a great draft upon the fund in the case of a failure of two or three large banks,” easily exhausting it.

One of Bryan’s most telling exchanges was with Nicholas N. Cox (D., Tenn.):

Cox: “Now, the fund becomes exhausted and you have to assess another tax to make it good, and then after that is exhausted you have to assess another?”

Bryan: “Yes.”

Cox: “Then how can you arrive at any certainly about [the $10,000,000 figure]? Take this panic on hand now, and six, eight or 10 banks have broken in a technical sense and the depositors closed out, and they want their money, now it does not strike you that you would have to be continually assessing the solvent banks to supply those which have broken?”

Bryan: “A greater [one] than I has said that you can only judge the future by the past, and judging by the past, I do not think the danger of which you speak is a proximate one at all.”

Cox: “If it does not go to that extent, does it not result in the end that the good banks, that the well-managed banks, stand as a guard for the badly managed banks?”

With distaste for taxing safer banks to protect risky ones and distrust about the seemingly modest sum required by Bryan, the committee dismissed the bill. When the next big panic hit in 1907, fewer banks suspended business than in 1893. But as Bryan’s critics had correctly guessed, failing financial institutions were larger and outside the safety net that he had originally proposed. They were trust companies that had engineered their operations around the existing system of state and federal regulations and were now at the epicenter of the crisis. The fund would have been inadequate and perhaps have engendered a complacency that might well have made the 1907 crisis even worse.

Wondering what $10 million meant in 1893? It was 0.065% of GDP in 1893, while $20 billion is 0.132% of 2009 GDP. The ante has been roughly doubled by the Dodd-Frank bill, but the criticism of the bewhiskered men in starched collars is still on the mark.

[WSJ] President Obama hailed the financial bill that House-Senate negotiators finally vouchsafed at 5:40 a.m. Friday, and no wonder. The bill represents the triumph of the very regulators and Congressmen who did so much to foment the financial panic, giving them vast new discretion over every corner of American financial markets.

Chris Dodd and Barney Frank, those Fannie Mae cheerleaders, played the largest role in writing the bill. Congressman Paul Kanjorski even offered a motion to memorialize it as the Dodd-Frank Act. It’s as if Tony Hayward of BP were allowed to write new rules on deep water drilling.

The Federal Reserve, which promoted the housing mania and failed utterly in its core mission of monitoring Citigroup, will now have more power to regulate more financial institutions and more ability to dictate the allocation of credit.

The Treasury, which bailed out institutions willy-nilly without consistent rules, will now lead the Financial Stability Oversight Council that will have the arbitrary power to define which financial companies pose a “systemic risk” and which can be shut down without recourse to bankruptcy. Willy-nilly will now be the law.

And the SEC, which created the credit-ratings oligopoly and missed Bernie Madoff, will get new powers to decide how easy it should be for union pension funds to get their candidates on corporate proxy ballots.

Oh, and Fannie Mae and Freddie Mac? They aren’t touched at all, even as they continue to lose billions of taxpayer dollars each quarter.

In other words, our Washington rulers have taken 2,000 or so pages to double and triple down on the old system that failed.

It gets worse. Not only did the bill not address bank regulations, something our not so watchdog media failed to recognize, it actually added a $19 billion tax to pay for all this new “regulation.” Question for the Obama camp: When you’ve already got 10% unemployment how will raising taxes create incentive for companies to hire more workers? Good luck with that election come November’s stagnant 10% unemployment rate.

And if you think our hyper-regulations already made no sense, check out how the EPA considers spilt milk an “oil spill.” (Thanks to John Stossel for pointing this out):

[ABC's The Note] ABC News’ Rick Klein reports: The chairman of the Obama administration’s Recovery Board is telling lawmakers that he can’t certify jobs data posted at the Recovery.gov Web site — and doesn’t have access to a “master list” of stimulus recipients that have neglected to report data.

Super bang-up job there! Imagine how efficient they’ll be at running health care!

The Washington Examiner is keeping track, complete with a Google Map, of the 700,000 and counting jobs ‘not really created or saved’ by the Stimulus.

Some highlights include:

Stetson University claimed to have created or saved 483 jobs with a grant of only $193,469. (which would mean employees make $400 a year).

A month-long roofing project that received less than $30,000 in stimulus funds and involved six workers was erroneously reported as creating 450 jobs.

Teach for America reported that a $2 million grant created or saved 1,425 jobs. In fact, all of the jobs created were accounted for by another grant.

The California State University system received $268.5 million in stimulus funds and claimed that the money allowed them to save over 26,000 jobs or half its workforce. But when pressed, the California State University system admitted they weren’t really going to lay off half their workforce, and that in fact few or none of these jobs would have been lost without the stimulus. “This is not really a real number of people,” a CSU spokesman said. “It’s like a budget number.”

