Roller Coaster Down

Say Joe, when do Howdy Doddy, Barney Frankly, and the rest of the Boob Rubin regime changers join the Clixons in their constant frog march to Leavenworth prison?

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” a senior Obama Administration official ”
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Timothy Geitner I suppose.
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I hate to go OT but I would honestly like your thoughts on the Jane Harman story.

This is incredible.
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Joe Klein is foreshadowing the coming fight over nationalization:

U.S. May Convert Banks’ Bailouts to Equity Share
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By EDMUND L. ANDREWS Published: April 19, 2009
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WASHINGTON — President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.
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In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
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Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.
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While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.

The real question is whether or not the Obama Administration is serious about taking over and then breaking apart the nation’s 19 biggest banks (thus eliminating the most egregious of their debts –kind of like buying AIG’s Financial Products division and then declaring bankruptcy), or whether they’re merely using press corps stenographers to threaten the banks into producing more lending in return for the money to come.
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Clearly the development of this new message: “Several experts I’ve spoken with think the market for “toxic assets” will develop more slowly than the President is hoping, if at all.” is encouraging. I guess either Larry Summers isn’t omnipotent, or he’s capable of changing his mind in the face of reality, both of which would be good things for this country’s economic future.
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Joe Klein:
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What “experts” are the kind that resist being quoted, except on background? Paul Krugman? Nouriel Roubini? Joe Stiglitz? Brad DeLong? Yves Smith? Bill McBride? Are they the kind of “experts” one would find working for a presidential administration, Joe Klein?

If only more bankers were black and/or Muslim.

Then we could have confidence.

The bankers fail to understand that the pubic does not trust them and everything they do validates the public’s distrust. They act as if they are entitled to tax payer support and look like all they are interested in is what’s in it for them if they allow us to support them.
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They’re bankers so I figure they are smart enough to read some books, but people — not so much. They should thank God for Wall Street, because on any other street in NYC they get taken by the first guy with a cardboard stand and three queens.

Stewie:

Do you favor hyper-stagflation now, or after Obama’s kicked out of office for professional malfeasance?

He’s going to have you living in the same hemp hut as his ancestors, or by Allah his name’s not The Once!

= CASTRO ACCOMPLISHED =

While the Obama Administration is now blaming the banks for the failures, they continue to ignore the role of Government. Thomas Sowell has a great article out today showing how Government (Barney Frank, Chris Dodd, and Bill Clinton) pressured banks to make loans to undeserving and prospective borrowers.
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“Statistics played a key role in creating the housing boom and bust that led to the current economic crisis. Back in the 1990s, politicians, the media, community activists like Jesse Jackson and others all made a lot of noise about statistical studies showing that (1) non-whites had lower rates of home-ownership than whites, (2) were turned down for mortgage loans more often than whites, and (3) resorted to more expensive subprime mortgage loans than whites.

All this led to pressures and even quotas for banks to lend to more low-income and minority applicants. That in turn led to lower mortgage lending standards, more risky mortgages, higher default rates and the collapse of financial institutions that bought these more risky mortgages or securities based on them”.
http://townhall.com/columnists/ThomasSowell/2009/04/16/magic_numbers_in_politics?page=2
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In other words had “Big Government” stayed out of the private sector banks, we would not have gone through the current economic melt-down. Now Obama and his merry band of hench-men are debating whether to “nationalize” the banks or not. They need to stay so far away from the banks as possible. Further government intervention into our economy at this stage spells complete disaster.
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When you have someone like Geithner, who can’t even do his own taxes correctly with the help of TurboTax, then they should never be allowed to interfere in private industry.
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This is what has people on the right upset, and why we saw the Tax Tea parties last week. Big Government and big spending programs which Obama wants to make us all slave to is wrong.

Ahem.

BANKERS SHMANKERS.

NOBODY held a gun to anyone’s head and said SIGN THIS LOAN or ACCEPT THIS CARD or BUY THIS NEW SUV. There IS nothing on the realm of the planet that can turn the STUPID into the VICTIM.

People have been over-spending and over-paying for at least the last 20 years — and now they’re having to pay the piper for the free DNC party.

Been there.

Done that.

Called the Clixon Regime.

NEVER AGAIN.

Thrift and frugality is not a sin, nor driving a good used car that you maintain for 10 years instead of run into the ground in 2, nor hanging around the house instead of flighting off to Florida for the third time in 8 months, nor saving some for your kids instead of your next elective surgery…

We’re now officially a nation of WHINERS and we’ve got the Blame America 1ster In Chief leading the chorus against anything and everything they see cramping their expensive lifestyles of the not that rich and equally ill famous.

We do need to re-build our energy core, around NUKE PLANTS and DOMESTIC DRILLING that Obama has basically side-stepped as Blow Job 1 to his sycophants in Cali that can’t balance their own books but still want to tell the DOD and Treasury what to do.

Can we vote for John Stoessel yet?

It baffles me that we can convince ourselves that *more regulation* is a good thing, fairness-wise, in rather trivial areas of our lives (e.g. instant-reply officials in the NFL)…but, when it comes to truly important activities – banking, business, environment – we embrace a “less is better” regulatory view.
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Good luck turning this around, Joe.

Got meds?

They need to stay so far away from the banks as possible. Further government intervention into our economy at this stage spells complete disaster.
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Yes, Rusty, too much government intervention was what got us into this mess. Credit Default Swaps and other creative “financial instruments” were dreamed up by the government and participated in by the banks while under close govt scrutiny.
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The banks got greedy because no one was watching. Now we’re supposed to just “trust them to do the right thing” – AGAIN – with no oversight?
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C’mon . . . get real.

Lookes like we picked the guy from the wrong Fed bank. The President and a VP from the Minneapolis Fed predicted exactly what was going to happen with the banks in a book they wrote in 2004. Now out in paperback. Interview on NPR was very interesting. http://www.npr.org/templates/story/story.php?storyId=103190326
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Stern and Feldman say the idea that government might be expected to step in is dangerous, because it encourages people to take risks they shouldn’t.
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If large institutions fail, they argue, the system needs something akin to the procedures nuclear reactors have when they get into trouble — some way to safely shut the institution down. That would make it clear that the government won’t be coming to the rescue, which in turn should discourage risky behavior.
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Maybe we could trade Geitner for Stern.

“The banks got greedy because no one was watching. Now we’re supposed to just “trust them to do the right thing” – AGAIN – with no oversight?”
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This is total bull-crap and you know it afguy, that or you are totally submersed in the democrat kool-aide of today’s talking points from Rahm Emmanuel and company.
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The reason was simply quotas. Government quotas no different than the quotas for affirmative action, only this time it was on bankers to provide home loan mortgages. Listen to Barney Frank himself speak. He will not deny that he did put pressure on the banking institutions to make loans to un-qualified borrowers.
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While I will also agree that George Bush’s dream of having every American in America own a home, the real downfall came from what I will term Housing and Mortgage Affirmative Action. ACORN anyone???

Stern and Feldman say the idea that government might be expected to step in is dangerous, because it encourages people to take risks they shouldn’t.
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If the govt does step in, there should be some repercussions for the existing management, at the very least. If the bank is insolvent, shut it down gracefully. But the clowns that got you into this mess shouldn’t be allowed to remain, in any case.

I suspect the next stage of this is going to be either a tug-of-war, or a flame war, between the Administration and the bankers, who don’t seem to realize yet that the economy they thrived and robbed in–the economy built on making paper profits at the rest of the country’s expense–is over. That was the house built on sand Obama was speaking about in his excellent Georgetown University speech last week. A new economy, built on rock–that is, real products not paper profits–is where the Administration is trying to point us.
– Joe Klein

So the first hundred days have essentially been the administration getting it’s head above water for a bit of breathing room. This process has caused some ‘populist uprising’. Do you expect demonstrations such as Wednesdays tea parties to become more frequent/better populated as he implements these changes? Or do you think his popularity will remain high as people are willing to make bolder moves than what might have been possible before the latest downturn?
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-MBirchmeier

All this led to pressures and even quotas for banks to lend to more low-income and minority applicants. That in turn led to lower mortgage lending standards, more risky mortgages, higher default rates and the collapse of financial institutions that bought these more risky mortgages or securities based on them”.
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This is a lie. Notice how the author of this idiotic piece merely asserts that this is so, instead of providing a shred of evidence to back up his claims.
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No, even though this ideologue will say just about anything to disparage affirmative action, government “pressure” (laughable, isn’t it?) was not the origin of either No Income/No Job/No Asset loans, nor CDOs (mortgage-backed securities), it was the product of the native genius of the financial services industry:

