Housing subsidizes and Mortgage deduction caused housing bubble

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=08&year=2009&base_name=housing_tax_credit_welfare_for

While the Post included the realtors inflated claims about the economic benefits of the credit, it left out two important points. First, the vast majority of homes purchased with the credit would have been bought anyhow, they were just moved forward. In other words, people who may have bought homes in 2010 or 2011 have decided to purchase their home this year as a result of the credit. The cases in which people who would not have otherwise bought a home opt to do so because of the credit will be the exception. Therefore, for the most part, the economic benefits from the credit in 2009 are coming at the expense of economic activity in 2010 and 2011.

The other point is that the credit is a redistribution from taxpayers at large to first time homebuyers. The size of the tax credit is equal to almost two years of TANF payments to a typical family and could pay for approximately 2.5 kid years of health care under the State Children's Health Insurance Program. This is a questionable redistributive policy to homebuyers who have higher incomes on average than renters. (Full disclosure: I benefited from this tax credit -- thank you very much, suckers!)

--Dean Baker

http://www.heritage.org/research/family/bg783.cfm

For most Americans, housing quality has been climbing for decades. This is obvious by looking at almost any measure. From 1960 to 1987, for example, dwellings lacking complete plumbing facilities fell from 13.2 to 2.4 percent. Those with central air conditioning rose from 1.9 to 35.8 percent. More important, perhaps, the fears that the nation would not be able to provide housing for the huge baby boom generation were unfounded. By now, the baby boom population almost entirely has found and moved into their own housing. Not only is this good news for the baby boomers, it also means that America need not build as much housing in the next decade as it has in the past. The projected growth in new households during the 1990s will be almost one-tenth slower than during the 1980s.

Yet despite these cheerful indicators, there are cries on Capitol Hill that America confronts a menacing housing crisis. Within the past two months, the House and the Senate have passed housing bills which rest, to a great extent, on such an assumption. The House bill (H.R. 1180) would spend $28.7 billion and the Senate Bill (S. 566) $27.9 billion for fiscal 1991. Both far exceed the $23.7 billion requested by the Bush Administration.

Shifting the Focus
Championing the congressional measures, predictably, are the beneficiaries of big federal housing outlays: builders and realtors, "professional advocates" for the homeless, and state and local officials. Even their arguments, however, reveal how much the American housing situation has improved. No longer do they denounce, as they used to, the quality of housing. Instead they have shifted their focus to affordability, charging that the private sector produces many houses and apartments that few can afford. They claim, incorrectly, that millions of young adults face the prospect of never being able to buy their first home. As evidence, they cite the slight decline in the ratio of owner- occupied dwellings during the first half of the Eighties (which has since been reversed), the "high" rent burdens on low-income households, and the prospect of federally-subsidized owners of low- income housing projects preferring not to renew their government contracts.

Exaggerated Cost Burdens: Renters

Renters are less well-off financially than homeowners. As such, low-income renters face higher housing costs than individuals who are able to buy a home. Yet there is little evidence that there is a critical shortage of low-cost rental units.

The 1987 American Housing Survey indicates that renters had paid a median monthly gross rent of $399. In 1980, this median rent, when adjusted for inflation, had been $335. The increase was 19.1 percent in real dollars. This, however, was largely offset by increases in income. According to the Census Bureau, after adjusting for inflation, the median income for all households rose from $25,426 to $27,139 during the 1980-1987 period, or 6.7 percent, excluding the rapid growth in nontaxable fringe benefits such as medical insurance. This offsets the 19.1 percent real increase in rents by over a third. The median rent-to-income ratio, meanwhile, rose only from 27 percent to 29 percent. (U.S. Bureau of the Census, Current Population Reports, Series P-60, annually; "American Housing Survey.")

"Unaffordable" units are generally defined as those that generate rents (excluding utilities) exceeding 30 percent of household income. According to Table 4, some 50 percent of the rental stock is readily affordable. Housing advocates read into this that the other 50 percent is "unaffordable." This is not true, at least with respect to the housing. It may be true with respect to the income of the poor. This distinction is extremely important. It determines whether improving the housing situation of low-income renters requires building more housing or increasing the income that the poor can spend on housing.

Underreporting Income
The professional housing lobby, moreover, significantly underrestimates the income which poor families have available to pay rental costs. Housing interest groups frequently note that according to U.S. Census data, over half the poor pay more than 50 percent of their incomes for rent. Yet federal data also show that the total annual expenditures on all items by low- income households equals 320 percent of the alleged income of those households. Obviously, there is a problem with the statistics. The problem is not that poor households lack income to pay for rent, food, and other necessities. The problem is that the Census Bureau dramatically underreports their income. (U.S. Department of Labor, Bureau of Labor Statistics, Consumer Expenditure Survey: Quarterly Data, 1984-1987 (Washington, D.C.: U.S. Government Printing Office, 1989), p.16.)

Sources of Allegations

The insistence in the face of all the evidence to the contrary that America faces a critical housing shortage -- and thus needs massive federal subsidies for housing construction -- comes from three distinct special interests.

