General Assembly members offer their takes on the bailout failure

While Congress debates whether to bail out Wall Street, two Rockingham County members of the General Assembly gave their views on what caused the economic collapse.

"There's plenty of blame to go around," said State Sen. Phil Berger, a Republican who represents Rockingham and Guilford counties.

Berger points his finger mostly at congressional Democrats, especially U.S. Rep. Barney Frank of Massachusetts and Sen. Chris Dodd of Connecticut, for blocking President Bush's efforts in 2003 to bring stronger oversight of mortgage buyers Fannie Mae and Freddie Mac.

The U.S. House rejected a $700 billion bailout plan Monday to buy bad debt connected to mortgage securities.

In the 1990s, President Bill Clinton pushed the Community Reinvestment Act, and mortgage buyers lowered qualifications for applicants so more people could own homes. That led to 100-percent loans with no down payment for financially under-qualified people unable to pay them off, Berger said.

State Rep. Nelson Cole, a Democrat representing most of Rockingham County, says it's only natural for renters to move up when given an opportunity to own a home. Many borrowers, who fell victim to unscrupulous lenders pushing subprime mortgages, were unaware of the long-term consequences, Cole said.

"The main problem is summed up in a five-letter word called greed," Cole said.

Loans included payment plans in which borrowers paid the first three years of a mortgage toward interest alone, only to have monthly payments balloon at the end of the three-year period in order to eat into the principal, Cole said.

Those loans were issued assuming the borrowers' salaries and real-estate values would increase, he said.

"It's a false economy," Cole said.

For Berger, too much government interference, in the form of pushing mortgage lenders to ease lending standards, caused the problem. Aiming for home ownership is "a laudable goal," but government should stay out of the matter, Berger said.

"I don't think government has an obligation or function to provide a home for everybody," he said.

Berger also blamed the Bush Administration for not pushing aggressively enough for more oversight of Fannie Mae and Freddie Mac and tightening of lending standards.

Regarding the bailout proposal, constituents are worried their taxes will go up to pay for it, Berger said. They're also concerned about their access to credit, he said. In addition, they're angry that executives at sinking financial institutions are getting hefty bonuses "for driving the buses off the cliff," he said.

However, limiting executive pay is not the answer, Berger said.

"I don't think capping executive compensation will solve this problem," he said.

An executive-pay ceiling would lead to lower-qualified applicants filling those positions, Berger said.

Cole says a stronger government role, including a cap for salaries of chief executive officers, would help solve the problem. Also, CEOs should be made to document and justify their bonuses and incentives, Cole said.

Cole said he would have voted against the bailout plan and said any proposal would have to include several conditions. Besides CEO pay caps, the bailout would need to include protection for taxpayers or "sufficient safeguards for citizens" guaranteeing if they share in the risk, they share in the profits, he said.

Another problem is politicians passing legislation benefiting their corporate donors and lobbyists, Cole said.

"I don't blame it on the parties," Coles said of the financial crisis. "I blame it on the system."

• Contact staff writer John R. Crane at jcrane@registerbee.com or (434) 791-7987.