As Ed Morrissey of Hot Air points out, the collapse of Freddie Mac and Fannie Mae happened on George W. Bush’s watch, and for that, Democrats will try to pummel him. And he certainly didn’t pursue any regulatory solutions wholeheartedly, but it’s not like this was unpredictable. Indeed, the New York Times ran a story on this five years ago.
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
Hmm. Looks like the Bush administration tried to stave off a Fannie/Freddie collapse half a decade ago. Someone better go tell the Delaware Liberal crowd, who are desperately saying it’s because Bush wasn’t for regulation. But here’s the NYT saying he was. Geez, who to believe? And if Bush did try to reform Freddie and Fannie, who could have blocked it?
Heh heh heh.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”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,” Mr. Watt said.
Emphasis mine.
Democrats blocked the changes, that’s who. Of course, it was Democrats (*cough* Bill Clinton *cough*) who started the whole boondoggle.
Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the “trickle-down” economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.
But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.
Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.
The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”
Rush Limbaugh noted on the day the Freddie and Fannie bailouts were announced that the mortgage crisis was brought about because lenders were forced to offer loans to people who couldn’t qualify, and that it was Bill Clinton who did it. But liberals are too busy trying to slime John McCain to admit who it was that started the mess.
And what was John McCain’s role? The same McCain that liberals are sneering at as being “out of touch” and senile? Why he was the guy who wanted to reform the system.
John McCain needs to trumpet the fact that he was the one who wanted to reform the system before it was broken. And Obama? He was busy taking all the money he could from those greedy investment bankers.
Who’d of ever thought income level and ability to pay should have any relationship with personal choices in buying? Shocking! You have to admit, the Libs have done a great job convincing every career burger flipper on minimum wage of their ‘right’ to have anything they want. That they’re ‘entitled’, in fact ‘owed’ that half-million dollar house on the hill.
I can still hear the faint echos of the Clintonistas, “Vote for me….and it shall be yours…”. “Free trinkets for everyone!” And the lib crowd would go Yaaaay! Ya Hooo!
Now the lib MSNBC addicts are going, “Wow, that’s weird! It’s like Deja Vu all over man! Like it bears an eerie likeness to what’s been spilling out of the traveling Obama show. Better have another bong.”
Given the climate, with seven weeks to go, I sincerely hope the truth of this matter will be absorbed by voters. I’m thinking about how long it took to get the word out on Obama’s associations. Let’s hope this doesn’t take as long.
In the meantime, here I sit, with a house I can afford, with a fixed-rate mortgage that is always paid on time — it comes out of our checking account, automatically, on the tenth of the month, so we can’t be late! — but we are going to be taxed to bail out people who bought homes they couldn’t afford, and companies which extended loans to people who couldn’t repay them.
But while yes, the politicians and their cronies bear some blame here, the financial institutions which traded these worthless loans around are not exactly blameless in this. They built up credit based on worthlessness, and it’s coming back to bite them in the ass.
And in order of contributions to campaigns from Fannie and Freddie over the last 20 years, #1 is Chris Dodd, and #2 is BO himself. And BO got to be #2 in just 4 years.
And now it’s AIG being rescued, with an $85 billion loan from the Federal Reserve, which buys an 80% stake in AIG. Guess what, people: a whole bunch of you now have your 401(k) plans under federal control now.
There was a humorous headline in yesterday’s Allentown Morning Call, page A-3:
Yup!
I have some money that I just inherited from my father. I paid some overdue bills with it, stashed some away for other debts, and have some left that I need to put in an investment vehicle of some sort. I just can’t see putting it anywhere atm. Am I wrong to feel that way?
As long as you stash it in an account insured by the FDIC or FSLIC, you’re OK. It won’t make much money, but it can’t lose money, either.
Of course, as equities drop, some people see buying opportunities, but you have to be careful, and be able to withstand a short-term loss if you don’t guess accurately where the bottom will be.
Also, there are some companies – the oil companies, giants like Microsoft and Google, etc. – that aren’t going anywhere. If you’re looking for long-term gain, this is probably a good move, despite the fact that you might drop a little in the short term. Keep in mind that while stocks are volatile, the low-risk ones will usually gain money over a longer time horizon as long as they don’t bankrupt. So don’t invest in companies in the financial sector, and you should be fine.
