The Democrats try to keep the conversation away from this fact that it was their "good intentions" that caused the economic collapse we've experienced in 2008. But facts are facts and here are some of them.The Overview
The financial collapse which led to our present enervating recession was the housing collapse and bank failures. Toxic mortgages, foreclosure crisis, Mr. Fix-It bailouts -- the entire sorry tale is one of Democrat failures.
It starts with Jimmy Carter and his COMMUNITY REINVESTMENT ACT, by which the heavy hand of government "encouraged" banks to loan to marginal borrowers.
That push was ramped up under Bill Clinton. Clinton's HUD Secretary, Andrew Cuomo who created regulations which FORCED THE GOVERNMENT-SPONSORED MORTGAGE ENTITIES FANNIE MAE AND FREDDIE MAC TO STEP UP LOANS TO MINORITIES.
Clinton's Treasury Secretary was Democrat Robert Rubin, aided by Democrat Lawrence Summers, now on the Obama economic team. Rubin and Summers honchoed the effort to REPEAL THE DEPRESSION ERA GLASS-STEAGALL ACT, allowing investment banks to use federally insured depositor cash to back millions of mortgages while easing underwriting standards at the same time. No money down? No problem.
In addition, Rubin pushed through the COMMODITY FUTURES MODERNIZATION ACT, which allowed the creation of mortgage-backed securities. Liar loans packaged as investments and sold to pension funds.
Democrats in the NEW YORK STATE INSURANCE REGULATORS ALLOWED AIG TO INSURE MORTGAGE-BACKED SECURITIES with an invention known as the Credit Default Swap.
Democrats blocked reform of Fannie and Freddie. In 2003 when Republicans ran D.C. they pushed for HR2575 -- the SECONDARY MORTGAGE MARKET INTERPRISES REGULATORY IMPROVEMENT ACT, which would have strengthened an independent regulator for the government-backed mortgage giants Fannie and Freddie.
The Democrats used cloture rules to keep the act from moving to a vote in the Republican-controlled Senate.
When the Democrats came back in control in 2006 eighteen attempts by George W. Bush and John McCain to prod the Democrat-controlled Congress to exert control over Fannie and Freddie were rejected summarily by Democrats.
Quotes by Democrats about Fannie and Freddie
Quotes by Democrats about Fannie and Freddie
· "I don't think we face a crisis, I don't think that we have an impending disaster... Fannie Mae and Freddie Mac do very good work and THEY ARE NOT ENDANGERING THE FISCAL HEALTH OF THIS COUNTRY." Barney Frank
"THESE GSE'S HAVE MORE THAN ADEQUATE CAPITAL FOR THE BUSINESS THEY ARE IN: providing affordable housing... We should not be making radical or fundamental change. If there is anything to fix or improve, it is the (regulators)." Maxine Waters
"I am just pissed off at (the regulators) because if it wasn't for you I don't think that we would be here in the first place." "I think there HAS BEEN NOTHING THAT WAS INDICATED IS WRONG, YOU KNOW, WITH FANNIE MAE...the question that then presents is the competence of your agency has with reference to deciding and regulating these GSE's." Gregory Meeks D-NY
"Clearly, the MISSION OF FREDDIE MAC AND ESPECIALLY FANNIE MAE IS TO CLOSE THAT GAP." David Scott on the question of minority homeownership lagging behind whites.
"THESE ASSETS ARE SO RISKLESS THAT THEIR CAPITAL FOR HOLDING THEM SHOULD BE UNDER TWO PERCENT." Fannie Mae's Chairman and CEO Franklin Raines
"THESE GSE'S HAVE MORE THAN ADEQUATE CAPITAL FOR THE BUSINESS THEY ARE IN: providing affordable housing... We should not be making radical or fundamental change. If there is anything to fix or improve, it is the (regulators)." Maxine Waters
"I am just pissed off at (the regulators) because if it wasn't for you I don't think that we would be here in the first place." "I think there HAS BEEN NOTHING THAT WAS INDICATED IS WRONG, YOU KNOW, WITH FANNIE MAE...the question that then presents is the competence of your agency has with reference to deciding and regulating these GSE's." Gregory Meeks D-NY
"Clearly, the MISSION OF FREDDIE MAC AND ESPECIALLY FANNIE MAE IS TO CLOSE THAT GAP." David Scott on the question of minority homeownership lagging behind whites.
