By Fr. George Welzbacher
October 19, 2008
We have all heard the proverb: "From lowly acorns mighty oak trees grow. " Well, from something called ACORN a mighty disaster has grown, "branching out" across the globe. I am referring to the disaster with which our economy is currently beset, a disaster for which Congress cannot dodge the blame, because it was Congress that arm-twisted Fannie Mae and Freddie Mac into a policy of encouraging banks and other lenders to grant HUNDREDS OF BILLIONS OF DOLLARS IN HIGH-RISK LOANS TO VERY LOW-INCOME BORROWERS, borrowers to whom, given their credit history, the extension of such credit was insane. After relunctantly succumbing to prolonged and intense Congressional pressure Fannie and Freddie ventured down a new path, that of promising lenders that the HIGH-risk mortgages these lenders had aquired would either be bought by Fannie and Freddie or would at least be covered by them if the borrowers defaulted. To an intelligent observer the question will occur: Just why was Congress so relentless in urging Freddie and Fannie to a course of action so fraught with danger? And that is where ACORN enters the picture. ACORN is the acronym for the ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR REFORM NOW, an amalgamation of left-wing groups whose headquarters is located in New Orleans but one of whose most active centers for many years has been Chicago, notable for its abundance of community organizers of a deeply radical political persuasion. ACORN 's basic goal is the redistribution of wealth, the transfer of large sums from our richest citizens, from leading corporations and from the U.S. Government to the urban poor. To achieve this goal, a policy was employed involving militant confrontation in the streets of our cities and in the headquarters of corporations, in banks and even on the front yard lawns of the homes of the wealthy, supplemented by the hiring of sophisticated lobbyists who would effectively roam the halls of government in ACORN's interests. ACORN's "guiding light" is the ideology of Saul Alinsky, now deceased, a Marxist exponent of class warfare who actually dedicated his manual of tactics for "Community organizers", a.k.a. promoters of social agitation, to Lucifer as the archetypal rebel. (I kid you not: there the dedication stands in black and white in many of the book's earlier editions).
Rather surprisingly in view of its goals ACORN has been successful in securing substantial funding both from the government and from philanthropic foundations like the Woods Fund and the Chicago Annenberg Challenge.
Until recently little known to the general public, ACORN has lately gained notoriety from the fact that many of its members and volunteer workers in at least a dozen states are under intensive investigation by the FBI by reason of well-founded suspicion of massive fraud throughout its voter registration drives. To cite a picaresque example, one young man in Cleveland's inner city recently owned up to signing, at the urging of ACORN volunteers, 73 different voter registration forms. (Local ACORN representatives claim the number was only 15, but the young man stands by his guns). In its present campaign ACORN claims to have registered 1.3 million NEW voters, and indications of fraud have already come to light on so immense a scale that election officials in swing states like Pennsylvania and Ohio are wondering out loud if the damage already done to the integrity of official voter registration lists has not made an honest count impossible on Election Day. At a press conference held on October tenth at Harrisburg, Pennsylvania's capital, Sandra Newman, a former Supreme Court Justice, declared that she was "not confident we can get a fair election."
But the most clearly measurable damage inflicted by ACORN is the damage done to our economy. How so? Through clever manipulation of government- a.k.a., recruiting to ACORN'S cause sympathic members of Congress-and through storm-trooper direct confrontation, ACORN has worked effectively over the years to induce banks and financial institutions to drop ever lower and lower their standards for the granting of high-risk loans. ACORN has succeeded in that endeavour beyond its wildest dreams. Already in the mid-1990's it secured a commitment from the federal government to expend by the year 2010 a TRILLION DOLLARS towards the funding of such loans.
The bulk of that money has now "gone south big time", thereby having brought our banking system to its knees.
But please don't take my word for it. May I offer a thoughtful analysis of ACORN's involvement in this whole catastrophe from the pen (or the laptop) of the highly respected investigative reporter Stanley Kurtz. Mr. Kurtz also serves as a contributing editor for National Review on Line. His article was posted on October 7th.
