Investor’s Business Daily reports that Alan Greenspan “gets it” – which should not come as a surprise considering he was Chairman of the Federal Reserve for nearly 20 years – and recaps what happened that made America and the world poorer.

Testifying before the Financial Crisis Inquiry Commission, the former Fed chairman told some plain truths he didn’t dare utter when he headed the central bank. Most notably, Greenspan implied it was Congress’ meddling incompetence — not the Fed, or free markets, or greedy bankers — that created the financial meltdown. …

It wasn’t the Fed that caused the housing crash and financial meltdown. It was Congress and the White House.

The mess began in the 1970s when, during the Carter administration, left-wing activists attacked banks for supposed “redlining” practices that let them discriminate in making home loans.

In response, Congress passed the Community Reinvestment Act, which gave regulators the power to force banks to lend money to “low-income, minority, and distressed neighborhoods.”

To fund all this new lending, they used two little-known government-sponsored enterprises — Fannie Mae and Freddie Mac — and essentially rewrote credit standards for the banks, weakening them substantially. Banks made loans, then Fannie and Freddie bought them — using borrowed money to do it.

In this environment, credit ratings no longer mattered much. Neither did having a job or a steady income. What mattered was race.

The process got supercharged in 1992, when a Democrat-led Congress pushed Fannie and Freddie to buy even more mortgages from banks that had made loans to low-income and minority buyers. In 1996, President Clinton’s Department of Housing and Urban Development told Fannie and Freddie that 42% of their financing had to go to those with incomes below the median.

By 2000, HUD [Department of Housing and Urban Development] Secretary Andrew Cuomo proudly unveiled “new regulations” to “provide $2.4 trillion in mortgages for affordable housing for 28.1 million families.” Despite subsequent efforts at reform, Democrats in Congress — led by Sen. Chris Dodd and Rep. Barney Frank — rejected major changes to Fannie and Freddie.

We’re still paying for that today. Fannie and Freddie have gotten a blank check from the government for their losses, and still owe more than $5 trillion that they can’t pay off.

We’ve been critical of Greenspan in the past, but on this, he’s completely right. The biggest villain in the whole financial meltdown isn’t the “private sector,” as some in Congress — like Rep. Frank — have tried to claim. It’s Congress itself.

Shouldn’t those responsible, notably Chris Dodd and Barney Frank, be made to answer for the world-size wreck? What they’ve done to the economy makes Bernie Madoff’s crooked scheme look paltry.

If it’s not to find who is guilty, so that the culprits may be consigned to their just deserts, what is a Financial Crisis Inquiry Commission for?

From Power Line:

One would think that at least two lessons would have been learned from the financial crisis: stop pushing loans to people who cannot or will not pay them back and stop offering loans with “flexible underwriting criteria.” Not so. The Obama administration and Democrats in Congress are pushing their most audacious plan yet expanding the Community Reinvestment Act (CRA) which helped spark the crisis in the first place. …

Read it all here.