By
• PHIL GRAMM
• AND MIKE SOLONMr. Gramm, a former Republican chairman of the Senate Banking Committee, is senior partner of US Policy Metrics and a visiting scholar at the American Enterprise Institute. Mr. Solon, a former economic policy adviser to Senate Republican leader Mitch McConnell, is a partner at US Policy Metrics.

EXCERPT FROM THIS ARTICLE:  Effective in January 1993, the 1992 housing bill required Fannie and Freddie to make 30% of their mortgage purchases affordable-housing loans. The quota was raised to 40% in 1996, 42% in 1997, and in 2000 the Department of Housing and Urban Development ordered the quota raised to 50%. The Bush administration continued to raise the affordable-housing goals. Freddie and Fannie dutifully met those goals each and every year until the subprime crisis erupted. By 2008, when both government-sponsored enterprises collapsed, the quota had reached 56%. An internal Fannie document made public after the financial crisis (“HUD Housing Goals,” March 2003) clearly shows that by 2002 Fannie officials knew perfectly well that these quotas were promoting irresponsible policy: “The challenge freaked out the business side of the house [Fannie] . . . the tenseness around meeting the goals meant that we . . . did deals at risks and prices we would not have otherwise done.”
The mortgage market shows the dramatic results of this shift in policy. According to the nonprofit National Community Reinvestment Coalition, total CRA lending rose to $4.5 trillion in 2007 from $8 billion in 1991. The American Enterprise Institute’s Ed Pinto found that in 1990 80% of the residential mortgage loans acquired by Fannie and Freddie were solid prime loans with healthy down payments and a well-documented capacity by borrowers to make mortgage payments. By 1999 only 45% of their acquisitions met this standard. That number fell to 15% by 2007. By 2008, roughly half of all outstanding mortgages in America were high-risk loans. In 1990, very few subprime loans were securitized. By 2007 almost all of them were.

Simply put, the financial crisis of 2008 was caused by a lot of banks making a lot of loans to a lot of people who either could not or would not pay the money back. But this explanation raises two key questions. Why did private lenders, whose job it was to assess credit risk, make those loans? And why did the army of financial regulators, with massive enforcement powers, allow 28 million high-risk loans to be made?

There’s a strong case that the answers can be traced to Sept. 12, 1992. On that day presidential candidate Bill Clinton proposed, in his campaign book “Putting People First,” using private pension funds to “invest” in government priorities, such as affordable housing, to “generate long-term, broad based economic benefits.” Seldom has such a radical proposal been so ignored during a campaign only to later lead to such devastating consequences. After his election, President Clinton tapped Labor Secretary Robert Reich to lead the effort to extract, as Mr. Reich put it in 1994 congressional testimony, “social, ancillary, economic benefits” from private pension investments. Mr. Reich called on pension funds to join the administration’s “Economically Targeted Investment” effort. Housing and Urban Development Secretary Henry Cisneros assured participants that “pension investments in affordable housing are as safe as pension investments in stocks and bonds.”

(more…)

By R. JAMES WOOLSEY And PETER VINCENT PRY

Mr. Woolsey, a former CIA director, is chairman of the Foundation for Defense of Democracies and a venture partner with Lux Capital. Mr. Pry is executive director of the Task Force on National and Homeland Security and served on the congressional EMP commission.

EXCERPT FROM THIS ARTICLE:  An EMP attack would collapse the electric grid and other infrastructure that depends on it—communications, transportation, banking and finance, food and water—necessary to sustain modern civilization and the lives of 300 million Americans.

EMP effects can be made more powerful and more catastrophic by using an Enhanced Radiation Warhead. This is a low-yield nuclear weapon designed not to create a devastating explosion, but to emit large amounts of radiation, including the gamma rays that generate the EMP effect that fries electronics.

Over the past three days, North Korea has launched six short-range guided missiles or projectiles in tests that landed in the Sea of Japan. The launches were of a piece with Pyongyang’s springtime custom of muscle-flexing, undertaken to extract concessions from the West in exchange for stopping the provocations. The Obama administration would do well to ignore these minor fireworks and focus on the much greater threat of a long-range North Korean missile carrying a nuclear warhead.

So far President Obama has seemed content to parry North Korea’s thrusts, much as his White House predecessor did. The George W. Bush administration did not distinguish itself in recognizing, or acting on, the danger from North Korea. Last month, in a worrying sign of similar detachment, Mr. Obama essentially dismissed the Defense Intelligence Agency conclusion that North Korea has probably been able to fit a nuclear warhead on a missile. He certainly did not suggest that he would consider a pre-emptive strike to halt the North Korean nuclear program.

The president may want to rethink that position.

Much has happened since 2006, when former Secretary of Defense William Perry and now-Deputy Secretary of Defense Ashton Carter urged President Bush to pre-emptively destroy North Korea’s long-range Taepodong 2 missile on its launch pad in a surgical strike with conventional weapons. Writing in the Washington Post, they advocated drawing “a line in the sand” against North Korea’s test of a missile designed to deliver nuclear weapons against the United States. (more…)