Also, you could go with some high-rated bonds – ones that probably won’t default. You know you won’t lose money there, and you get the interest payment, which is nice. Of course, you risk taking a bath if the value of the bond drops and you need your money out before maturity.
Of course, if you’re looking for short-term gain, that all goes out the window.
Back to the article substance – does anyone else think that the very existence of Fannie and Freddie was an unnecessary market distortion that contributed to this current boondoggle?
Never confuse a Liberal with facts that contradict with a Party Line that is the moral equivalent of an article of faith.
Given the media bias, there is no need for convenient ‘memory holes’ by the left.
The mortgage mess that underlies the current fiscal problem had many roots. They include misplaced compassion as well as greed and stupidity. The goal of broadening the base of home ownership was and is noble. Forcing banks to disregard traditional lending criteria was a major mistake when alternatives such as ‘sweat equity’ might have been better. Then we had the paper shufflers who sold exotic loan schemes that included negative amortization and variable interest rates and no money down. Their premise was that they could pass the trash to some investor after packaging loans into ‘investment instruments’. Had housing prices continued to escalate by double-digit percentages, foreclosure could be profitable to the lender Now a lot of people are ‘upside down’ with no alternative but to default and hide.
What of the officials at Fannie Mae and Freddy Mac? Was Jamie Gorelick the only overrated political hack in the mix? How many of these overpaid bunglers walking away with platinum parachutes and awaiting another sinecure in Washington?
It seems to me that there have been plenty of people over the years who thought Freddie and Fannie were terrible private-public hybrids. When the gov’t is guaranteeing your money, you can do any stupid and greedy thing you want with it.
Art is right that there is plenty of blame to go around here. I think the original intention–to make it easier to buy a home for low-income people–was good. And we know from experience that home ownership is good for society on the whole, giving people their biggest asset and creating a vested interest in communities so that people become involved. What’s not to love about that?
The problem is that in the rush to make the loans available, there was just no interest in watching out for predators. We’ve been talking for at least 3 years about the unsustainable housing market, but nothing was done to stop it.
And thanks for the advice about what to do with my money. I’d originally thought about a mutual fund but I really wanted something more stable.
Dana> http://ap.google.com/article/ALeqM5i-pLQW20k50DG8EF0T3RFrFdH96wD9384DMO0
If your mega-bank goes down and FDIC starts flaking out they’ll swallow up your savings with it.
A local credit union is a better bet since they seem to be the only ones left with rational lending standards.
Here’s more of the reality of why we are in this mess. Congress passed legislation to make the sub-prime loan mess a reality. When faced with a chance to fix it, it didn’t happen. It was a Dem push to not fix the abuses of the CRA and the sub-prime mess that has given us what we have today. Instead of letting banks make sound loans, they were forced to make marginal loans with no likely chance of payback. When the housing bubble burst, the mess created by the CRA redo in 1995 and the failure to fix in 2003 and 2005 has brought us this mess today.
From Wikipedia
Clinton Administration’s Changes of 1995
The Clinton Administration’s regulatory revisions [1] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997. [2]
[edit] George W. Bush Administration’s Proposed Changes of 2003
In 2003, the Bush Administration recommended what the NY Times called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” [3] This change, which did not pertain to the Community Reinvestment Act, was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen. Representative Barney Frank(D-MA) claimed of the thrifts “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.” Representative Mel Watt (D-NC) added “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.”
Yorkshire> you forgot to add that these changes were made to the applause of a great many Republicans.
So what is it guys? Regulations are good? Regulations are bad?
And please, Mr. Downs, explain to me how banks were “forced” to disregard rational lending standards. It’s always funny how quickly you’re willing to throw the concept of moral hazard out the window to support your shakey premises.
Mike, I haven’t seen anyone here saying Republicans weren’t involved with the loosening of regulations on this industry. I have, OTOH, seen a LOT of liberals trying to claim this is all Bush’s fault and all Republicans’ fault, as though no Democrats favored it.
Of course, some regulations are good, particularly when the taxpayers are expected to pick up the tab in the end. But this was a case where Bill Clinton championed loosening regulations allowing lenders to offer loans to people who would otherwise have no chance to buy a house. These changes had penalties (fines, I believe) attached to them if lenders didn’t offer loans to sub-prime applicants. So, to some extent, lenders were, in fact, forced to make loans to people that were less likely to be able to pay them back.