Gwen Ottinger of the Chemical Heritage Foundation’s Center for Contemporary History and Policy in Philadelphia — and boy is that a mouthful — appears to be one of those rare environmentally conscience persons who also happen to have common sense. “Keep your clunker,” says Gwen, it’s better for the economy and the environment:

First, even when new cars and appliances are more efficient than the ones they replace, the act of replacing them entails environmental costs not accounted for in the stimulus programs. Building a new car, washing machine or refrigerator takes energy and resources: The manufacture of steel, aluminum and plastics are energy-intensive processes, and some of the materials used in durable goods, especially plastics, use non-renewable fossil fuels as feedstocks as well as energy sources. Disposing of old products, a step required by most incentive and rebate programs, also has environmental costs: It takes additional energy to shred and recycle metals; plastic components often cannot be recycled and end up as landfill cover; and the engine fluids, refrigerants and other chemicals essential to operating products end up as hazardous wastes.

Policies that encourage purchases of energy-efficient products may also increase, rather than decrease, energy use by confusing efficiency with consumption. For example, Energy Star refrigerators, which now qualify for rebates in many states, are certified to be 10 to 20 percent more efficient than “standard” models. Yet the Energy Star rating is awarded overwhelmingly to refrigerators far larger than would have been the norm two decades ago, and smaller models of refrigerator, which use less energy simply because they have a smaller volume of air to cool, were not even included in the Energy Star program until 2002. Consumers who wish to benefit from environmentally friendly stimulus money, then, are pushed toward purchasing “efficient” but relatively large models rather than being encouraged to opt for the smallest refrigerator, with the smallest energy demands, that meets their needs.

Beyond these concrete environmental drawbacks, product-replacement policies also send a message that old things are dirty and inefficient, while new ones are necessarily green and efficient. Under the Cash for Clunkers program, for example, old cars must be traded in for new ones. Yet plenty of used cars exceed the required 22 mpg: The Toyota Prius hybrid, on the market since 2001, gets upward of 40 mpg, and even a 15-year-old Honda Civic gets 28. By assuming that only new products can be environmentally friendly, these policies lead us to discount the environmental gains that could be made through well-established and low-tech means, such as smaller refrigerators. They also reinforce the idea that all products, even “durable goods,” quickly become obsolete — a notion that leads to overwhelming amounts of environment-despoiling waste.

All good points, and reminiscent of the 19th century’s “Broken Window” policy, which Frédéric Bastiat debunked in That Which Is Seen and That Which Is Unseen — the boy who breaks the shopkeeper’s window, went the fallacy, is actually helping the economy because the shopkeeper must replace the window, helping out the vendors for that, who in turn spend that profit on other needs, etc.

Bastiat:

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

And so, it is not seen that the now proposed $3 billion dollar program takes from the taxpaying population $3 billion they might have spent on other things. The folly of Keynesian economics continues…

Talk about your self-evident headlines, here’s a doozy from the Washington Post:

For U.S. Autoworkers, Future Hinges on Adaptability

For U.S. autoworkers? Try for everyone. so we are supposed to feel bad for them because they might have to retrain for a new job or technology? Sudden the Cogressionally protected union worker has to deal with “change,” just like the rest of us. Cry me a river. Meanwhile, thanks to their (now taxpayer-funded) UAW deal, these workers get paid $31 an hour when on furlough, and according to the latest news reports, “Those with less than 10 years would get $45,000 and the car voucher to leave the company.” These are the very union deals that ensured the Big Three would fail, while Toyota et. al., need no bailout.

Wouldn’t you like such “adaptability” next time you’re laid off?

Signs of Bizarro World: Using terms like “perverse” and “disingenuous,” Uber-liberal journalist Robert Scheer defends — yes defends — the economic record of Ronald Reagan against accusations from NYT’s uber-liberal Paul Krugman that the former president is most to blame for the credit crisis and mortgage meltdown:

It is disingenuous to ignore the fact that the derivatives scams at the heart of the economic meltdown didn’t exist in President Reagan’s time.

… Ronald Reagan’s signing off on legislation easing mortgage requirements back in 1982 pales in comparison to the damage wrought fifteen years later by a cabal of powerful Democrats and Republicans who enabled the wave of newfangled financial gimmicks that resulted in the economic collapse. Reagan didn’t do it, but Clinton-era Treasury Secretaries Robert Rubin and Lawrence Summers, now a top economic adviser in the Obama White House, did. They, along with then-Fed Chairman Alan Greenspan and Republican congressional leaders James Leach and Phil Gramm, blocked any effective regulation of the over-the-counter derivatives that turned into the toxic assets now being paid for with tax dollars.

Read the rest.