* * * * *
Planting Seeds of Disaster
By Stanley Kurtz
[Emphasis has (obviously) been added]
"You've got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don't despair: YOU CAN STILL BUYA HOUSE." So began an April 1995 article in the Chicago Sun-Times that went on to direct prospective home- buyers fitting this profile to a group of far-left "community organizers " called ACORN. [ACORN stands for : Association of Community Organizations for Reform Now]. In retrospect, of course, encouraging customers like this to buy homes seems little short of MADNESS....
That same year ... a director [not back then nearly as well known as now]... at Chicago's Woods Fund was successfully pushing for a major expansion of assistance to ACORN, and sending still more money ACORN'S way from his post ... on the Chicago Annenberg Challenge. Through both funding and personal-leadership training ... he supported ACORN. And ACORN, far more than we've recognized up to now, had a MAJOR role in PRECIPITATING the subprime crisis....
....ACORN'S campaign [was designed to] INTIMIDATE banks into making HIGH- risk loans to LOW-credit customers. Using provisions of a 1977 law called the Community Reinvestment Act (CRA), Chicago ACORN was able to delay and halt the efforts of banks to merge or expand UNTIL they had agreed to LOWER their credit standards-and to fill ACORN'S coffers to finance "counseling" operations like the one touted in that Sun-Times article. This much we've known. Yet these local, CRA- based pressure-campaigns fit into a broader, more disturbing, and still under-appreciated NATIONAL picture. Far more than we've recognized, ACORN'S local, CRA-enabled pressure tactics served to entangle the financial system AS A WHOLE in the subprime mess. ACORN was no side-show. On the contrary, using CRA and ties to sympathetic [members of Congress], ACORN succeeded in drawing Fannie Mae and Freddie Mae into the very POLICIES that led to the current DISASTER.
In one of the first book-length scholarly studies of ACORN, Organizing Urban America, Rutgers University political scientist Heidi Swarts describes this group ... as "oppositional outlaws." Swarts, a strong supporter of ACORN, has no qualms about stating that its members think of themselves as "militants unafraid to confront the powers that be." "This identity as a uniquely militant organization," says Swarts, "is reinforced by contentious ACTION." ACORN protesters will break into private offices, show up at a banker's home to intimidate his family, or pour protesters into bank lobbies to scare away customers, all in an effort to force a LOWERING of credit standards for poor and minority customers. According to Swarts, long-term ACORN organizers "tend to see the organization as a solitary vanguard of principled leftists ... the only truly radical community organization."
Yet ACORN's entirely deserved reputation for militance is balanced by its less-well- known "INSIDE strategy. " ACORN has long employed Washington-based LOBBYISTS who understand very well how the legislative game is played. ACORN's national LOBBYISTS may encourage (and benefit from) the MILITANT tactics of their base, but in the halls of Congress they play the game with smooth sophistication. The untold story of ACORN's CENTRAL ROLE IN THE FINANCL4L MELTDOWN is about the ONE-TWO PUNCH TO THE BANKING SYSTEM administered by this OUTSIDE/INSIDE STRTEG Y.
Critics of the notion that CRA [the Community Reinvestment Act] had a major impact on the subprime crisis ask how a law passed in 1977 could have caused a crisis in 2008? The answer has a lot to do with ACORN--and the critical years of 1990-1995. While the 1977 Community Reinvestment Act did call on banks to increase lending in poor and minority neighborhoods, its exact requirements were VAGUE, and therefore open to a good deal of regulatory INTERPRETATION. Bank mergers or expansion plans were rarely held up under CRA until the late 1980's when ACORN perfected its technique of filing CRA complaints in tandem with the sort of intimidation tactics perfected by that original "communityorganizer"....Saul Atinsky.