Which of these products do you think makes sense?
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(a) The “balloon mortgage,” in which the borrower pays only interest for 10 years before a big lump-sum payment is due.
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(b) The “liar loan,” in which the borrower is asked merely to state his annual income, without presenting any documentation.
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(c) The “option ARM” loan, in which the borrower can pay less than the agreed-upon interest and principal payment, simply by adding to the outstanding balance of the loan.
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(d) The “piggyback loan,” in which a combination of a first and second mortgage eliminates the need for any down payment.
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(e) The “teaser loan,” which qualifies a borrower for a loan based on an artificially low initial interest rate, even though he or she doesn’t have sufficient income to make the monthly payments when the interest rate is reset in two years.
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(f) The “stretch loan,” in which the borrower has to commit more than 50 percent of gross income to make the monthly payments.
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(g) All of the above.
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If you answered (g), congratulations! Not only do you qualify for a job as a mortgage banker, but you may also have a future as a Wall Street investment banker and a bank regulator.
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In fact, these innovative products are now so commonplace, they have been the driving force in the boom in the housing industry at least since 2005. They are a big reason why homeownership has increased from 65 percent of households to a record 69 percent. They help explain why outstanding mortgage debt has increased by $9.5 trillion in the past four years. And they are, unquestionably, a big factor behind the incredible run-up in home prices.
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Now they are also a major reason the subprime mortgage market is melting down, why 1.5 million Americans may lose their homes to foreclosure and why hundreds of thousands of homes could be dumped on an already glutted market. They also represent a huge cloud hanging over Wall Street investment houses, which packaged and sold these mortgages to investors around the world.
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How did we get to this point?
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It began years ago when Lewis Ranieri, an investment banker at the old Salomon Brothers, dreamed up the idea of buying mortgages from bank lenders, bundling them and issuing bonds with the bundles as collateral. The monthly payments from homeowners were used to pay interest on the bonds, and principal was repaid once all the mortgages had been paid down or refinanced.
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Thanks to Ranieri and his successors, almost anyone can originate a mortgage loan — not just banks and big mortgage lenders, but any mortgage broker with a Web site and a phone. Some banks still keep the mortgages they write. But most other originators sell them to investment banks that package and “securitize” them. And because the originators make their money from fees and from selling the loans, they don’t have much at risk if borrowers can’t keep up with their payments.
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And therein lies the problem: an incentive structure that encourages originators to write risky loans, collect the big fees and let someone else suffer the consequences.
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This “moral hazard,” as economists call it, has been magnified by another innovation in the capital markets. Instead of packaging entire mortgages, Wall Street came up with the idea of dividing them into “tranches.” The safest tranche, which offers investors a relatively low interest rate, will be the first to be paid off if too many borrowers default and their houses are sold at foreclosure auction. The owners of the riskiest tranche, in contrast, will be the last to be paid, and thus have the biggest risk if too many houses are auctioned for less than the value of their loans. In return for this risk, their bonds offer the highest yield.
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It was this ability to chop packages of mortgages into different risk tranches that really enabled the mortgage industry to rush headlong into all those new products and new markets — in particular, the subprime market for borrowers with sketchy credit histories. Selling the safe tranches was easy, while the riskiest tranches appealed to the booming hedge-fund industry and other investors like pension funds desperate for anything offering a higher yield. So eager were global investors for these securities that when the housing market began to slow, they practically invited the mortgage bankers to keep generating new loans even if it meant they were riskier. The mortgage bankers were only too happy to oblige.

But what allowed all of this risk to proliferate was the insurance products of AIGFP that the banking holders of CDO’s used to prove that their risky investments weren’t so. After all, they had insurance policies on these investments, right? So who would write insurance policies on such debt? Only firms who were both enormous banks and insurance companies could do that! When did that kind of company become legal?

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) is an Act of the 106th United States Congress (1999-2001) which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited any one institution from acting as both an investment bank and a commercial bank, or as both a bank and an insurer.
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The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services under brands including Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies, if not for a temporary waiver process.[1] The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.

So the Clinton Administration, along with conservative moral imbeciles like Phil “Nation of Whiners” Gramm in a Republican Congress made this all possible –even inevitable– by deregulating the financial sector.
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In other words had “Big Government” stayed out of the private sector banks, we would not have gone through the current economic melt-down.
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In other words, had “Big Government” stayed in the business of impartially refereeing the banks’ short-term profit activities, we would not have gone through the current economic melt-down.
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It sounds nice to conservative ears when their noise machine makes up history to their liking, but even the most cursory examination of the facts shows their positions to be the result of deliberate, ideologically-derived lies.

This is total bull-crap and you know it afguy, that or you are totally submersed in the democrat kool-aide of today’s talking points from Rahm Emmanuel and company.
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Very good, Rusty. You have the talking points down pat. Home loans to unqualified borrowers-check. ACORN(?)-check.
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“Free-market capitalism” is NOT a religion belief. It’s an economic philosophy. I’ve looked thru my Bible and can’t find a mention of it anywhere. But I do find a mention of the “love of money”. In fact, the only time Jesus came close to getting violent was in dealing with the “money changers” – seem to recall his taking a whip to them.
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Seems to me he might have been leaving a general direction for us to follow in this crisis today.

QUOTE from:
In harbinger of nationalization Washington appears to be getting a permanent role as mortgage banker
View quote in context »

Moreover, the takeovers have provided legislators with a long-sought-after ability to directly influence the mortgage marketplace and pursue social goals, such as encouraging low-income housing. “There is a commitment to restructure these companies, and we are going to want to retain a hand in the things that matter, like affordable housing and making sure that the housing economy doesn’t become a threat to the entire economy again” said Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee. Full Article at International Herald Tribune
There is a commitment to restructure these companies, and we are going to want to retain a hand in the things that matter, like affordable housing and making sure that the housing economy doesn’t become a threat to the entire economy again

– Barney Frank
SOURCE: International Herald Tribune
1 month ago
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But Stuart you are a democrat wonk on all of this. While the repeal of Glass-Stengle did allow for further errosion of the banking institutions, this time line demonstrates the affect of Democrat backed legislation for “affirmative action” on lending practices demanded by socialist democrats.
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Growing Gov’t Hand: 1933-38

President Franklin D. Roosevelt initiated a series of “New Deal” reform programs designed to affect the mortgage market and homeownership. Fannie Mae, the Federal National Mortgage Association, was established to facilitate liquidity among lending institutions.

1968

As part of President Johnson’s Great Society reform plan, much of Fannie Mae became a privately owned yet government-chartered company, a government-sponsored enterprise (GSE) providing authority to issue mortgage-backed securities. Fannie Mae buys home mortgages in order to preserve liquidity in the secondary mortgage market. Though private, it remained backed by the federal government.

1970

President Nixon chartered Freddie Mac, the Federal Home Loan Mortgage Corporation, as a GSE to compete with Fannie Mae.

Designed to help grow the secondary mortgage market, Freddie Mac purchases mortgages from lending institutions to either be securitized as mortgage-backed securities and sold in the secondary market or held by Freddie Mac. At this time the secondary market for conventional mortgages was small.

1977

Sen. William Proxmire, a Democrat from Wisconsin, introduced a community reinvestment Senate bill. Opponents argued the bill would allocate credit without regard for merits of loan applications, thereby threatening depository institutions.

Proponents countered that it was only to ensure that lenders did not ignore good borrowing prospects in their communities. The bill’s sponsor stressed it would neither force high-risk lending nor substitute the views of regulators for those of banks.

President Carter, pressed by grass-roots organizations (though opposed by the banking industry)signed into law the Community Reinvestment Act. In the years following, CRA has undergone several revisions.

To boost community development laws, the legislation was designed to stem bank “redlining,” the practice of drawing a red line around low-income communities and denying lending in these areas. The original intent of CRA was to encourage banks to foster homeownership opportunities in these underserved communities in which the lending institutions were chartered.

According to Section 801 of title VIII, “regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs (i.e., credit and deposit services) of the communities in which they are chartered to do business.”

Accordingly, “regulated financial institutions have continuing and affirmative obligation” to meet these needs. Moreover, the title required each “appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions.”

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“…community organization groups like the radical ACORN began efforts to reshape CRA into government-imposition, in accord with what ‘affirmative obligation’ might suggest.”

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1980s

With CRA came increased oversight of lending institutions to ensure they were giving credit to low- and moderate-income communities. Regulators expressed that CRA was not designed to compel credit allocation, nor did it require risky lending practices.