This isn’t to say that lenders didn’t get greedy. Much of this became about generating fees, passing the risk off, and moving on to the next account. The private-public aspect of Fannie Mac created this boondoggle, since lenders could pass off their loans to another entity.
Mike, do you think it is good business practice to lend money to people who have little chance of paying it back (CRA 95 Changes), or judge loans by the ability to payback? (proposed changes to CRA in 03) The 1995 changes are the root cause of today’s problem!
Sharon> and I’ve stated many times that I’m not one of those looking to hang the blame on Bush Co. for the current predicament. In fact, I think Dana asked me directly who I blamed and I said with no uncertainty that everyone involved (lenders and borrowers) were under the delusion that the borrowers would be able to sell their house for twice as much as what they bought it for before the ARM kicked into high-gear and that even if they couldn’t afford it they could throw the keys on the table and walk. The banks didn’t care because they assumed, correctly as it turns out, that they’d be able to pass the risk onto others (ultimately me and you) in the form of aggregated debt trades. For the past ten years lenders have actively pursued these loans and I see in the writings of Art Downs this yearning to lay the blame solely at the feet of the borrower as if there were no such thing as moral hazard. As far as penalties for borrowers, yes, they had to offer them but the key point here is that a bank is under no pressure to actually approve the loan because local banks can set their own criteria relating to others such as debt to income ratio, cash on hand, ability to repay, time at residence, etc.
Regardless, though, lenders seemed more than willing to take on debt that they knew the propensity for customer’s to repay was rather low and this goes up and down the payscale. There are a lot of Toll Brothers houses out there going for fire sale prices and not just mobile “estates” (as they’re euphamistically calling them here) going for cut rates.
As far as regulations, I would agree. I’m simply pointing out that the folks who are more than happy to expend hours berating the presence of government regulations lambasting Bill Clinton for rescinding them.
I think it also needs to be kept in mind that at the time these regulations were drawn back we were in the era of the cheap fossil fuel fiesta. A barrel of oil was around twenty bucks so limitless suburban expansion was seen as inevitable. I remember reading at the time from one of the Peak Oil Doomers when he was asked how long people will continue to pretend that oil is an infinite resource and wise up. The response was simple; we will not until we cannot. I think we hit “cannot” around 2005; the global peak of liquid hydrocarbon production which, as you all know, coincided perfectly with beginning of the faltering housing market.
I’m not saying you personally are pointing fingers here. I’ve been shocked, though, at the number of sites I’ve been to where the argument boiled down to “it’s Bush’s fault!,” like we haven’t all been sitting around discussing this situation for years.
I agree that there’s more than enough blame to go around, but, to me, it ultimately comes down to people wanting to buy houses they cannot afford. No one can force you to sign the paperwork.
Yes, conservatives typically decry regulation as unnecessary red tape, and you have a point that regulation can be a good thing in moderation. Unfortunately, my suspicion here is that we’re going to go from freewheeling it to the equivalent of an 8p.m. curfew.
I was just thinking the same thing here at work; it’s not as if people haven’t been talking about this for years.
Two years ago I shifted my 401k out of the stock market and into a mutual fund and commodities mix so I got out relatively unscathed. I have friends that stuck with an 80/20 stock portfolio and they’ve lost 10-25% of their 401ks over the past year. Owy stingy.
Well, sadly, the stock market is a great place to make money but you can really get your butt handed to you. And, honestly, where there’s a lot of money to be made, there needs to be a considerable amount of regulation, imo.
Part of this mortgage mess, if I understand it right, concerns people getting home equity loans. Here in Texas, it was illegal to get a HELOC for anything other than home improvements up until a few years ago. I was aghast when the law was changed. I know it was paternalistic, but that part of this train wreck was visible years ago.
True this started under the Clinton era but, not true it was Clinton who started it. I believe Phil Graham led the initial push for deregulation and a republican congress. Clinton’s role in this mess was not vetoing the bill.
Actually, the whole thing started under Jimmy Carter with a Democrat Congress (the Community Reinvestment Act).
Clinton’s part in it was more than just “not vetoing the bill.” According to Wikipedia:
It was during this time that Barack Obama worked for a law firm where he sued Citibank for not making enough of these loans.
This is not to say that Republicans were blameless in all this, but there were no calls for restructuring by Democrats…unless it was to make the regulations even more lax.
[...] are those who want to “blame Bush” and subsequently, Republicans, but the reality is, George Bush attempted to rein in housing horses, but was repelled by [...]