At first, ACORN's anti-bank actions were relatively few in number. However, under a provision of the 1989 savings and loan bailout pushed by liberal... legislators, like Massachusetts Congressman Joseph P. Kennedy, lenders were required to compile public records of mortgage applicants by race, gender, and income. Although the statistics produced by these studies were presented in highly misleading ways, groups like ACORN were able to use them to embarrass banks into LOWERING credit standards. At the same time, a wave of banking mergers in the early 1990's provided an opening for ACORN to use CRA to FORCE lending changes. Any merger could be BLOCKED under CRA, and once ACORN began systematically filing protests over minority lending, a formerly toothless set of regulations began to bite.
ACORN's efforts to undermine credit standards in the late 1980's taught it a valuable lesson. However much pressure ACORN put on [LOCAL] banks to lower credit standards, tough requirements in the "SECONDARY market" run by Fannie Mae and Freddie Mac served as a BARRIER to change. Fannie Mae and Freddie Mac buy up mortgages en masse, bundle them, and sell them to investors on the world market. Back then Fannie and Freddie REFUSED to buy loans that FAILED to meet HIGH credit standards. If, for example, a local bank buckled to ACORN pressure and agreed to offer poor or minority applicants a 5-percent down-payment rate, instead of the normal 10-20 percent, Fannie and Freddie would refuse to buy up those mortgages. That would leave all the risk of these shaky loans with the LOCAL bank. So again and again, local banks would tell ACORN that, because of standards imposed by Fannie and Freddie, they could lower their credit standards by only a little.
So the eighties taught ACORN that a high-pressure, Alinskyite OUTSIDE strategy wouldn't be enough. Their Washington lobbyists would have to bring INSIDE pressure ON THE GOVERNMENT to UNDERCUT credit standards at Fannie Mae and Freddie Mac. Only THEN would LOCAL banks consider making loans available to customers with BAD credit histories, low wages, virtually nothing in the bank, and even bankruptcies on record.
As early as 1987, ACORN began pressuring Fannie and Freddie to review their standards, with modest results. By 1989, ACORN had lured Fannie Mae into the first of many "pilot projects" designed to help local banks lower credit standards. But it was all small potatoes UNTIL THE SERIOUS PRESSURE BEGAN IN EARLY 1991. At that point, Democratic Senator Allan Dixon [from Illinois] convened a Senate subcommittee hearing at which an ACORN representative gave KEY testimony.....
Dixon gave credibility to ACORN's accusations of loan bias, although these claims of racism were disputed by Christopher Bond, Missouri Republican. ACORN's spokesman strenuously complained that his organization's efforts to relax local credit standards were being blocked by requirements set by the secondary market. [Senator] Dixon responded by pressing Fannie and Freddie to do more to RELAX those standards-and by promising to introduce legislation that would ENSURE it. At this early stage, Fannie and Freddie walked a fine line between promising to do more, while protesting any wholesale reduction of credit requirements.
By July of 1991, ACORN's legislative campaign began to bear fruit. As the Chicago Tribune put it, "housing activists have been pushing hard to improve housing for the poor by extracting greater financial support from the country's two highly profitable secondary mortgage-market companies. Thanks to the help of sympathetic lawmakers, it appeared ... that they may succeed." The Tribune went on to explain that House Democrat Henry Gonzales had announced that Fannie and Freddie had agreed to commit $3.5 billion to low-income housing in 1992 and 1993, in addition to a just-announced $10 billion "affordable housing loan program" by Fannie Mae. The article emphasizes ACORN PRESSURE and notes that Fannie and Freddie had been fighting AGAINST the plan as recently as a week before agreement was reached. Fannie and Freddie gave in ONLY to stave off EVEN MORE restrictive legislation floated by [ACORN-friendly members of Congress].
A mere month later, ACORN Housing Corporation president George Butts made news by complaining to a House Banking subcommittee that ACORN's efforts to pressure banks using CRA were still being hamstrung by Fannie and Freddie. Butts also demanded still more data on the race, gender, and income of loan applicants. Many news reports over the ensuing months point to ACORN as the KEY source of pressure on Congress for a FURTHER REDUCTION of credit standards at Fannie Mae and Freddie Mac. As a result of this pressure, ACORN was eventually permitted to REDRAFT many of Fannie Mae and Freddie Maes loan GUIDELINES....
