Barney Frank’s latest defense of Congress over the financial meltdown could be predicted based on the success of Barack Obama’s campaign in using the same defense.  According to Rep. Frank, any attempt to pin the blame for the collapse of Fannie Mae and Freddie Mac on the activities of both, as well as Congressional policy that fueled it, is now officially racist.  Frank says conservatives want to blame minorities for the collapse:

Frank charged that conservatives aim to shift blame for the market meltdown away from Wall Street and toward minority-lending laws like the federal Community Reinvestment Act.

“The bizarre notion that the Community Reinvestment Act . . . somehow is the cause of the whole problem, (conservatives) don’t mind that,” the lawmaker said. “They’re aware that the affordable-housing goals of Fannie Mae and Freddie Mac (and) the Community Reinvestment Act (aim to help) poor people. And let’s be honest, the fact that some poor people are black doesn’t hurt either from their standpoint.”

Let’s keep score.  Criticizing Obama means we’re racists.  Criticizing Congress means we’re racists.  Getting angry at Congress for pushing Fannie Mae and Freddie Mac into buying bad loans and infecting the entire financial system with essentially fraudulent paper — at a cost of up to $700 billion in taxpayer money and potentially trillions in lost investments — means we’re racists.

The CRA was only a small part of the cause of the collapse.  It affected loans only at the margins.  The Clinton administration opted for more aggressive enforcement, and “community organizers” like ACORN used that to file nuisance complaints that could keep banks from merging and acquiring other banks.  That may have pushed lenders into lowering standards on a handful of loans, but only to enough of an extent to avoid government sanctions.

In that sense, the CRA is a bit of a red herring.  The real cause of the collapse was the Congressional push for Fannie and Freddie to support subprime lending by purchasing the paper from lenders, which is related to the same policies that generated the CRA but isn’t the CRA itself.  Lenders make money one of two ways: keeping the paper themselves and getting the interest over the term of the loan, or selling the paper to someone else for a guaranteed short-term profit.  When Fannie and Freddie began buying all of this paper, they created a huge demand for subprime loans — and lenders responded by offering easy money to almost anyone who applied.  They threw out income requirements and equity thresholds (such as down payments) and generated tremendous short-term profits for themselves … while Fannie and Freddie assumed all the long-term risk.

Had the risk remained at Fannie and Freddie, the problem would never have gone beyond their collapse.  Unfortunately, Congress also pushed the GSEs to securitize the debt in order to spread the risk.  Investors considered those mortgage-backed securities a safe bet, backed by the US government.  That’s the direct cause of the financial collapse, along with the collapse of housing prices that resulted from the sudden deflation of demand.

Congress — and specifically Frank himself — had plenty of warning that this would happen.  The anger generated from that information has nothing to do with racism, and everything to do with the breach of trust between Congress and its constituents.  Frank, Chris Dodd, and others like Lacy Clay and Maxine Waters tried the racist meme out on regulators who tried to warn Congress of the pending collapse.  They have to smear their critics.  They certainly can’t admit that Congress failed spectacularly.   Racism is the last refuge of scoundrels in 2008, and not surprisingly, we find most of those scoundrels in the Democratic Party.