"THESE ASSETS ARE SO RISKLESS THAT THEIR CAPITAL FOR HOLDING THEM SHOULD BE UNDER TWO PERCENT." Fannie Mae's Chairman and CEO Franklin Raines
Was greed involved?
· For this type of brilliant forecasting, RAINES WAS COMPENSATED $90 MILLION during his tenure.
· When JAMIE GORELICK, Democrat, took over and continued Raines' nothing-can-go-wrong-here policies, she EARNED $26 MILLION.
· She was followed by DEMOCRAT JIM JOHNSON, who was at or near the wheel when the car went into the ditch in 2007. HE TOOK HOME A PALTRY $21 MILLION.
· DEMOCRAT RUBIN TOOK HOME $100 MILLION FROM HIS POST-TREASURY JOB AT CITIBANK (which was eventually saved by a bailout.) .
Countrywide's role
Bloomberg said, "IT WAS NOT THE BANKS THAT CREATED THE MORTGAGE CRISIS. IT WAS, PLAIN AND SIMPLE, CONGRESS, WHO FORCED EVERYBODY TO GO AND GIVE MORTGAGES TO PEOPLE WHO WERE ON THE CUSP. ... THEY WERE THE ONES WHO PUSHED FANNIE AND FREDDIE TO MAKE A BUNCH OF LOANS THAT WERE IMPRUDENT, IF YOU WILL."
The usual suspects on the left went crazy. The New York Times Paul Krugman called Bloomberg an "ignoramous," citing liberal blogger Mike Konczal's Fannie defense:
"The first thing to point out is that the both the subprime mortgage boom and the subsequent crash are very much concentrated in the private market ... [Fannie and Freddie] were not behind them," Konczal said.
IS KONCZAL RIGHT? ARE FANNIE AND FREDDIE INNOCENT OF CAUSING THE MORTGAGE CRISIS?
This we do know: THANKS TO THE WIDESPREAD BELIEF THAT THE FEDERAL GOVERNMENT WOULD BAIL THEM OUT, FANNIE AND FREDDIE WERE ABLE TO BORROW MONEY AT BELOW-MARKET INTEREST RATES.
This gave them a significant competitive advantage over private-sector firms which, by 1992, the TWO GOVERNMENT-BACKED CORPORATE ENTITIES HAD TURNED INTO AN ALMOST 70 PERCENT SHARE IN THE MORTGAGE SECURITIZATION MARKET.
That same year, at the direction of the Congress, the Department of Housing and Urban Development began setting "affordable" mortgage goals for the agencies.
Countrywide was a growing force in the mortgage industry when it partnered with Fannie in 1992. BUT AFTER MOZILO'S FIRM SECURED A STEADY GOVERNMENT BUYER FOR THEIR LOANS, BUSINESS EXPLODED. REVENUES WENT FROM $92 MILLION IN 1992, TO $860 MILLION IN 1996, TO $2 BILLION IN 2000. BY 2004, THEY WERE THE NATION'S LARGEST MORTGAGE LENDER.
The secret to Countrywide's success was no mystery: They shredded standard industry lending practices, giving home loans to virtually anybody who asked. FANNIE MAE NOT ONLY KNEW THIS, FANNIE REWARDED IT.
IN 2000, THE FANNIE MAE FOUNDATION HONORED COUNTRYWIDE FOR "OUTSTANDING ACHIEVEMENT" IN THE INDUSTRY. The foundation's 2000 annual report noted: "WHEN NECESSARY -- IN CASES WHERE APPLICANTS HAVE NO ESTABLISHED CREDIT HISTORY, FOR EXAMPLE -- COUNTRYWIDE USES NONTRADITIONAL CREDIT, A PRACTICE NOW ACCEPTED BY [FANNIE]."
Countrywide continued to be the biggest supplier of loans to Fannie Mae all the way through the height of the housing boom. IN 2004, 26 PERCENT OF THE LOANS FANNIE BOUGHT WERE FROM COUNTRYWIDE. IN 2007, THAT NUMBER HAD RISEN TO 28 PERCENT.
