More Info on Fannie, Freddie Bailout

[jgaffney]

Sean Hannity was going off on a subject this afternoon, while I was caught in traffic, so I came home and decided to do some nonpartisan research for myself. Thomas, the congressional website established by Newt Gingrich, is a pretty good place to start, since it allows you to look up bills and text in the Congressional Record.

In 2005, Senators Chuck Hagel, Elizabeth Dole, John McCain and John Sununu introduced S. 190, a bill to reform the federal oversight of Fannie Mae and Freddie Mac. On May 25, 2006, John McCain made a speech in the Senate that pretty much forecast what has happened in the past couple of weeks:

Mr. McCAIN. Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were ``illusions deliberately and systematically created'' by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S . 190 , to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

The bill failed in the Senate, being sent to the Committee on Banking, Housing, and Urban Affairs, where it died with the end of the 109th Congress. Why didn't the Committee do something with this bill? The answer is available at OpenSecrets.org, a nonpartisan website by the Center for Responsive Politics. The website's mission is to, "[track] money in U.S. politics and its effect on elections and public policy." According to the website, Fannie Mae and Freddie Mac were pretty lavish in their cash contributions to certain congressmen, concentrating their money mostly on the committee chairmen of whichever party was in power. The webiste has a very interesting list that summarizes the cash contributions to members of Congress in the period from 1989 to 2008. The top three names on the list are Chris Dodd, John Kerry and Barack Obama. Now, Dodd and Kerry have been in the Senate for a long time, but Obama has only been there for 3 years, and has spent most of that time campaigning for president. So, how did Obama make it into the top three? He's not the chair of any committee that regulates Fannie Mae or Freddie Mac.

So, if McCain was clearly able to forecast the downfall of the federal mortgage market, how can Obama claim that McCain is at the root of the problem?

[mrroqout]

The same way he disavows any wrongdoing by people like ;

Penny Pritzker
Tony Rezko
Nadhmi Auchi --- This character Barry "Doesn't Remember" riiight...hi name is all over SEVERAL multi million dollar deals...where B. Husseins name appears..kinda troublesome stuff if you know who this joker is.



Where are the Obamaheads now?

[The Big Dog]

Sept 17, 2008 0:10:34 GMT -5 jgaffney said:

So, if McCain was clearly able to forecast the downfall of the federal mortgage market, how can Obama claim that McCain is at the root of the problem?

There in lies the beauty of politics. Good conscience, like the truth, is best left checked at the door.

[jgaffney]

Kevin Hassett at Bloomberg.com has more information on the bailout:

The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.
.............
Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: "It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

If you need more proof of whose fingerprints are all over this mess, look up the Community Reinvestment Act of 1977, the law that required financial institutions to make loans that they normally wouldn't make. In response to that act, and the flood of regulation that followed it, mortgage requirements started dropping. Where we used to be required to put 20% down and have a verifiable income at least 3.5 to 4 times the monthly payment, now you can get a NINJA loan: No Income, No Job, (No) Assets.

More regulation is not the answer here. We've already seen what regulation brings.