Bachmann blames "overweening" government regulation for banking crisis

WASHINGTON - As anger at Wall Street goes global, Republican presidential candidate Michele Bachmann is fixing the blame on "overweening" government regulation, not reckless financial speculation by banks.

Advancing a hotly contested theory that zeroes in on legislation meant to prevent discrimination in lending, Bachmann is challenging the affordable housing policies that for decades helped increase credit to minorities and brought homeownership to historic highs.

In a recent series of campaign forums, including a national teleconference with business leaders on Wednesday, Bachmann has emerged as a leading antagonist of the Occupy Wall Street movement, thrusting her into a growing national debate over banking and market policies that represent an important subtext of the 2012 election.

Bachmann's free-market critique provides a classic illustration of how the Minnesota Republican, while lagging in the polls, has deepened her appeal among hard-core conservatives by traversing some of the nation's most divisive cultural flashpoints.

Taking aim at government housing policies for the poor, Bachmann argued this week that "the federal government demanded politically correct loans be made by banks, and they demanded that the lending standards be lowered so that people who lacked credit-worthiness were given loans by banks, not necessarily because the banks wanted to give those loans."

Bachmann has also gone after the landmark Community Reinvestment Act, a 1977 law that encourages banks to loan in low- and moderate-income communities that historically had been "red-lined" out of access to credit.

'Out of whack'

"The law doesn't require lenders to make risky loans," said Ed Goetz, director of the Center for Urban and Regional Affairs at the University of Minnesota. "The housing crisis was fueled by subprime lending and a lending market that was out of whack."

Bachmann's criticism of the lending law, Goetz noted, fails to account for the 25-year gap between its passage and the peak of the housing crisis, or for the record foreclosures in parts of the country far from inner cities.

Foreclosure studies done by Housing Link, a Minneapolis-based housing nonprofit, show that the bulk of foreclosures in Minnesota are concentrated not only in Minneapolis, but in the northern suburbs that make up the heart of Bachmann's congressional district.

U.S. Rep. Keith Ellison, a Democrat whose district includes Minneapolis, said Bachmann and other critics are mislaying blame. "What they're trying to do is pin it on policies that opened up opportunities for workers and middle class people, including minorities," he said.

Peter Bell, a TCF Bank board member and senior fellow at the Center of the American Experiment, a Minneapolis conservative think tank, said that "regulators, I think it's fair to say, put pressure on banks to provide a wide range of affordable lending products that led to the problem."

The debate comes as liberals and conservatives are slugging out the role of Fannie Mae and Freddie Mac, the government-sponsored mortgage giants that largely were left out of the Wall Street reforms passed in the wake of the housing crisis.

Bachmann and other small-government conservatives say the wave of toxic loans underlying the crash is linked to government dictates that required Fannie and Freddie to meet quotas for low-income borrowers, triggering a decline in underwriting standards.

Democrats counter that while Fannie and Freddie were forced into high-risk, mortgage-backed securities to compete, they did not drive the surge in buying during the frothy days of the housing market. That also was the majority finding of the bipartisan Financial Crisis Inquiry Commission.

The commission, appointed by Congress, reported in January that Fannie and Freddie "followed rather than led Wall Street and other lenders in the rush for fool's gold."

Over the years, expanded homeownership has been a largely bipartisan goal, with former President George W. Bush promoting it as a key element of his vision for an "ownership society."

Now, as aftermath of the crash becomes a central fault line in the 2012 elections, voters will have their pick of villains.

"Regarding the housing meltdown," Bell said, "no one's hands are clean."