Tracking down where it started

[The Big Dog]

Great article in Investors Business Daily that helps raise the clouds around the financial meltdown we are seeing now.

How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable

By TERRY JONES
INVESTOR'S BUSINESS DAILY

One of the most frequently asked questions about the subprime market meltdown and housing crisis is: How did the government get so deeply involved in the housing market?

The answer is: President Clinton wanted it that way.

Fannie Mae and Freddie Mac, even into the early 1990s, weren't the juggernauts they'd later be.

While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie's and Freddie's rules.

In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended.

Addressing the National Association of Realtors that year, Clinton bluntly told the group that "more Americans should own their own homes." He meant it.

<< snipped >>

With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income.

By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.

Worse still was the cronyism.

Fannie and Freddie became home to out-of-work politicians, mostly Clinton Democrats. An informal survey of their top officials shows a roughly 2-to-1 dominance of Democrats over Republicans.

Then there were the campaign donations. From 1989 to 2008, some 384 politicians got their tip jars filled by Fannie and Freddie.

Over that time, the two GSEs spent $200 million on lobbying and political activities. Their charitable foundations dropped millions more on think tanks and radical community groups.

And no less an authority than Mr. Clinton himself went on the record just the other day saying directly that while there is plenty of blame to go around, it largely rests with him and the Democrats.

[bolverk]

It seems Clinton played the race card and got beat by a Royal Flush. To bad he was gambling with our economy, rather then his own money.

[The Big Dog]

Now the veil begins to raise on the back room shenanigans that got us all to this point and, as I've been noting all along, there is a long and distingiushed list of Democrats (and some Republicans) at the center. A nice, in depth piece from the Wall Street Journal shines the light on the nest of cockroaches that are more commonly known as the Congress.

Who'd have thunk it?

Partners at the Destruction

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Fannie, Freddie and just about everybody.

By JOHN FUND

We will look back on the failure of Congress to reform the government-sponsored enterprises at the heart of the mortgage meltdown as one of the most expensive derelictions of its duty ever. Fannie Mae and Freddie Mac used their lobbying clout, political contributions and even charitable largesse to charm or bully anyone demanding reform in their lending practices.

The Bush administration certainly didn't cover itself in glory either, for example issuing news releases in 2005 touting the introduction of "zero down-payment " mortgages through federal housing programs designed to encourage home ownership.

But the administration at least tried to warn Congress that the GSEs should be reined in. Gateway Pundit notes that President Bush publicly called for GSE reform 17 times this year before Congress finally passed a bill increasing oversight of Fannie and Freddie -- though by then it was too late.

Indeed, the White House's list calls for GSE reform is a long one, stretching as far back as April 2001. At that time, the administration's first budget declared that Fannie Mae and Freddie Mac's growing dominance of the mortgage market was "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

<< snipped >>

The Bush administration certainly didn't cover itself in glory either, for example issuing news releases in 2005 touting the introduction of "zero down-payment " mortgages through federal housing programs designed to encourage home ownership.

But the administration at least tried to warn Congress that the GSEs should be reined in. Gateway Pundit notes that President Bush publicly called for GSE reform 17 times this year before Congress finally passed a bill increasing oversight of Fannie and Freddie -- though by then it was too late.

Indeed, the White House's list calls for GSE reform is a long one, stretching as far back as April 2001. At that time, the administration's first budget declared that Fannie Mae and Freddie Mac's growing dominance of the mortgage market was "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."[/quote]

[jgaffney]

Here's a great video with the history of the subprime crisis. It's very fast paced, but fact filled. Watch it all the way to the end.



It's too bad that the media is so fixated on Sarah Palin's daughter, or her ex-brother-in-law. Otherwise, they might have time to cover this issue.

[jgaffney]

Here's another YouTube submission of a House hearing in 2004. the Republicans are arguing that there needs to be more oversight of Fannie Mae and Freddie Mac. The Democrats are arguing that there's nothing to worry about, everything is fine, it's just a racial witchhunt against Franklin Raines.



It is interesting to hear Barney Frank say that there's nothing wrong, there's nothing to worry about.