In his 1993 Nobel Prize lecture, economist Douglass North said, "IF THE INSTITUTIONAL FRAMEWORK REWARDS PIRACY, THEN PIRATICAL ORGANIZATIONS WILL COME INTO EXISTENCE; AND IF THE INSTITUTIONAL FRAMEWORK REWARDS PRODUCTIVE ACTIVITIES THEN ORGANIZATIONS -- FIRMS -- WILL COME INTO EXISTENCE TO ENGAGE IN PRODUCTIVE ACTIVITIES."
From 1992 through the height of the housing bubble, Fannie Mae and Freddie Mac used their monopoly position in the mortgage securitization industry to reward firms like Countrywide for making bad bets in the housing market. COUNTRYWIDE'S SUCCESS WAS A SIGNAL TO OTHER MARKET PARTICIPANTS TO LOWER THEIR STANDARDS AS WELL.
Wall Street banks are not blameless for the financial crisis. BUT THEY WERE ONLY RESPONDING TO THE INCENTIVES SET UP BY THE FEDERAL GOVERNMENT. Ignoring this history will help no one
What you see when government becomes partners with private industry is crony capitalism at its worst. Countrywide was feted for their good works, yet they were a major example of why the collapse happened.
Moving beyond Freddie and Fannie
The term “permanent conservatorship” is an oxymoron. By its very construct, the conservatorship of a corporation is meant to be temporary. And yet THREE YEARS AFTER THE BAILOUT OF FANNIE MAE AND FREDDIE MAC, WE ARE NO CLOSER TO TRANSITIONING THEM OFF GOVERNMENT LIFE SUPPORT THAN WE WERE THE DAY IN 2008 WHEN THEY CAME UNDER DIRECT GOVERNMENT CONTROL.
This is unacceptable.
A delay in dealing with Fannie and Freddie was partly inevitable, as policymakers worried that any misstep could negatively affect a fragile housing market. But WE HAVE COME TO A POINT WHERE CONTINUED INACTION IMPEDES THE ABILITY OF THE PRIVATE MARKET TO TAKE OVER A FUNCTION THE GOVERNMENT HAS COMPLETELY MISMANAGED. We must move beyond Fannie and Freddie, immediately.
This task will not be politically easy. Many of the institutions that have come to rely on the corporate welfare Fannie and Freddie provide have argued that we cannot have a housing finance system without the support of government-sponsored enterprises (GSEs). This argument not only ignores the risks taxpayers are forced to bear but also fundamentally misrepresents the structure of the housing finance system.
Broadly speaking, THE RISKS INHERENT IN MORTGAGE LENDING CAN BE PLACED IN TWO CATEGORIES, INTEREST RATE RISK AND CREDIT RISK. Interest rate risk stems from the fact that homeowners can prepay their mortgages at any time, and they generally choose to do so when interest rates are low. This leaves the lender with the tricky job of managing an asset-liability mismatch. But THE PRIVATE SECTOR HAS PROVED CAPABLE OF THE TASK. IN FACT, THE DEVELOPMENT OF THE RISK MANAGEMENT INFRASTRUCTURE TO DEAL WITH THIS CHALLENGE REMAINS A GREAT ACCOMPLISHMENT OF MODERN FINANCE.
The second risk in mortgage lending is credit risk, or the risk that a borrower will default on his or her mortgage. TODAY, MORTGAGE CREDIT RISK IS ALMOST COMPLETELY PRICED AND MANAGED BY THE GOVERNMENT. HAVING “CROWDED OUT” PRIVATE INVESTORS BY CHARGING AN INSURANCE PREMIUM THAT WAS TOO CHEAP, THE GSES ARE SADDLED WITH $5 TRILLION WORTH OF BAD CREDIT. This is a tragedy of our own making. During the boom years, the GSEs’ affordable housing goals were coupled with a Congress and an administration that saw only the bright side of rapidly increasing homeownership rates. That meant that as housing prices began to spike, it was impossible to make credit slightly more expensive…..