Moreover, ECOA (the Equal Credit Opportunity Act) and FHA, not CRA, were in place to address discrimination in lending. But community organization groups like the radical ACORN began efforts to reshape CRA into government-imposition, in accord with what “affirmative obligation” might suggest.

As lending institutions resisted bad lending practices in poor minority communities, they began stretching the “discrimination” provision to complain about enforcement of the regulations.

August 1989

To deal with the savings and loan fallout of the 1980s, Congress enacted the Financial Institutions Reform Recovery and Enforcement Act. In an ominous move, FIRREA mandated public release of lender evaluations and performance ratings, bringing added pressure on the banking industry. Such oversight enabled bullying abuses of community organization groups such as ACORN to further influence lending practices.

1990s

With the mechanisms in place, the community organizing groups began developing directed strategies to exert more and more pressure on the lending industry in the cloak of complicity with CRA.

Community organizer Barack Obama worked closely with ACORN activists. Employing the intimidation tactics of radical activist Saul Alinsky that Obama had learned and was teaching, activists crowded bank lobbies, blocked drive-up teller lanes and demonstrated at the homes of bankers to browbeat risky lending in poor and minority communities. Those who resisted were accused of racism.

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“Initially the GSEs [i.e., Fannie Mae and Freddie Mac] resisted purchasing these risky mortgages but eventually the Clinton Administration instructed them to substantially increase the percentage of these mortgages in their portfolios.”

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The agitators could now stall or hijack bank mergers by filing complaints of noncompliance against the institutions. Lawsuits alleging redlining and racism began flooding the court system.

With the prospect of expansions and mergers threatened, banks settled cases and, significantly, increasingly made loans they would not have normally made. The net effect, as ACORN litigation increased, was that credit standards lowered.

At first, the GSEs resisted purchasing these risky mortgages. But eventually the Clinton administration instructed them to substantially increase the percentage of these mortgages in their portfolios. Government-backed Fannie Mae and Freddie Mac of the Clinton reforms became “a feeding trough,” in the phrase of Peter Ferrara, director of budget and entitlement policy at the Institute for Policy Innovation and general counsel for the American Civil Rights Union.

The poor communities and their exploitive leaders benefited from the capitalization with a surge of homeownership, at least on the surface.

Wall Street benefited from increased sales of Fannie Mae and Freddie Mac mortgage-backed securities, as the housing market benefited from new capital channeled from Fannie and Freddie.

And the GSE heads profited, with political support in Washington in the form of campaign contributions. Topping the list of recipients of contributions from Fannie Mae and Freddie Mac since 1989 is the chairman of the Senate Banking Committee, Christopher Dodd of Connecticut. He has received $165,400. Second is Obama, receiving $126,349 despite having spent only three years in the Senate. Rep. Barney Frank, D-Mass., received $42,350.

February 1990

Madeline Talbott, a well-known radical ACORN leader and banking industry agitator, challenged the merger of a Chicago thrift, Bell Federal Savings and Loan Association, which responded that it was being bullied into irresponsible “affirmative-action lending policy.”

1991

ACORN interfered with a House Banking Committee meeting for two days protesting a move to bring CRA reform.

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“According to the Times, ‘…the same study showed no evidence that nonwhite mortgage applicants were being discriminated against.’”

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1992

Enforcement of CRA was “sporadic,” as the Washington Times notes, until a Federal Reserve Bank of Boston study asserted that there were “substantially higher denial rates for black and Hispanic applicants than for white applicants.”

Lynn Browne was approached by co-author Alicia Munnell to do the study because “community activists were complaining that mortgage loans were not being made in minority communities.”

According to the Times, however, “the study had mishandled statistics on minority default rates. When the errors were accounted for, the same study showed no evidence that nonwhite mortgage applicants were being discriminated against.”

Frank Quaratiello, writing in the Boston Herald, cites Stan Liebowitz: “My guess is that they were interested in finding a particular result.” Said Liebowitz, “Richard Syron was head of the Boston Fed at the time. He went on to be the head of Freddie Mac. They were looking for mortgage discrimination, and they found it.”

According to Quaratiello, Syron became Freddie Mac CEO and chairman in 2003 and “faced increasing pressure to buy up more and more risky mortgages, some of which the Boston Fed’s guide had, in effect, served to legitimize.”

Regarding Syron’s total compensation in 2007 of $18.3 million, Liebowitz reportedly quipped, “Nice reward for presiding over unprofessional research behavior, bankrupting Freddie Mac and crippling our financial system, all in the name of politically correct lending.”

September 1992

The Chicago Tribune described the ACORN agenda as “affirmative action lending.” And writes Stanley Kurtz, senior fellow with the Ethics and Public Policy Center in Washington, “ACORN was issuing fact sheets bragging about relaxations of credit standards that it had won on behalf of minorities.”

October 1992

Congress, enacting the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, allowed legislation to “amend and extend certain laws relating to housing and community development.”

The act created the Office of Federal Housing Enterprise Oversight (OFHEO) within HUD to “ensure that Fannie Mae and Freddie Mac are adequately capitalized and operating safely.” It also “established HUD-imposed housing goals for financing of affordable housing and housing in central cities and other rural and underserved areas.”

Rep. Jim Leach, R-Iowa, warned about the impending danger non-regulated GSEs posed. According to the Washington Post, he was concerned that Congress was “hamstringing” the regulator. The complaint was that OFHEO was a “weak regulator.” Leach worried that Fannie Mae and Freddie Mac were changing “from being agencies of the public at large to money machines for the stockholding few.”

Rep. Frank, according to the Post, countered that “the companies served a public purpose. They were in the business of lowering the price of mortgage loans.”

September 1993

The Chicago Sun-Times reports an initiative led by ACORN’s Talbott with five area lenders “participating in a $55 million national pilot program with affordable-housing group ACORN to make mortgages for low- and moderate-income people with troubled credit histories.”

Kurtz notes that the initiative included two of her former targets, Bell Federal Savings and Avondale Federal Savings, who had apparently capitulated under pressure.

July 1994

Represented by Obama and others, plaintiffs filed a class-action lawsuit alleging Citibank had “intentionally discriminated against the plaintiffs on the basis of race with respect to a credit transaction” and calling its action “racial discrimination and discriminatory redlining practices.”

November 1994

President Clinton addresses the housing issue: “I think we all agree that more Americans should own their own homes, for reasons that are economic and tangible and reasons that are emotional and intangible but go to the heart of what it means to harbor, to nourish, to expand the American dream.

“I am determined to see that you have the opportunity and together we can make that opportunity for the young families of our country. I am committed to a new and unprecedented partnership between industry leaders and community leaders and government to recommit our nation to the idea of homeownership and to create more homeowners than ever before.”

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“The [Clinton] administration announced the bold new homeownership strategy, which included monumental loosening of credit standards and imposition of subprime lending quotas.”

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June 1995

Republicans had won control of Congress and planned CRA reforms. The Clinton administration, however, allied with Rep. Frank, Sen. Ted Kennedy, D-Mass., and Rep. Maxine Waters, D-Calif., did an end-around by directing HUD Secretary Andrew Cuomo to inject GSEs into the subprime mortgage market.

As Kurtz notes, “ACORN had come to Congress not only to protect the CRA from GOP reforms but also to expand the reach of quota-based lending to Fannie, Freddie and beyond.” What resulted was the broadening of the “acceptability of risky subprime loans throughout the financial system, thus precipitating our current crisis.”

The administration announced the bold new homeownership strategy, which included monumental loosening of credit standards and imposition of subprime lending quotas. HUD reported that President Clinton had committed “to increasing the homeownership rate to 67.5% by the year 2000.”

The plan was “to reduce the financial, information and systemic barriers to homeownership” which was “amplified by local partnerships at work in over 100 cities.”

Kurtz concludes, “Urged on by ACORN, congressional Democrats and the Clinton administration helped push tolerance for high-risk loans through every sector of the banking system — far beyond the sort of banks originally subject to the CRA.

So it was the efforts of ACORN and its Democratic allies that first spread the subprime virus from the CRA to Fannie and Freddie and thence to the entire financial system. Soon, Democratic politicians and regulators actually began to take pride in lowered credit standards as a sign of “fairness” — and the contagion spread.

Attorney General Janet Reno, who had already won a number of bank lending discrimination settlements, sternly announces, “We will tackle lending discrimination wherever it appears.” With the new policy in full force, “No loan is exempt; no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement.”

1997

HUD Secretary Cuomo said, “GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas. ”

1998

By falsifying signatures on Fannie Mae accounting transactions, $200 million in expenses was shifted from 1998 to later periods, thereby triggering $27.1 million in bonuses for top executives.