[jgaffney]

The Wall Street Journal adds this:

A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress's 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking. Barack Obama has been selling this line every day. Bill Clinton signed that "deregulation" bill into law, and he knows better.

In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton's reply: "No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.

"But I have really thought about this a lot. I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."

One of the writers of that legislation was then-Senator Phil Gramm, who is now advising John McCain, and who Mr. Obama described last week as "the architect in the United States Senate of the deregulatory steps that helped cause this mess." Ms. Bartiromo asked Mr. Clinton if he felt Mr. Gramm had sold him "a bill of goods"?

Mr. Clinton: "Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence.

"But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment."

We agree that Mr. Clinton isn't wrong about everything. The Gramm-Leach-Bliley Act passed the Senate on a 90-8 vote, including 38 Democrats and such notable Obama supporters as Chuck Schumer, John Kerry, Chris Dodd, John Edwards, Dick Durbin, Tom Daschle -- oh, and Joe Biden. Mr. Schumer was especially fulsome in his endorsement.

Another liberal myth dispelled. How many does that make now, Mink?

[Mink]

Gaffney: Another liberal myth dispelled. How many does that make now, Mink?

So, you found a few supporting links that would back your "opinion/s" that this mess wasn't bush's fault........
Give me time!!

BTW, by all means am I not excusing the Dems, but I hardly doubt they are the only ones to blame because it only makes sense that is this is true, what the heck were the Republicans doing about it all that time to alleviate the situation???

[jgaffney]

The Wall Street Journal this morning adds more fuel to the fire under the Dems feet on this issue:

House Financial Services Committee hearing, Sept. 10, 2003:
Rep. Barney Frank (D., Mass.): I worry, frankly, that there's a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. . . .

Rep. Maxine Waters (D., Calif.), speaking to Housing and Urban Development Secretary Mel Martinez:
Secretary Martinez, if it ain't broke, why do you want to fix it? Have the GSEs [government-sponsored enterprises] ever missed their housing goals?
* * *
House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .
* * *
House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Gregory Meeks, (D., N.Y.): . . . I am just pissed off at Ofheo [Office of Federal Housing Enterprise Oversight] because if it wasn't for you I don't think that we would be here in the first place.

And Freddie Mac, who on its own, you know, came out front and indicated it is wrong, and now the problem that we have and that we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum so that we can talk about it and maybe change the direction and the mission of what the GSEs had, which they have done a tremendous job. . .

Ofheo Director Armando Falcon Jr.: Congressman, Ofheo did not improperly apply accounting rules; Freddie Mac did. Ofheo did not try to manage earnings improperly; Freddie Mac did. So this isn't about the agency's engagement in improper conduct, it is about Freddie Mac. Let me just correct the record on that. . . . I have been asking for these additional authorities for four years now. I have been asking for additional resources, the independent appropriations assessment powers.
This is not a matter of the agency engaging in any misconduct. . . .

Rep. Waters: However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine. With last week's hurricane and the drain on the economy from the war in Iraq, we should do no harm to these GSEs. We should be enhancing regulation, not making fundamental change.
Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. . . .

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?
Mr. Raines?
Mr. Raines: No, sir.
Mr. Frank: Mr. Gould?
Mr. Gould: No, sir. . . .
Mr. Frank: OK. Then I am not entirely sure why we are here. . . .
Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.
* * *
Senate Banking Committee, Oct. 16, 2003:
Sen. Charles Schumer (D., N.Y.): And my worry is that we're using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie's mission. And I don't think there is any doubt that there are some in the administration who don't believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.

Mr. Raines: But more importantly, banks are in a far more risky business than we are.
* * *
Senate Banking Committee, Feb. 24-25, 2004:
Sen. Thomas Carper (D., Del.): What is the wrong that we're trying to right here? What is the potential harm that we're trying to avert?

Federal Reserve Chairman Alan Greenspan: Well, I think that that is a very good question, senator.

What we're trying to avert is we have in our financial system right now two very large and growing financial institutions which are very effective and are essentially capable of gaining market shares in a very major market to a large extent as a consequence of what is perceived to be a subsidy that prevents the markets from adjusting appropriately, prevents competition and the normal adjustment processes that we see on a day-by-day basis from functioning in a way that creates stability. . . . And so what we have is a structure here in which a very rapidly growing organization, holding assets and financing them by subsidized debt, is growing in a manner which really does not in and of itself contribute to either home ownership or necessarily liquidity or other aspects of the financial markets. . . .