Barney Frank and Fannie and Freddie
IN THE MYTHMAKING OF THE REACTIONARY LEFT, PRIVATE BANKS CREATED RISKY FINANCIAL INSTRUMENTS PREDICATED ON THE U.S. MORTGAGE INDUSTRY THAT WERE SO INTRINSICALLY CORRUPT THAT IT LED TO AN INEVITABLE COLLAPSE IN THE HOUSING MARKET IN 2008. PRIVATE BANKS THAT WERE BAILED OUT IN TARP WERE COLLECTIVELY ENGAGED IN NEGLIGENCE AND FRAUD THAT LED TO OUR PRESENT ECONOMIC DEMISE. The staggering loss of $6 trillion in housing values damaged the entire global economy.
Noticeably absent from this commentary and storytelling is a sense of the federal government's key role in creating the crisis. FANNIE MAE AND FREDDIE MAC WERE THE LARGEST FINANCIERS OF MORTGAGES IN THE UNITED STATES. Preceding the crisis, congressional regulator Franklin Raines made public statements that there "was no risk" to investing in American mortgages. THE DEREGULATED VIEW OF FANNIE MAE AND FREDDIE MAC COMBINED WITH THE REGULATOR'S STATEMENTS THAT THERE WAS NO RISK IN THIS AREA OF FINANCIAL INVESTMENT WAS THE EQUIVALENT OF TELLING CHRONIC GAMBLERS THAT THE CASINO WILL COVER ALL BETS. Not only did congressional regulators such as Barney Frank fail to constrain the federal agencies inflating the housing bubble, but they actively criticized in public those trying to prevent a crisis through increased regulation, and they worked to inculcate the view that there were no undue risks in the American housing market.
Congressman Frank provides his own convoluted review of this crisis on his congressional homepage. In his account, the Bush administration took the inexplicable view of opposing regulation from 2001 to 2007 and then endorsed regulation in 2007, when FRANK TOOK LEADERSHIP OF THE IMPORTANT HOUSING ISSUES RELATING TO FANNIE MAE AND FREDDIE MAC. ACCORDING TO FRANK, THE REGULATIONS PASSED IN 2007 BY HIMSELF AND PRESIDENT BUSH WERE "TOO LATE." Outside the reactionary left's mythmaking offered by Congressman Frank, the Bush administration repeatedly called for heightened congressional oversight and regulation of Fannie Mae and Freddie Mac throughout both terms of the Bush presidencies. In reality, THE BUSH PROPOSALS TO TREAT GSES LIKE FANNIE MAE AND FREDDIE MAC THE SAME AS PRIVATE BANKS IN THE REGULATORY WORLD, WERE TERMED "INANE" IN 2005 BY CONGRESSMAN FRANK. The reforms passed by Frank came in 2008 -- after the industry had collapsed -- despite Frank's 2005 assurance that Fannie Mae and Freddie Mac were "fundamentally sound." The GSEs purchased considerable political sway in fall of 2006 to prevent the regulatory leveling sought by the Bush administration. Democratic senators such as Chris Dodd and Barack Obama received considerable financial support from the GSEs in a landslide sweep for Democrats in Congress that functionally guaranteed that the GSEs would fend off future regulatory reforms pushed by the president….
….The proper writing of Barney Frank's political epitaph is not important only as a matter of history. It is important as a moral enterprise in trying to allow history to teach us how not to repeat the errors of the past. THE AMERICAN PUBLIC HAVE AN INTUITION THAT THEY HAVE BEEN ABUSED BY THEIR POLITICAL HANDLERS. THE SURROUNDING PUNDITRY CLASS CONTINUES TO FORM THE GREEK CHORUS OF SUPPORT FOR HALF-TRUTH STORIES OF HOW WE WENT FROM 4.7% UNEMPLOYMENT IN JANUARY OF 2007 AND FALLING DEFICITS TO 9-PERCENT UNEMPLOYMENT and ever-soaring trillions of debt in January of 2012. The retirement and a proper sense of the fiscal legacy of Barney Frank is an opportunity to restore some measure of sanity to America's economic house and possibly avoid a repeat of these mistakes.
Barney and Chris were the protectors of Fannie and Freddie. Both will be gone from congress by January 2012. The Democrats try to pin this on greed and deregulation. Greed is always a factor and you will never eliminate it. That is why you need some regulations and the Democrats fought the regulations when it interfered with what they lusted for, more votes.
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