James A. Johnson received $1.932 million; Franklin D. Raines received $1.11 million; Lawrence M. Small received $1.108 million; Jamie S. Gorelick received $779,625; Timothy Howard received $493,750; Robert J. Levin received $493,750.

April 1998

HUD announced a $2.1 billion settlement with AccuBanc Mortgage Corp. for alleged discrimination against minority loan applicants. The funds would provide poor families with down payments and low interest mortgages.

“Discrimination isn’t always that obvious,” said Secretary Cuomo in announcing the AccuBanc deal. “Sometimes more subtle but in many ways more insidious, an institutionalized discrimination that’s hidden behind a smiling face.”

Before the camera, Cuomo admitted the mandate amounted to “affirmative action” lending that would result in a “higher default rate.”

The institution would “take a greater risk on these mortgages, yes; to give families mortgages who they would not have given otherwise, yes; they would not have qualified but for this affirmative action on the part of the bank, yes. It is by income, and is it also by minorities? Yes.

“With the $2.1 billion, lending that amount in mortgages which will be a higher risk, and I’m sure there will be a higher default rate on those mortgages than on the rest of the portfolio.”

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“ACORN had been given a compelling incentive, as CRA allowed the organizations to collect a fee from the banks for their services in marketing the loans. The Senate Banking Committee had estimated that, as a result of CRA, $9.5 billion had gone to pay for services and salaries of the organizers.”

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May 1999

The Los Angeles Times reports that African-American homeownership is increasing three times as fast as that of whites, with Latino homeowners growing five times as fast, attributing the growth to breathing “the first real life into enforcement of the Community Reinvestment Act.”

This breath of “life” mandated that Fannie Mae and Freddie Mac buy mortgages with deviant down payments and debt-to-income ratios, which allowed lenders to approve mortgages for lower-income families that would have been denied otherwise.

By now, all pretense had disappeared and lending practices were based upon concerns of discrimination in the banking system regardless of the consequences. The administration threatened to veto a bill passed by the Senate that had “shortsightedly voted to retrench” CRA, as the Times put it.

Under pressure, Fannie Mae was resisting increased targeting, arguing that the result would be more loan defaults. Barry Zigas, head of Fannie Mae’s low-income efforts, argued, “There is obviously a limit beyond which (we) can’t push (the banks) to produce,” the Times reported.

Fall 1999

Treasury Secretary Lawrence Summers issued a warning: “Debates about systemic risk should also now include government-sponsored enterprises, which are large and growing rapidly.”

September 1999

With pressure from the Clinton administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans.

According to the New York Times, Fannie Mae’s Raines explained that “there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

With this action, Fannie Mae put itself at substantial risk in the event of an economic downturn. “From the perspective of many people, including me, this is another thrift industry growing up around us,” warned Peter Wallison, a fellow in financial policy studies at the American Enterprise Institute (AEI).

“If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” The danger was known.

A study by Freddie Mac, confirming earlier Federal Reserve and FDIC studies, contradicts race discrimination arguments for CRA. The study found that African-Americans with annual incomes of $65,000-$75,000 have on average worse credit records than whites making under $25,000. This showed that the difficulty in qualifying was not because of race but bad credit records. Accordingly, the Federal Reserve Bank of Dallas entitled a paper “Red Lining or Red Herring?”

——————————————————————————–

“City Journal warned that the Clinton administration had turned CRA into ‘a vast extortion scheme against the nation’s banks,’committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers.”

——————————————————————————–

2000

The National Community Reinvestment Coalition gave instructions on how to exploit the new CRA regulations. “Timely comments can have a strong influence on a bank’s CRA rating.” NCRC asserted: “To avoid the possibility of a denied or delayed application, lending institutions have an incentive to make formal agreements with community organizations.”

That is, the mere threat to intervene in the CRA review process had well-equipped the ACORN groups for a massive shakedown.

Moreover, ACORN had been given a compelling incentive, as CRA allowed the organizations to collect a fee from the banks for their services in marketing the loans. The Senate Banking Committee had estimated that, as a result of CRA, $9.5 billion had gone to pay for services and salaries of the organizers.

Winter 2000

The City Journal warned that the Clinton administration had turned CRA into “a vast extortion scheme against the nation’s banks,” committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers.

March 2000

Rep. Richard Baker, R-La., proposed a bill to reform Fannie and Freddie’s oversight in a House subcommittee on capital markets. Rep. Frank dismissed the idea, saying concerns about the two were “overblown” and there was “no federal liability there whatsoever.”

Treasury Undersecretary Gary Gensler testified in favor of GSE regulation. He insisted the bill would promote private market discipline, increase transparency and preserve market competition, reducing the potential for subsidized competitors to distort financial markets.

Fannie Mae spokesmen responded by calling his testimony “inept,” “irresponsible” and “unprofessional.”

The AEI’s Wallison testified that the bill was “a milestone in congressional efforts to gain control of the Government Sponsored Enterprises.” He added that the “political courage and stamina that was required to introduce this bill and to continue to press it forward cannot be overstated.”

He emphasized that the bill was only an “interim step in the necessary process of dismantling the GSEs and eliminating both their threat to the taxpayers and to the private financial sector of our economy.”

Fannie and Freddie “pose a serious problem for both the public and private sectors,” Wallison explained. First, they contain an inherent contradiction: “It is a shareholder-owned company, with the fiduciary obligation to maximize profits, and a government-chartered and empowered agency with a public mission. It should be obvious that it cannot achieve both objectives. If it maximizes profits, it will fail to perform its government mission to its full potential. If it performs its government mission fully, it will fail to maximize profits.”

Sounding an alarm on a “vicious and dangerous cycle,” Wallison continued: “Fannie and Freddie must grow in order to maintain their profitability and hence their high stock prices, but there is no countervailing check on their growth — no effective competition, no required government approvals, and no fear in the financial markets that there is any risk associated with financing this growth.

“Moreover, their fiduciary obligations to their shareholders require them to exploit their subsidy to the fullest extent possible. These are agencies that are — in the fullest sense of the phrase — out of control.”

Congressional Democrats and GSE representatives vigorously attacked any such criticism. “We think that the statements evidence a contempt for the nation’s housing and mortgage markets,” rebuffed Sharon McHale, a Freddie Mac spokeswoman. Congressional Democrats and GSE representatives prevailed.

June 2000

Competitive Enterprise Institute President Fred L. Smith Jr., writing in Investor’s Business Daily, recalls testifying before the House Financial Services Committee that GSE “special privileges create a serious hazard to the market, to taxpayers (and) to the economy.”

He warned that the GSEs were “strange organizations, neither private-sector fish nor political-sector fowl” and “as a result, no one is quite sure how these entities should be evaluated or held accountable.” These new debt portfolios “will certainly increase the likelihood of a Fannie-Freddie default.”

Rep. Paul Kanjorski, D-Pa., responded: “Mr. Smith, that is almost a fallacious argument,” adding that rapid growth of GSE debt holdings was nothing to worry about as it simply reflected inflation and the growth of population. Everything, proportionately, is that much larger.”

Added Rep. Marge Roukema, R-N.J.: “Very few banks or S&Ls could, even in this day and age, even now, meet the stress-testing requirements which Fannie and Freddie are required to meet.”

Regarding the Treasury Department line of credit, Rep. Carolyn Maloney, D-N.Y., said “it is really symbolic, it is obsolete, it has never been used. Would you explain why it would be important to repeal something that seems to be of little use?”

Smith: “As long as the pipeline is there, it is like it is very expandable. . . . It is only $2 billion today. It could be $200 billion tomorrow.”

Because of Democrat obfuscation, Smith’s “tomorrow” arrived in 2008, when Treasury Secretary Henry Paulson put Fannie and Freddie into conservatorship.

April 2001

The fiscal year 2002 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” a White House release said, because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting federally insured entities and economic activity.”

July 2001

At this time a subcommittee hearing was held on a bill proposed by Rep. Baker to transfer supervisory and regulatory authority over Fannie Mae and Freddie Mac to the Board of Governors of the Federal Reserve System and abolish the OFHEO.

Rep. Paul Kanjorski, D-Pa., complained that the bill “would dramatically restructure the current regulatory system for Fannie Mae and Freddie Mac. In my opinion, it also represents a solution in search of a problem.

“Nearly a decade ago, Congress created a rational, reasonable and responsive system for supervising GSE activities, and that system with two regulators is operating increasingly effectively. H.R. 1409 would unfortunately interrupt this continual progress.”

