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Schumer Caused Banking Crisis, Not O.T.S.

Senator Charles Schumer recently triggered a massive bank failure by publicizing a letter claiming IndyMac Bank was on the verge of collapse.  That caused a run on the bank by its panic-stricken depositors.  (Taxpayers may end up paying up to $8 billion to bail out the bank).  He's been criticized for that by many, including the Wall Street Journal.

Schumer is a legendary loudmouth with an ego to match.  But what he really deserves criticism for is for undermining America's banking system as a whole.  He has long blocked reform at the government-sponsored mortgage giant Fannie Mae, a fraud-ridden institution that is now being bailed out at a cost of billions of dollars (and which purchased (and thus created a market for) risky mortgages issued by subprime lenders) .

Equally importantly, he and his liberal colleagues have long pressured banks into making risky loans, leaving them financially unstable when the mortgage crisis arose.  In the name of "affordable housing" and "diversity," banks have long been pressured by legislators and regulators to make risky loans to minority applicants with low credit scores who cannot afford a substantial downpayment.  (Fannie Mae thoroughly adopted this mantra in its own risky business practices, boasting that it was a "leader in diversity" and "affordable housing").

Banks that refuse to make such risky loans can end up facing sanctions under laws like the Community Reinvestment Act, a regulatory nightmare dreamed up by liberal lawmakers.  They also end up being accused of racism and discrimination.  (To avoid being subject to such charges, they sometimes pay off corrupt left-wing groups like ACORN, which promoted practices that helped spawn the mortgage crisis, like "liar loans").

During the housing bubble, liberal lawmakers and activists trumpeted a ridiculous Boston study that claimed that borrowers won't default, even if they lack the savings for a downpayment and have low credit scores, as long as they receive "credit counseling" before receiving the loan.  (That same study faulted lenders that adhere to traditional, responsible lending criteria like requiring high credit scores and substantial downpayments, claiming that masked racial discrimination).

Now, after the housing bubble has collapsed, we see the results of this nonsense, as borrowers with no equity in their homes simply walk away from their mortgages, leaving the lender (and, ultimately, the taxpayer) holding the bag.

Schumer refuses to accept his responsibility for this.  Instead, he blames the Office of Thrift Supervision (O.T.S.), which enforces federal regulations designed to maintain banks' solvency, for the bank's collapse.  But the fault lies with Schumer, not O.T.S.