Sen. Richard Shelby (R., Ala.): [T]he federal government has [an] ambiguous relationship with the GSEs. And how do we actually get rid of that ambiguity is a complicated, tricky thing. I don't know how we do it.
I mean, you've alluded to it a little bit, but how do we define the relationship? It's important, is it not?

Mr. Greenspan: Yes. Of all the issues that have been discussed today, I think that is the most difficult one. Because you cannot have, in a rational government or a rational society, two fundamentally different views as to what will happen under a certain event. Because it invites crisis, and it invites instability. . .

Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. And we don't want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that's been done here. And that shouldn't be lost in this debate and discussion. . . .
* * *
Senate Banking Committee, April 6, 2005:
Sen. Schumer: I'll lay my marker down right now, Mr. Chairman. I think Fannie and Freddie need some changes, but I don't think they need dramatic restructuring in terms of their mission, in terms of their role in the secondary mortgage market, et cetera. Change some of the accounting and regulatory issues, yes, but don't undo Fannie and Freddie.
* * *
Senate Banking Committee, June 15, 2006:
Sen. Robert Bennett (R., Utah): I think we do need a strong regulator. I think we do need a piece of legislation. But I think we do need also to be careful that we don't overreact.
I know the press, particularly, keeps saying this is another Enron, which it clearly is not. Fannie Mae has taken its lumps. Fannie Mae is paying a very large fine. Fannie Mae is under a very, very strong microscope, which it needs to be. . . . So let's not do nothing, and at the same time, let's not overreact. . .

Sen. Jack Reed (D., R.I.): I think a lot of people are being opportunistic, . . . throwing out the baby with the bathwater, saying, "Let's dramatically restructure Fannie and Freddie," when that is not what's called for as a result of what's happened here. . . .

Sen. Chuck Hagel (R., Neb.): Mr. Chairman, what we're dealing with is an astounding failure of management and board responsibility, driven clearly by self interest and greed. And when we reference this issue in the context of -- the best we can say is, "It's no Enron." Now, that's a hell of a high standard.

I didn't count, but it sounds to me like every Democrat was lining up to say, "There's nothing wrong here. Just move along, folks." Many of these Democrats are the same ones lining up behind Speaker Pelosi to try to claim that it's all because of "the failed policies of the Bush administration."

Another liberal myth dispelled, eh, Mink?

[jgaffney]

Now that a solution is in sight, the Democrats have always been for it, right? The Hill has this from Rep. Steny Hoyer, House Majority Whip:

Monday was a remarkable day in the House of Representatives. We saw Republicans seconding Chairman Barney Frank, a Massachusetts liberal. We saw Democrats rise to applaud John Boehner, the Republican leader.

We are facing an extraordinary economic crisis—one that will take extraordinary steps to solve. If the worst comes, none of us, and none of the people we represent, will be unaffected.

That is why all of us, Democrats and Republicans alike, have to come together to prevent the worst from happening. On Monday, we brought a modified version of the President’s financial recovery plan to the floor. It was backed by Democratic and Republican leaders in the House and the Senate, and President Bush, and Secretary Paulson, and Chairman Bernanke, and Senator McCain, and Senator Obama.

The resulting bill was far from perfect. But we made real improvements to the President’s plan, ensuring that Congress will not write a blank check to bail out Wall Street’s bad decisions. We made sure that, when the economy regains its health, taxpayers would be the first to profit.

The Emergency Economic Stabilization Act was designed to restore the flow of credit, the lifeblood of our economy, which is in danger of drying up. The aim was to help homeowners keep their homes, to protect retirement accounts, to help families take out the loans they need, and to keep small businesses alive and hiring.

Senator Obama made a good analogy yesterday afternoon: If your neighbor leaves the stove on and sets his house on fire, you don’t refuse to help because it was his fault. If you do that, the fire could spread, and your house could burn down, too. Instead, you put the fire out first, and then you deal with the guy who left his stove on.