March 2002

In an interview with Business Week, Fannie Mae Vice Chairman Jamie Gorelick commented on prospects for the coming year: “We are expecting a very, very strong 2002. . . . We believe we are managed safely. . . . Fannie Mae is among the handful of top-quality institutions . . . and we have consistently exceeded every standard that examiners have set for us.”

May 2002

In a letter from the Office of Management and Budget to OFHEO, President Bush calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac.

February 2003

OFHEO reports that “although investors perceive an implicit federal guarantee of (GSE) obligations . . . the government has provided no explicit legal backing for them,” warning that unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market, according to a White House release.

——————————————————————————–

“I have concerns that if appropriate resources aren’t allocated for internal risk management, the consequences will be far more severe than just a real estate slowdown…the American taxpayer could be called on to pay off the debt in some sort of bailout.”

- Rep. Richard Baker (R-Louisiana)

“These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis…The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

- Rep. Barney Frank (D-Mass)

——————————————————————————–

2003

Rep. Richard Baker, R-La., chairman of the House financial services subcommittee with GSE oversight over Fannie Mae and Freddie Mac, was informed by OFHEO “on the salaries paid to executives at both companies,” according to the Washington Post.

Reportedly, “Fannie Mae threatened to sue Baker if he released it, he recalled. Fearing the expense of a court battle, he kept the data secret for a year.”

June 2003

Freddie Mac reported it had understated its profits by $6.9 billion. OFHEO director Armando Falcon Jr. requested that the White House audit Fannie Mae.

July 2003

Sens. Chuck Hagel, R-Neb., Elizabeth Dole, R-N.C., and John Sununu, R-N.H., introduced legislation to address regulation of Fannie Mae and Freddie Mac. The bill was blocked by Democrats.

September 2003

In an interview with Ron Insana for CNN Money, Rep. Baker warned, “I have concerns that if appropriate resources aren’t allocated for internal risk management, the consequences will be far more severe than just a real estate slowdown. The losses would fall quickly through the capital these companies have and down to shareholders and taxpayers.

“These companies have some of the lowest capital margins of any financial institution in the nation, yet, at the same time, they are two of the largest. The concern is that if something doesn’t work out the way they predict, the American taxpayer could be called on to pay off the debt in some sort of bailout.”

The New York Times reports that the administration recommended “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago,” calling for new supervision of Fannie Mae and Freddie Mac by the Treasury Department. Reportedly, congressional Democrats “fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.”

Treasury Secretary John Snow testifies that Congress should enact “legislation to create a new federal agency to regulate and supervise the financial activities of our housing-related government-sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements, says a White House release.

But Rep. Frank replied: “I do not think we are facing any kind of a crisis. That is, in my view, the two government-sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. . . . I do not think at this point there is a problem with a threat to the Treasury. . . . I believe that we, as the federal government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.”

Frank also said: “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. . . . The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Added Rep. Melvin Watt, D-N.C.: “I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing.”

October 2003

Fannie Mae discloses a $1.2 billion accounting error.

November 2003

Greg Mankiw, chairman of the president’s Council of Economic Advisers, warned: “The enormous size of the mortgage-backed securities market means that any problems at the GSEs matter for the financial system as a whole. This risk is a systemic issue also because the debt obligations of the housing GSEs are widely held by other financial institutions.

“The importance of GSE debt in the portfolios of other financial entities means that even a small mistake in GSE risk management could have ripple effects throughout the financial system,” a White House release states. Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.”

To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE,” says a White House release.

February 2004

The fiscal 2005 budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore . . . should be replaced with a new strengthened regulator,” the White House argued.

Mankiw cautions Congress to “not take (the financial market’s) strength for granted.” Again, the call from the administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.”

June 2004

Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform. “We do not have a world-class system of supervision of the housing government-sponsored enterprises (GSEs),” he said, “even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system.

“Therefore, the administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac and the Federal Home Loan Banking System.”

September 2004

OFHEO reported that Fannie Mae and CEO Raines had manipulated the agency’s accounting to overstate its profits. Congress and the Bush administration sought strong new regulation and authority to put the GSEs under conservatorship if necessary.

The Washington Post reports that Fannie Mae and Freddie Mac responded by orchestrating a major campaign “by traditional allies including real estate agents, home builders and mortgage lenders. Fannie Mae ran radio and television ads ahead of a key Senate committee meeting, depicting a Latino couple who fretted that if the bill passed, mortgage rates would go up.” Again, GSE pressure prevailed.

——————————————————————————–

“Mr. Chairman, we do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Mr. Frank Raines.”

- Rep. Maxine Waters (D-California)

——————————————————————————–

October 2004

Rep. Baker again warned about the coming crisis: “Then there’s the lesson of a company, Frankenstein-like, seemingly grown so powerful that it can intimidate and arrogantly flout all accountability to the very government that created it.

“Although their bonds bear the disclaimer ‘not backed by the full faith and credit of the U.S. government,’ the market does not believe it and looks right past the companies’ risk strategies to the taxpayers’ pockets.”

In subcommittee testimony, Democrats vehemently reject regulation of Fannie Mae in the face of dire warning of a Fannie Mae oversight report.

A few of them — Black Caucus members in particular — are angry at the OFHEO director as they attempt to defend Fannie Mae and CRA.

Committee Chairman Baker called the report “very troubling” and “of extraordinary importance not only to those who wish to own a home, but as to the taxpayers of this country who would pay the cost of the cleanup of an enterprise failure. . . . The analysis makes clear that more resources must be brought to bear to ensure the highest standards of conduct are not only required, but more importantly, they are actually met.”

In reply, Rep. Waters said: “Through nearly a dozen hearings . . . we were trying to fix something that wasn’t broke. . . . We do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Mr. Frank Raines.”

Added Rep. Gregory Meeks, D-N.Y.: “I’m just pissed off at OFHEO. Because if it wasn’t for you, I don’t think that we’d be here in the first place. And now the problem . . . we’re faced with is maybe some individuals who wanted to do away with GSEs in the first place, you’ve given them an excuse to try to have this forum so that we can talk about it and maybe change the the direction and the mission of what the GSEs had, which they’ve done a tremendous job.

“There’s been nothing that was indicated that’s wrong with Fannie Mae. Freddie Mac has come up on its own. And the question that then presents is the competence that your agency has with reference to deciding and regulating these GSEs . . . I am very upset, because you . . . may be giving any reason to give someone heart surgery when they really don’t need it.”

But Rep. Ed Royce, R-Calif., said he hoped the committee would “move swiftly to create a new regulatory structure for Fannie Mae, for Freddie Mac, and the Federal Home Loan Banks.”

Replied Rep. Lacy Clay, D-Mo.: “This hearing is about the political lynching of Franklin Raines.”

Royce: “There is a very simple solution. Congress must create a new regulator with powers at least equal to those of other financial regulators, such as the OCC or Federal Reserve.”

Rep. Gregory Meeks, D-N.Y.: “Why should I have confidence, why should anyone have confidence, in you as a regulator at this point?”

Armando Falcon, OFHEO director: “Sir, OFHEO did not improperly apply accounting rules; Freddie Mac did. OFHEO did not fail to manage earnings properly; Freddie Mac did. So this isn’t about the agency engaging in improper conduct. It’s about Freddie Mac.”

Rep. Christopher Shays, R-Conn., noted: “We passed Sarbanes-Oxley, which was a very tough response to that, and then I realized that Fannie Mae and Freddie Mac wouldn’t even come under it. They weren’t under the ’34 act, they weren’t under the ’33 act, they play by their own rules, and I’m tempted to ask how many people in this room are on the payroll of Fannie Mae, because what they do is basically hire every lobbyist they can possibly hire. They hire some people to lobby, and they hire some people not to lobby so that the opposition can’t hire them.”

Rep. Arthur Davis, D-Ala.: “You’re making very broad and categorical judgments about the management of this institution, about the willfulness of practices that may or may not be in controversy. You’ve imputed various motives to the people running the organization. You went to the board and put a 48-hour ultimatum on them without having any specific regulatory authority to put that kind of ultimatum on them. That sounds like some kind of an invisible line has been crossed.”

Rep. Shays: “Fannie Mae has manipulated OFHEO for years. And for OFHEO to finally come out with a report as strong as it is, tells me that’s got to be the minimum not the maximum.”

Rep. Frank: “You seem to me saying, ‘Well, these are in areas which could raise safety and soundness problems.’ I don’t see anything in your report that raises safety and soundness problems.”

Rep. Waters: “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. What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission, a mission that has seen innovation flourish from desktop underwriting to 100% loans.”