Whatever ACORN managed to squeeze out of the George H. Bush administration came under Congressional pressure. With the advent of the Clinton administration, however, ACORN's fortunes took a positive turn. Clinton Housing Secretary Henry Cisnersos pledged to meet monthly with ACORN representatives. For ACORN those meetings bore fruit.
Another factor working in ACORN's favor was that its increasing success with local banks turned those banks into allies in the battle with Fannie and Freddie. Precisely because ACORN's local pressure tactics were working, banks themselves now wanted Fannie and Freddie to LOOSEN their standards still further, so as to buy up still MORE of the high-risk loans they'd made at ACORN's insistence. So by l993, a grand alliance of ACORN, [sympathetic] members of Congress, and local bankers, looking for someone to lessen the risks imposed on them by CRA and ACORN, were uniting to pressure Fannie and Freddie to loosen credit standards still further.
At this point, both ACORN and the Clinton administration were working together to impose large numerical targets or "set asides" (really a sort o fpoor and minority loan quota system) on Fannie and Freddie. ACORN CALLED FOR AT LEAST HALF OF FANNIE AND FREDDIE LOANS TO GO TO LOW-INCOME CUSTOMERS. At first the Clinton administration offered a set-aside of 30 percent. But eventually ACORN got what it wanted. In early 1994, the Clinton administration floated plans for committing ONE TRILLION DOLLARS in loans to LOW- and moderate-income home-buyers, which would amount to about HALF of Fannie Mae's business by the end of the decade. Wall Street analysts attributed Fannie Mae's willingness to go along with the change to the need to protect itself against still more severe "Congressional attack." News reports also highlighted praise for the change from ACORN's head lobbyist, Deepak Bhargava.
THIS SWEEPING DEBASEMENT OF CREDIT STANDARDS was touted by Fannie Mae's chairman, chief executive officer (and now prominent Obama adviser) James A. Johnson. This is also the period when Fannie Mae ramped up its pilot programs and local partnerships with ACORN, all of which became precedents and models for the pattern of RISKY subprime mortgages at the ROOT of today's crisis.
Finally in June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced the administration's comprehensive new strategy for RAISING home-ownership in America to an all-time high. REPRESENTATIVES FROM ACORN WERE GUESTS OF HONOR at the ceremony. In his remarks, Clinton emphasized that. "Our homeownership strategy WILL NOT COST THE TAXPAYER ONE EXTRA CENT. It will not require legislation. " Clinton meant that INFORMAL partnerships between Fannie and Freddie and groups like ACORN would make mortgages available to customers "who have historically been EXCLUDED from homeownership."
In the end of course [this] plan cost taxpayers AN ALMOST UNIMAGINABLE AMOUNT OF MONEY. And it was just around the time of [this] 1995 announcement that the Chicago papers started encouraging BAD-credit customers with "dog-food" wages, little money in the bank, and even histories of bankruptcy to apply for home loans with the help of ACORN. At both the local and national levels, then, ACORN served as THE CRITICAL CATALYST, levering PRESSURE created by the Community Reinvestment Act and PULL with ....[sympathetic] politicians to FORCE Fannie Mae and Freddie Mac into a pattern of HIGH-RISK LOANS.
Up to now, conventional wisdom on the financial meltdown has relegated ACORN and the CRA to bit parts. The real problem, we've been told, lay with Fannie Mae and Freddie Mac. In fact, however, ACORN is at the BASE o the whole mess. ACORN used CRA and [Congressional] sympathizers to entangle Fannie and Freddie and the entire financial system in a disastrous disregard of the MOST BASIC financial standards...
* * * * *Stanley Kurtz is a senior fellow at the Ethics and Public Policy Institute.