SOUNDING OFF:

Have you heard of the Bush Bailout? You know, the $700-billion appropriation Congress must conjure up to keep Wall Street in business? Well folks, let’s take a short walk through history, and you make up your own mind as to where the blame actually rests.

1) The Community Reinvestment Act was passed to keep banks from declining to provide mortgages and small-business loans to poor and minority neighborhoods.

2) The Clinton administration revised and strengthened this law.

3) In 1999, credit requirements were loosened further. To increase home ownership, the Clinton administration instructed Fannie Mae to ease credit requirements on loans that it would purchase from banks and other lenders.

4) The problem worsened in the wake of 9/11 as the Federal Reserve loosened the money supply to spur the economy.

5) The bubble really expanded in 2005 when the government-sponsored enterprises, Fannie Mae and Freddie Mac, began securitizing subprime and Alt-A mortgages.

6) This came in response to a $10.6-billion accounting scandal in which it became obvious that Fannie and Freddie were artificially inflating profits to qualify their top management for monstrous bonuses. Congress punished the companies by forcing them to become even more active in providing mortgages to low-income people who otherwise would not qualify.

7) In 2005, the Bush administration pushed legislation to rein in Fannie and Freddie by increasing government oversight and putting an upper limit on their growth. All Democrats in Congress voted not to let the bill come to a vote.

8) The subprime, securitized mortgages continued to be packaged and sold as bonds by Fannie and Freddie to banks and investors worldwide.

9) And now, roughly 5% of all outstanding mortgages are in default and another 3-to-5% are iffy. But because there’s no way of determining what percentage of any given mortgage-backed security is bad, and because of the new government-mandated accounting change in the wake of Enron requiring “market to market” asset valuation, banks have to value their portfolios at only what they would bring if sold today. And today there’s no market for these securities. Since no one knows what they’re worth, they’re worth nothing. And since banks must show these paper “losses” as a part of solvency rules, their “regulatory capital” diminishes, reducing their ability to make loans, creating a huge liquidity crisis.

And now, the legislation went down in flames. Democrats blame Republicans for the defeat. And yet, they could have passed the bill without a single Republican vote. Is this the “Bush Bailout?” You decide.

CHUCK CASSITY lives in Costa Mesa.