Rep. Lacy Clay, D-Mo.: “I find this to be inconsistent and and a rush to judgment. I get the feeling that the markets are not worried about the safety and soundness of Fannie Mae as OFHEO says that it is, but of course the markets are not political.”

Rep. Frank: “But I have seen nothing in here that suggests that the safety and soundness are at issue, and I think it serves us badly to raise safety and soundness as kind of a general shibboleth when it does not seem to me to be an issue.”

Rep. Don Manzullo, R-Ill.: “Mr. Raines’ $1.1 million bonus and a $526,000 salary. Jamie Gorelick, $779,000 bonus on a salary of $567,000. This is . . . nothing less than staggering.

“The 1998 earnings per share number turned out to be $3.23 . . . a result that Fannie Mae met the EPS maximum payout goal right down to the penny.

“Fannie Mae understood the rules and simply chose not to follow them. . . . If Fannie Mae had followed the practices, there wouldn’t have been a bonus that year.”

Rep. Shays: “And you have about 3% of your portfolio set aside. If a bank gets below 4%, they are in deep trouble. So I just want you to explain to me why I shouldn’t be satisfied with 3%?”

Fannie Mae CEO Raines: “Because banks don’t, there aren’t any banks who only have multifamily and single-family loans. These assets are so riskless that their capital for holding them should be under 2%.”

——————————————————————————–

“If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis…We put at risk our ability to preserve safe and sound financial markets in the United States, a key ingredient of support for homeownership.”

- Fed Chairman Alan Greenspan

——————————————————————————–

January 2005-July 2006

Sen. Hagel, with Sens. Sununu and Dole, and later Sen. John McCain, R-Ariz., re-introduced legislation to address GSE regulation.

According to the Wall Street Journal, “The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006.”

Fed Chairman Alan Greenspan testified that the size of GSE portfolios “poses a risk to the global financial system. It would be difficult, if not impossible, to bail out the lenders (GSEs) . . . should one get into financial trouble.” He added, “If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis. . . . We put at risk our ability to preserve safe and sound financial markets in the United States, a key ingredient of support for homeownership.”

Greenspan warned that if the GSEs “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. . . . We are placing the total financial system of the future at a substantial risk.”

“If that bill had become law, then the world today would be different,” according to Bloomberg News Service. “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.”

April 2005

Treasury Secretary Snow again calls for GSE reform: “Events that have transpired . . . reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America. . . . Half-measures will only exacerbate the risks to our financial system,” read a White House release.

May 2005

The AEI’s Wallison warned that “allowing Fannie and Freddie to continue on their present course is simply to create risks for the taxpayers, and to the economy generally, in order to improve the profits of their shareholders and the compensation of their managements. It is a classic case of socializing the risk while privatizing the profit.”

——————————————————————————–

“After years of Democrats blocking legislation, Sens. Hagel, Sununu, Dole and McCain write a letter to Majority Leader Bill Frist demanding that GSE regulatory reform be ‘enacted this year’ to avoid ‘the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.’”

——————————————————————————–

January 2006

Greenspan, in a letter to Sens. Sununu, Hagel and Dole, warned that the GSEs’ practice of buying their own mortgage-based securities “creates substantial systemic risk while yielding negligible additional benefits for homeowners, renters or mortgage originators.” He stated, “(T)he GSEs and their government regulator need specific and unambiguous congressional guidance about the intended purpose and functions of Fannie’s and Freddie’s investment portfolios.”

March 2006

Sens. Sununu and Hagel introduce an amendment to a Lobbying Reform Bill directing GAO to study GSE lobbying and requiring HUD to audit the GSEs annually.

May 2006

After years of Democrats blocking legislation, Sens. Hagel, Sununu, Dole and McCain write a letter to Majority Leader Bill Frist demanding that GSE regulatory reform be “enacted this year” to avoid “the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”

May 2006

McCain addresses the Senate: “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.

“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. . . . OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

“If Congress does not act,” McCain said, “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.”

April 2007

Sens. Sununu, Hagel, Dole and Mel Martinez, R-Fla., re-introduce legislation to improve GSE oversight.

April 2007

The New York Times writes that the “democratization of credit” is “turning the American dream of homeownership into a nightmare for many borrowers.”

The “newfangled mortgage loans” — called affordability loans — “represent 60% of foreclosures.”

September 2007

President Bush: “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs. . . . The United States Senate needs to pass this legislation soon.”

2007-08

The housing bubble began to burst, bad mortgages began to default and finally the Fannie Mae and Freddie Mac portfolios were revealed to be in collapse. And the testimony is evident as to why. As Wallison put it, “Fannie and Freddie were . . . the poster children for corporate welfare.”

September 2008

Rep. Davis now admits Democrats were in error: “Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable homeownership when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie: We were wrong.”

Today 2008

The narrative is of another failed socialist experiment, this time a massive federal effort imperiling the whole U.S. banking industry.

rustyreturns,

Two questions –
1. If it is the policies advocated by Clinton/Jackson that caused this crisis, why did it take 8-10+ years for these mortgages to turn “toxic”?

2. If the policies you mentioned were so bad, why didn’t Bush and the Republicans who controlled Congress from 2000 to 2006 do anything to repeal them?

why didn’t Bush and the Republicans who controlled Congress from 2000 to 2006 do anything to repeal them?
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What was that about an “ownership society” I seem to remember…?

“This is a lie. Notice how the author of this idiotic piece merely asserts that this is so, instead of providing a shred of evidence to back up his claims.”
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SZ — You’ve got to be kidding right?
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You actually wrote this lengthy, detailed response to rusty to convince who exactly? We told you from the begining, when you were lecturing the rest of us about why rusty was a rightist and not a troll, that he was an unrepentant, mean-spirited racist. This is an awful lot of energy expended just to say sorry you’ll were right!

Joe, I just wanted to say that this was a quite informative post, and that it’s a shame you’re got losers like hulagate and rustyreturns spamming your comments section.

rustyreturns,

Two questions -
1. If it is the policies advocated by Clinton/Jackson that caused this crisis, why did it take 8-10+ years for these mortgages to turn “toxic”? I believe a robust economy backed up with tax cuts initiated by Bush and the War in Iraq expending billions of dollars staved off any collaspe. As has been rightfully exposed by the big government spending by Bush from 2000 to 2006 kept the markets from collasping. The Real Estate boom during this time also kept the collaspe at bay until the market reached total saturation and everything failed.

2. If the policies you mentioned were so bad, why didn’t Bush and the Republicans who controlled Congress from 2000 to 2006 do anything to repeal them?
From the long list of “Affirmative Action” laws enacted for 30+ years I posted above, the Democrats would have killed any legislation proposed to stop these insane lending practices.
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“After years of Democrats blocking legislation, Sens. Hagel, Sununu, Dole and McCain write a letter to Majority Leader Bill Frist demanding that GSE regulatory reform be ‘enacted this year’ to avoid ‘the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”
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Read through the text I posted of the time-line of Freddie and Fannie afreeland. You will get the true picture of why we are now in this economic mess. Not some distorted claim that stuart z attempts to show.

Rusty:
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You’re engaging in a type of argument called Proof by Verbosity:

Argumentum verbosium
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Proof by verbosity is also used colloquially in forensic debate to describe a logical fallacy (sometimes called “argumentum verbosium”) that tries to persuade by overwhelming those considering an argument with such a volume of material that the argument sounds plausible, superficially appears to be well-researched, and that is so laborious to untangle and check supporting facts that the argument is allowed to slide by unchallenged. It is the fallacy epitomized by W. C. Fields’ quote: “If you can’t dazzle them with brilliance, baffle them with bull.”

The bottom line is that you can’t substantially connect what is essentially a tangential phenomenon –the over-leveraging and poor regulation of Fannie and Freddie– to the actual over-leveraging of banks, which had completely different problems arising from their natural behavior in unregulated markets.
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The policy of shipping shrink-wrapped pallets of thousand-dollar bills to Iraq was perhaps even more of a guarantor of waste, fraud and abuse than the failed oversight of Fannie and Freddie, but at least we’re honest enough intellectually here on the left to admit that this had nothing to do whatsoever with the economic crisis.

Dee:
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SZ — You’ve got to be kidding right?
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I don’t write these things merely for Rusty’s consumption, I hope that you understand.

Then you should heed your own advice, stuart of “You’re engaging in a type of argument called Proof by Verbosity:”.
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I know on a regular basis that you apply this tactic. And, I can substantiate every single notation of my post.

