Our Many-Colored Meltdown

(By the way, I also posted over here today.)

The New York Times ran this feature story on Sunday about the role played by former Clinton administration HUD secretary Henry Cisneros in the subprime mortgage debacle.

The article goes into detail about how Cisneros (who left government in 1997 – more on that later) joined the boards of KB Home and Countrywide afterwards and ended up as a major player, taking the lead in the building of the Lago Vista housing development in San Antonio, TX (Cisneros’ hometown), which ended up as a bit of a metaphor for the boom gone bust, since the development has now fallen into disrepair, according to the story, which also tells us…

While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”

They were lured by “unscrupulous participants — bankers, brokers, secondary market people,” he says. “The country is paying for that, and families are hurt because we as a society did not draw a line.”

The causes of the housing implosion are many: lax regulation, financial innovation gone awry, excessive debt, raw greed. The players are also varied: bankers, borrowers, developers, politicians and bureaucrats.

Mr. Cisneros, 61, had a foot in a number of those worlds. Despite his qualms, he encouraged the unprepared to buy homes — part of a broad national trend with dire economic consequences.

See, if I were sourcing Fox or the Murdoch Street Journal here, they wouldn’t mince words; they would just state right out (erroneously, of course) that that dastardly Community Reinvestment Act is the problem (led by Neil Cavuto, who gets appropriately slapped down here in response).

But the Times is a little too elegant for such crudities, I realize, so they will merely say that the problem is that “the unprepared” were allowed to get in on the fun (and really, is it such a big step to say that that’s code for minorities?).

I’ve had problems in the past with John Ridley of HuffPo, but I think his analysis here is spot-on; he wrote a reply of sorts here.

I will admit, though, that there are gray areas all over the place here among all of the players, and I think Cisneros acknowledges that in the story as follows…

Mr. Cisneros, who says he has no recollection that appraisal rules were relaxed when he ran HUD, disputes that notion. “I look back at HUD and feel my hands were clean,” he says.

Though he later points out that…

“The irresistible temptation to engage in subprime was Countrywide’s fatal error,” he says. “I fault myself for not having seen it and, since it was not something I could change, having left.”

However…

“It is inaccurate to say that we put people into homes that they couldn’t afford,” he says. “No one was forcing people into homes.”

And in the interest of fairness, I should present this story dated almost two years ago, in which Countrywide amended its lending practices to minorities so in New York that they complied with the federal Home Mortgage Disclosure Act, to the point where Countrywide was commended by Attorney General Eliot (“Emperor’s Club”) Spitzer.

Now, to the matter of Cisneros’ exit from the Clinton administration in 1997; as this Wikipedia article tells us…

Special Prosecutor David Barrett was appointed in 1995 to investigate the matter of payments Cisneros had made to his former mistress (this was revealed in an FBI background check).

And speaking only for myself, I would add that investigating payments by a government official to a mistress is something I personally don’t care about unless the payments were made with taxpayer funds.

In December 1997, Cisneros was indicted on 18 counts of conspiracy, giving false statements and obstruction of Justice. (Linda) Medlar (the mistress in question) used some of the Cisneros hush money to purchase a house and entered into a bank fraud scheme with her sister and brother-in-law to conceal the source of the money. In January 1998, Medlar pleaded guilty to 28 charges of bank fraud, conspiracy to commit bank fraud and obstruction of justice.

In September 1999, Cisneros negotiated a plea agreement, under which he pleaded guilty to a misdemeanor count of lying to the FBI, and was fined $10,000. He did not receive jail-time or probation. He was pardoned by President Clinton in January 2001.

And that should have been the end of it, my fellow prisoners. But it was not.

Wikipedia continues…

The independent counsel investigation continued after the pardon focusing on alleged obstruction of justice. In May 2005, Senator Dorgan (D-ND) proposed ending funding for the investigation; negotiators refused to include the provision in a bill funding military operations in Afghanistan. The funding at that point for the investigation totaled $21 million.

Barrett’s farce witch hunt waste of taxpayer dollars investigation finally and mercifully ended on January 19, 2006.

And continuing...

Barrett's report was released in January 2006, but three judges -- David Sentelle (D.C.), Thomas Reavley (Texas) and Peter Fay (Florida) -- blacked 120 pages worth of redactions. Barrett's investigation was far and away the longest independent counsel investigation in history. After agreeing to permit Cisneros - the target of his investigation - to plead guilty to a misdemeanor with no jail sentence, Barrett thereafter spent six years investigating whether the Department of Justice and the Internal Revenue Service had impeded his investigation.

Not Ken Starr-level prosecutorial abuse, but close (continuing)...

Despite fervent speculation that the report contained damning evidence about corruption in the Clinton Administration, the report when released demonstrated only the dangers of independent counsels operating without ordinary prosecutorial supervision; indeed Barrett's abuses were routinely cited as one of the reasons the Independent Counsel Act was not renewed. He brought no charges and the report contained no evidence of any conspiracy. Since the release of Barrett's report, no one has paid any attention to it, and the Republican journalists and politicians who made accusatory statements prior to its release were strangely silent afterwards.

Excluding R. Emmett Tyrrell, Bob Novak and the late Tony Snow, who were some of the leading conservative loudmouths who cried foul, with Snow even claiming that Barrett’s report “would make the Valerie Plame affair vanish into comical insignificance."

Uh huh.

Again, I know there are gray areas here, but I honestly believe that Cisneros set out to first and foremost to make home ownership a reality for those who thought it wasn’t possible. And sure, he lined his pocket in the process, but I see no evidence of illegality on his part as he did so.

Our economy will eventually be righted, though God knows how long that will take. And when that happens (led by a stabilized housing market with homes comprising realistic levels of financial equity), I sincerely hope Cisneros is on hand to help “the prepared,” if you will, to realize their dreams once more.