It’s the same with our financial emergency: No matter who started it, it is in everyone’s interest to stop it.

We understood all along that passing a plan to stop it would take votes from both parties. Democrats lived up to our end of the bargain—60% of our caucus voted for the economic rescue. Many of us had significant reservations; but we were convinced by economists, on the left and right, who told us the dangers of doing nothing.

In the end, an essential bill was defeated. But the crisis we face isn’t going away. We are working overtime to find a bipartisan way forward, a plan that can pass the House and the Senate with support from both parties. Speaker Pelosi and I are in constant touch with the Administration and with Republican leaders.

Together, we are going to find a way out of this crisis—because inaction will be far too costly.

No matter who started it, it is in everyone’s interest to stop it. Rep. Hoyer's comments stand in stark contrast with the highly partisan speech delivered by Speaker Pelosi right before the earlier, failed vote in the House.

You know, very little happens by accident in Congress. The leaders rarely bring an issue to the floor unless they already know where the votes are. I firmly believe that Pelosi knew in advance that the bailout bill would fail in the House, yet she did it anyway in order to get in her licks. Take the gavel away from this harpy and bang her over the head with it!

[saunterelle]

Oct 1, 2008 21:27:38 GMT -5 Mink said:

Gaffney: Another liberal myth dispelled. How many does that make now, Mink?

So, you found a few supporting links that would back your "opinion/s" that this mess wasn't bush's fault........
Give me time!!

BTW, by all means am I not excusing the Dems, but I hardly doubt they are the only ones to blame because it only makes sense that is this is true, what the heck were the Republicans doing about it all that time to alleviate the situation???

Exactly. The Republicans controlled the House, Senate, and the Presidency for 6 years! If this was the Democrat's fault during the Clinton years, why didn't the Republicans do something to fix it when they were in power?? The fact is that this crisis was brought on by Republican-supported deregulation combined with good ol' American greed.

[mrroqout]

I guess you can't comprehend what is written above, or your ignoring the FACTS that Repubs were screaming for more oversight for years now. All to the "nothing to see here cries of the left"...


This writer sums it up simply, maybe you can follow..





By Charlotte Iserbyt
9-29-8

In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration's affirmative action lending policies as one of the "hidden success stories" of the Clinton administration, saying that "black and Latino homeownership has surged to the highest level ever recorded."

Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn't get out of their loans by selling their houses.

A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it's gone off.

In Bush's first year in office, the White House chief economist, N. Gregory Mankiw, warned that the government's "implicit subsidy" of Fannie Mae and Freddie Mac, combined with loans to unqualified borrowers, was creating a huge risk for the entire financial system.

Rep. Barney Frank denounced Mankiw, saying he had no "concern about housing." How dare you oppose suicidal loans to people who can't repay them! The New York Times reported that Fannie Mae and Freddie Mac were "under heavy assault by the Republicans," but these entities still had "important political allies" in the Democrats.

Now, at a cost of hundreds of billions of dollars, middle-class taxpayers are going to be forced to bail out the Democrats' two most important constituent groups: rich Wall Street bankers and welfare recipients.

Political correctness had already ruined education, sports, science and entertainment. But it took a Democratic president with a Democratic congress for political correctness to wreck the financial industry

Democrat Libs caused the financial collapse


PLEASE DO "Attempt" to refute with FACTS.

[bolverk]

Oct 1, 2008 21:27:38 GMT -5 Mink said:

Gaffney: Another liberal myth dispelled. How many does that make now, Mink?

So, you found a few supporting links that would back your "opinion/s" that this mess wasn't bush's fault........
Give me time!!

BTW, by all means am I not excusing the Dems, but I hardly doubt they are the only ones to blame because it only makes sense that is this is true, what the heck were the Republicans doing about it all that time to alleviate the situation???

Don't waste your time Mink. Go back to the time of Jimmy Carter, when the very first bill to deregulate banking was introduced. Then look at the changes made by Bill Clinton, before 1999 and before the Republican majority. Then listen to what Bill said. Look at how much money and who it went to from Fannie Mae and Freddie Mac. Look who these banking tycoons support and work with during elections and you will find the stink of democrats all over them.