SZ — Why do you keep engaging Rusty? Do you really expect to have an argument with someone incapable of recognizing reality?
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You know I think you’re great on most days but right now all you are doing is feeding your ego at the expense of the rest of us. While you are busy impressing yourself with your knowledge and debating skills, rusty is destroying the thread and turning of potential commenters tired of scrolling past lines after line of gibberish.

that’s off not of

And to Dee, crawl back under your liberal rock. Your “racist” tags do not work anymore.

Dee:
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So…it’s my fault?
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Rusty puts up a sourced claim, I debunk it, he gets angry and pastes a whole gigantic piece, and I get an accusation from you that I’m “feeding my ego at the expense of the rest of us”?
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Sorry Dee, but I don’t see it that way.
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I’m not “impressing myself” at all. If you’re going to character assassinate me, why don’t you tell me exactly how great your contributions are?
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Why are you not simply “feeding your ego”, Dee? How are your comments distinguished from mine? I debunk a rightist’s sourced arguments written by a professional conservative at TownHall.com, and you do…what, exactly?
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Maybe you should think a little bit before talking about someone else’s character, Dee.

BOT – back on topic
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The recent “ups” of the market reflect the the “priming” action worked as advertised, much like priming the carb on an old car to get it running.
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Now, to keep things going, we need a good infrastructure of permanent jobs (and, no, I’m not talking about a bunch of service industry-related-only jobs).
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People will buy when they believe they have long-term job security and health care, so that they don’t have to worry so much about this roller-coaster ride of an economy. (Continuing the previous analogy, we also need a good fuel pump and full tank of gas to keep the car running.)
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We can’t just keep priming it forever. But it does need to be primed NOW until something more permanent is available

afguy Says:
Monday, April 20, 2009 at 1:01 pm
BOT – back on topic
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“The recent “ups” of the market reflect the the “priming” action worked as advertised, much like priming the carb on an old car to get it running”.
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Apparently you have not seen the Dow Jones in the past few hours. It is down over 200+ points.

Apparently you have not seen the Dow Jones in the past few hours. It is down over 200+ points
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I think I read something about the lack of faith in the financial industry being the main problem.
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The Dow Jones Average shouldn’t be the only goal in judging the financial health of the country. It’s a gauge to the economy, not a goal in and of itself.

Taking actions simply to make the stock market go up has been part of the problem, IMHO.

Rusty,

“War in Iraq expending billions of dollars staved off any collaspe”

So, when Bush engaged in “borrow and spend” policies it helped the economy? Why not give Obama the same chance?

“the Democrats would have killed any legislation proposed to stop these insane lending practices.”

Why didn’t the Republicans use the “Reconcilliation” procedural rule they used to pass the tax cuts in 2001 and 2003 to get any regulatory legislation past the Democrats that would have averted this crisis?

Too many long ass posts to figure out whats what. Ill be up in Joe’s thread up top.

Thanks for the impassioned defense, SG.
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Super.

I guess that I don’t really have to do this at all.
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Enjoy your forum, folks.

SZ
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Impassioned defense of what exactly? A flame war with a troll that will never see things your way or even remotely so? I engage with those who are interested in honest debate. Its not my deal to refute every talking point just because someone puts a dumb ass comment up. If its something thats in debate I will point towards the truth. But what is going on in this thread seems to be a contest to see who can write the longest diatribe. I don’t feel the need to defend that at all. I said my piece on trolls and you disagreed. If you feel this is the most effective way for you to engage then have at it. But that doesn’t mean everyone else is going to think its wise or give you plaudits for it. Thats your deal, you do you.

what is going on in this thread seems to be a contest to see who can write the longest diatribe
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If that’s what you think of my contributions, if that’s what you’re saying I’m doing, don’t worry about having to wade through my garbage posts any longer.

SZ
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Understand that what you are doing right now looks a lot like feeling sorry for yourself. If you don’t want to comment anymore don’t. If you do then do so. But you weren’t commenting for me in the first place. Hell I certainly hope you weren’t anyway.

What a shame. The most intellegent leftist of them all bites the dust. A true loss.

I actually thought s_z’s post at 12:07 was very informative. And I’m impressed that he got rusty to respond somewhat substantively.

senior Obama Administration official met with a group of Time-Warner journalists in New York and shocked the group of us
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Who was the official, Joe? Why did you grant him anonymity?

SZ — I don’t enjoy questioning your motives, especially when I think the more questionable aspects may be unconscious. However, I still have to call it like I see it and it seems that you tend to lecture other people on technicalities and etiquette and sometimes you get immersed in proving the rightness of your opinion at the expense of real communication.
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The last time it was the difference between rightists and trolls and you defended rusty as a rightist, at the expense of the rest of us had already been exposed to his true troll colors. But you chose to ignore the opinions of others and gave rusty a legitimacy that he did not deserve and because your opinion is valued he used your status to further his ridicule of other commenters.
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Now I understand that you might have wanted to draw your own conclusions because you weren’t there to witness the abusive, racist dialogue, but in so doing you were also dismissing the opinions of others and denying them the level of respect that is so often afforded to you.
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It seems to me that you readily accept your status as a high valuable commenter and because of that status your admonishments to others for straying away from the mores of the blogosphere carry more weight. Using that elevated status you accused others of misunderstanding rusty and determined that calling him a racist was unwarranted. However, what you failed to realize is that personal attacks, especially of the racist variety is Rusty’s default position. In fact, I found it quite humorous when you called him on a racially insensitive remark and he apologized, as if it was sincere.
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Now I see this post and here you are thoroughly admonishing rusty for not following the rules of argument, meanwhile his responses are destroying the thread and that is not really of consequence to you because at the moment the inability for the rest of us to communicate is not your primary concern. Now, I’m not trying to communicate anger, I just want you to look at another perspective.
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You might think that the ego comment was being snarky. However, I was being literal. Your arguments come from the things that are most important to you. Your ego compels you to remind of us of the proper etiquette, terminology and technical expectations of interaction on the Internet. And while this information is valuable, it is not the only valuable aspect to communication. For a community to thrive all participant need to be respected. In this instance you put your personal pet peeves above the well being of the swamp by validating rusty in a way that diminishes the rest of the commenters.
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shorter version = say sorry sz we were right about rusty.

shorter version = Dee the troll!!!

Goddammit, if you don’t like s_z’s comments use the scroll wheel. Sometimes I don’t have the time to read through his posts. Sometimes I wonder why he tries to interact with rusty and hula. But his posts are still informative and I’ve seen him get results from those two.
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Also, I’ve seen pretty much everyone here get on their high horse and start galloping around, myself included. It’s kind of what we do here. So don’t point at s_z as being some sort of special case, in that respect.

I’m not one to sling terms like “racist” around willy-nilly. 99% of the time it is totally counter-productive.
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But rusty has it coming to him. What kind of idiot believes that the financial crisis was caused by poor blacks and Maxine Waters? The question answers itself.

[...] This Joe Klein piece is excellent. [...]

Cliff
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The rest of your comment aside, define results.

Results: getting rusty to do research, and to do more than call us names and laugh wildly.
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Or, getting hulagate to respond with at least one coherent sentence.

We’re not going to have an intra-group flame war, are we? It’s easy enough to skip posts, now that the poster’s name is at the top of the comment. R*sty’s dump of his entire Internet bookmark list was no worse than H*l*’s “contributions.”
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I say this as someone whose own contributions to this forum are basically limited to snark.

Cliff
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Ok, we just define results differently. Especially when on the thread above this one rusty goes right back to calling all us “silly libs” appeasers breaking Godwin’s law within the first 3 comments on the thread. But hey, to each their own.

Cliff — it’s not about the length of SZ’s post, or the informative value he briungs to the table. It’s about rusty period.

Yeah, I’m not saying s_z has gotten rusty to change his mind or his behavior in any fashion. I’m just saying he seems to get him to respond more substantively than almost anyone else.

They really don’t get it.
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http://nymag.com/news/businessfinance/56151/
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The sense of entitlement is jaw-dropping.

Dear Swampland:
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Please get rid of the trolls who keep ruining valuable discussions on important topics.
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Thank you for your consideration

Rusy and spob both have their moments but, more often than not, go back to name-calling and sarcasm when you stop agreeing with them on any given point.
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I’m pretty sure the name-calling signals the point at which they run out of logical ammo.

Cliff
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I understand what you are saying, but personally I don’t feel the need to be derided any more substantively than normal. I’ll just leave it alone after this.

