Progress Illinois

Some conservatives are laying blame for the mortgage crisis in all the wrong places.

Earlier this week, the National Review joined others on the right in in castigating the Community Reinvestment Act, which forced banks to loan in communities of color at the same level as other neighborhoods.

Others, like Chicago radio personality Don Wade, thinks it's the fault of Congress for their lack of oversight. While interviewing Rep. Jan Schakowsky on WLS' Don Wade & Roma In The Morning today, he asked: "But what about the very regulators who were supposed to be manning the gates – the people like [Rep.] Barney Frank [D-MA] and [Sen.] Chris Dodd [D-CT] and all of those people?"  Of course, many overlook that the securitization and selling of the debt got us where we are today, not the mortgage defaults themselves. This practice was made possible by Congress' dismantling of the depression-era Glass-Steagall Act in 1999, which had the effect of handcuffing government regulators whose job it was to prevent such risky financial maneuvers.

Schakowsky reminded the WLS hosts that not everyone in Washington supported that move. Listen below:

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ROMA: You guys were all overseeing all of this. You were supposed to be being sure everyone was on the mark as well. So I think the blame is going to spread both sides of the aisle.  I think it’s going to spread all the way up the tree to the top.  And I think the average citizen who takes out a mortgage in good faith is the one left holding the bag. I feel like I'm on a snipe-hunt.

SCHAKOWSKY: You know … in 1999, there were 57 of us who voted not to do the deregulation of the Gramm-Leach-Bliley bill that actually set the stage for all of this -- the repeal of Glass-Steagall. And you know, and this is the result of that. The Congress has been working all year to try and help homeowners and communities, not just people who got themselves into bad loans, and we did pass some legislation. But the regulation system is completely out of whack.

So how did regulation of the financial industries work before the 1999 bill? Robert Kuttner explains:

The Glass-Steagall wall was devised to prevent a repeat of the 1920s' scams, in which banks made speculative investments, turned the debts into securities, and sold them off to unsuspecting investors with the blessing of the bank. With Glass-Steagall, commercial banks were tightly supervised and given access to federal deposit insurance, to keep savings secure and prevent runs on banks. Investment banks, meanwhile, were not government-guaranteed and were free to do more speculative transactions for consenting adult customers. But Roosevelt's newly created SEC subjected securities markets to much tighter structures against self-dealing and insider conflicts of interest.

As Schakowsky noted, the passage of the Gramm-Leach-Bliley Financial Services Modernization Act, a bill written by one of John McCain's chief economic advisers, eradicated the protections provided by Glass-Steagall.

But 57 House members and eight Senators voted against the measure, a prescient move given the devastation it ultimately wrought. Nine of those "nay" votes in the House came from Illinois' Democratic delegation (including Schakowsky, Bobby Rush, Jesse Jackson Jr., Luis Gutierrez, and Jerry Costello).

To those nine who opposed deregulation, we give a retroactive tip of the hat.