Meanwhile, back to Joe Klein’s piece, which is alarming in its tarring of the entire banking industry with the brush of the current financial crisis. It ain’t all the banks, Joe, just some of them. My favorite example is Iceland, where every bank crashed and burned due to hubris and excess leverage except for one. My wife wants everyone to know that the world’s financial crisis is due to too much testosterone!
http://www.businessinsider.com/women-would-have-never-gotten-us-into-this-mess-2009-3

sg – Fair enough. For most of us the only thing to come out of a conversation with rusty is a headache.

The Guiding Doctrine for the American Government by the People

1) Nationalize the illegal and unnecessary private Federal Reserve Banking System with no compensation and keep their, now our, bank notes as our national currency. After all America gave it its value. They have cheated America since their formation in 1913. Only our U.S. Treasury, aka our National Bank will lend money and it will always be lent interest free, to all credit worthy borrowers. Everyone that is credit worthy will be eligible for a forty year interest free mortgage, refinancing your homes is acceptable. All credit worthy Businesses and all Municipalities can borrow interest free from our National Bank, as well.
2) All banks can be loan originators if they choose, and their origination fee will be less than 1%, no other fees will be allowed. They will not be authorized to lend money. Paying and receiving interest will be banned. The banks will carry out all the other standard banking services.
3) Retire our National Debt by paying all of our Treasury obligations, by issuing Treasury checks. The Treasury will issue checks to pay our nations bills. No need to borrow our own money with interest ever again. Control inflation and deflation through strict regulations. That’s what computers are for.
4) Ban currency trading in America and by Americans. Have our Treasury set a permanent FAIR exchange rate with every country.
5) Begin a National Sales tax to replace the entire IRS tax system. Immediately abolish income taxes in America.
6) Trading in food and fuel products futures will be banned in America and by Americans.
7) Lobbyists will not be permitted to speak to or visit and meet with any government employee with out having a representative of the People’s Oversight Office there to record everything. This is a new department that will be set up as a checks and balance over our elected officials in Washington D.C.
8) Give life in prison with no parole and no pardons to anyone convicted of public corruption. We did it to the drug dealers and they haven’t hurt America near as much as our corrupted elected officials and government employees have.

http://www.blogdis.com

They really don’t get it.
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jayack, do you think a personal delivery would help? Say, a thousand unemployed people whose aggregate salary was 10% of what one of these “unfortunate vistims” bilked out of the system last year showing up with their unpaid doctor bills?

You want change? You don’t have to march to Washington en masse. Have one thousand people every day in America show up at each and every Congress persons home and their offices to protest their corruption.

Power to the people if you’re not too busy or lazy to insist on these changes. Take the profit out of lending and we’re on our way. Old capitalism is greed driven and free markets are predator driven. We need a government for the people, not for THE FED, Wall Street, The Industril Military complex, The Currency traders and bankers, period. Who needs interest on loans, not me. I’m for good Capitism, and I’m not talking socialism, even thoigh we do need some of that too.

The Guiding Doctrine for the American Government by the People

1) Nationalize the illegal and unnecessary private Federal Reserve Banking System with no compensation and keep their, now our, bank notes as our national currency. After all America gave it its value. They have cheated America since their formation in 1913. Only our U.S. Treasury, aka our National Bank will lend money and it will always be lent interest free, to all credit worthy borrowers. Everyone that is credit worthy will be eligible for a forty year interest free mortgage, refinancing your homes is acceptable. All credit worthy Businesses and all Municipalities can borrow interest free from our National Bank, as well.
2) All banks can be loan originators if they choose, and their origination fee will be less than 1%, no other fees will be allowed. They will not be authorized to lend money. Paying and receiving interest will be banned. The banks will carry out all the other standard banking services.
3) Retire our National Debt by paying all of our Treasury obligations, by issuing Treasury checks. The Treasury will issue checks to pay our nations bills. No need to borrow our own money with interest ever again. Control inflation and deflation through strict regulations. That’s what computers are for.
4) Ban currency trading in America and by Americans. Have our Treasury set a permanent FAIR exchange rate with every country.
5) Begin a National Sales tax to replace the entire IRS tax system. Immediately abolish income taxes in America.
6) Trading in food and fuel products futures will be banned in America and by Americans.
7) Lobbyists will not be permitted to speak to or visit and meet with any government employee with out having a representative of the People’s Oversight Office there to record everything. This is a new department that will be set up as a checks and balance over our elected officials in Washington D.C.
8) Give life in prison with no parole and no pardons to anyone convicted of public corruption. We did it to the drug dealers and they haven’t hurt America near as much as our corrupted elected officials and government employees have.

http://www.blogdis.com

Furthermore; If any individual or business has good credit they should be able to borrow money from our Treasury interest free. Municipalities should be able to this too, we do not need middlemen to lend us our country’s money. The few that been anointed to have dominion over our money must stop right now. No more National Debt because of The FED and a crooked government.

[...] things are different now: On late Friday afternoon, a senior Obama Administration official met with a group of Time-Warner [...]

Stuart,
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Though it contradicts my own disengagement (to preserve my health and inner nihilism), don’t allow a few voices to drive you away. If you did, it would appear that ego charges have some merit.
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Though it irks me to agree with Dee, re: engaging the nutters (or anything else), I have to admit that I do. Don’t waste your time or talent. I know that you’re all for A) respectful discourse and B) trying to shape hearts and minds of lurkers and moderates everywhere, but I’d venture to say that C) what it boils down to is a painfully reductive L-R thing. While we can scroll along, many of us look to your comments as one of the few redeeming qualities of the Swamp, occasional lapses of hubris notw/standing. Thus, when we see you feeding trolls we’re a bit d-pointed.
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Personally, I look to you and P-luk to keep the Obamabots and Klein-centrists honest. Few real progressives are in residence here.

I think rustyreturns and the other loser hulagate need to go back to their doctors and ask for a new set of medications because the ones they are presently on have ceased working. As for whoever called them racist or called rusty a racist–I’m with you on that one. I would venture to say that the racist part is a only a byproduct of a much larger issue which is madness or at least brainwashing by the Glenn Becks, Rush Limbaughs and the Faux News of the world. They both seem to have the intellectual curiosity of a thirteen year old–maybe they are thirteen, sitting in their parents basements. It certainly would not surprise me. Who else but children would continue to say the same things over and over again until someone paid attention to them–it’s like mommy, mommy, mommy while they tug on your sleeve.

Oregon JC:
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If you did, it would appear that ego charges have some merit.
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I’ll consider this.

[...] Here is the original post [...]

[...] Quoting Joe Klein: [W]hen it comes to actual goods and services–which hybrid automobile engine is best–the market is inevitably a better judge of quality than the government. But untrammeled markets, in which Ponzi products are traded back and forth, need to be policed and eliminated–and the government has an important, and necessarily intrusive, role in channeling us back toward a rock-solid foundation and away from the flim-flam that is choking us. That is where we stand now. That is what the bankers refuse to acknowledge, but it is what the public voted for last November. [...]

I’m with Cliff. stuart provides a valuable service by engaging with Rusty–he posts factual, referenced debunkings of rw talking points. For someone like me that only has about 30 minutes a day to surf the internet that really saves me a lot of time of having to do that research and connect those dots myself. Because I may have a gut feeling that something is right or wrong, but gut feelings don’t cut it in the real the world.
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Secondly, I fully support stuart’s attempts to communicate with those he disagrees with. Simply dismissing the other side as trolls may be a lot easier, but it doesn’t prove you’re any better than they are. What proves you are better is rising above their BS and responding with logic and facts. I know that you know this is true, so you’re calling out stuart–even insisting that he sink to your level–shows me is that you are feeling guilty about your own failure to stay on the high ground. You lost your temper with Rusty at some point, and now you’re trying to justify it to everyone, mostly yourself, by insisting that Rusty simply be universally acknowledged as a troll. If you think I’m way out of line here, try asking yourself, why is it so important to you that stuart_z refuse to engage Rusty? Why do you care so much what anyone else says or does with regard to Rusty? Why are you so offended by the fact that a valuable contributor just wants to make valuable contributions? Shouldn’t the fact that stuart’s posts are informative, factual, logical, and relevent, be sufficient justification for them?
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I’d hate to see this blog lose one of its best contributers just because of your anger. Or do you honestly think that losing stuart and keeping Rusty is a net gain?

[...] But you know what my brother wouldn’t do? If he was pulling in $700k on a morally suspect livelihood with his peers clearly living large on other people’s hard-earned life savings. The same life savings which these people just flushed down the toilet as they hit those same people for a bailout that pays that $700k and billions more, he wouldn’t whine about this in an editorial to the New York Times. He could care less about “a standing ovation” from people of questionable moral character, and he’d know to keep his sense of scale. [...]