1) The real estate lobby. Realtors, builders, and lenders benefit most from new production and below market interest rate housing subsidy programs. Predictably, therefore, the National Association of Realtors in 1988 called for the annual construction of 2.1 million dwellings, and the rehabilitation of 313,000 additional units from 1988 through 2002, at a cost of $112 billion annually in private and public investment. (Raymond J. Struyk and Christopher Walker, America's Housing Needs to the 21st Century (Washington, D.C.: National Association of Realtors, 1988).) This, among other things, would build close to 500,000 more units than the average annual production during the high construction period of 1983 to 1987. The National Association of Home Builders in 1987 advocated a similar high-production program. (National Association of Home Builders, A Blueprint for National Housing Policy (Washington, D.C.: National Association of Home Builders, 1987).)

2) Federal housing program advocates. Repeatedly, they claim that housing is prohibitively costly and that this causes homelessness. Typical of such lobbies is the National Coalition for the Homeless. A 1987 report issued by the organization, still reflecting the way it thinks today, states, "By far the most significant cause of widespread homelessness is the increasing scarcity of affordable housing. Over the past few years, large numbers of low- rent units in both the public and private housing markets have been eliminated. As a result, poorer Americans are now being squeezed out of their homes and onto the streets." (National Coalition for the Homeless, Homelessness in the United States: Background and Federal Response (Washington, D.C.: National Coalition for the Homeless, May 1987), pp. 5-6.) The Institute for Policy Studies argues similarly in a 1989 monograph, "Most simply stated, today for more and more Americans, the dream of an adequate, affordable home is no longer attainable. On the contrary, the dream is fading rapidly. In terms of choices, security, neighborhood conditions, and especially costs, the housing available to Americans is getting worse." (Institute for Policy Studies, Working Group on Housing, The Right to Housing: A Blueprint for Housing the Nation (Oakland, CA: Community Economics, Inc., 1989), p. 2.) This monograph is the basis for H.R.1122, introduced in February 1989 by Representative Ronald Dellums, the California Democrat, that seeks eventual nationalization of the entire housing stock.

3) State and local government officials, like the State Council of Governments, the National League of Cities, and the U.S. Conference of Mayors. Scarcely a month passed during the Eighties without some mayor or governor blaming Congress and the Reagan Administration for creating a nationwide housing crisis. At last October's "Housing, Now!" rally in Washington, D.C., for example, Ohio Governor Richard Celeste, a Democrat, said that a 75 percent "cutback" in HUD's budget is the reason for homelessness. (Quoted in Chris Spolar and Al Kamen, "Thousands March on Mall in Mass Appeal for Affordable Housing," Washington Post, October 8, 1989.) In reality, HUD's annual budget was not cut at all; it increased from $14.9 billion to $20.3 billion between the years 1981 and 1989. In a speech last year to the National League of Cities, Phoenix's Democratic Mayor Terry Goddard, blamed the same alleged budget reduction for the current housing "shortage." (Quoted in Karen Diegmueller, "Middle America: Priced Out of House and Home," Washington Times, March 15, 1989.) The National Association of Housing and Redevelopment Officials argues that the U.S. will need an additional 8 million new low-income units by 2000. (Ibid.) These groups understandably insist that the assistance must come from Washington, as few state and local officials want to raise taxes themselves to pay for the housing.

These special interests all seek to discredit vouchers and other consumer-oriented approaches for improving housing. Instead, they want to return housing policy to the days of the costly Federal Housing Administration (FHA)-insured, project-oriented commitments for new construction and rehabilitation. While this has produced good housing, it has helped only a handful of eligible low- income beneficiaries, and at a high taxpayer cost. The FHA programs do nothing for the vast majority of low-income Americans. The government could have subsidized far more units through vouchers -- and with much less waste and influence-peddling.

Conclusion

By every reasonable set of indicators -- demand, supply, and market -- America is not suffering a national housing shortage, neither in quantity, quality, or in cost. To be sure, serious cost problems exist, especially on the East and West coasts. Finding a good single-family home at an affordable price in the Boston or Los Angeles areas is far more difficult than finding one of equal quality and space in the Cincinnati or Atlanta areas. Yet problems of affordability, in whatever region or metropolis, are more linked to barriers to supply, like overly strict building codes and exclusionary zoning ordinances that inhibit the housing industry and households from adapting to the market, than to an inherent failure of the market.

The temptation for Congress to devise solutions to a trumpeted but putative housing "crisis" eventually may help create a real one. Proposals in the Senate bill, for instance, would increase the federal government's liability for property foreclosures, high as it is already. This may threaten stable growth not only in the housing industry, but in the entire economy. (Ronald Utt, "Cranston-D'Amato's S.565: Neglecting America's Poor," Heritage Foundation, Issue Bulletin No. 152, September 22, 1989, p. 10.)

Only if housing problems are placed in historical and economic perspectives can solutions to them be devised. The task for policy makers is to enact a housing agenda that eliminates the factors that inhibit the market from providing quality affordable housing for all Americans.

On the supply side, localities should discard exclusionary zoning ordinances which prevent new housing from being built; anachronistic building codes that inhibit the adoption of new cost-cutting technologies; and rent control. Even more important, the federal government should adopt fiscal and monetary policies designed to keep taxes and interest rates low. In a recession, housing is one of the industries to suffer most heavily. If housing is seen as an unprofitable investment, then with or without a web of government enforcement or subsidies, potential investment will eventually move elsewhere.

On the demand side, low-income individuals should be given government assistance that gives them the freedom to live in housing of their own choice. To achieve this, housing vouchers (which help the poor) should replace housing projects (which help wealthy builders). Jobs within reasonable commuting distance of the poor's housing must be made as plentiful as possible. The Enterprise Zone approach, for instance, has created many jobs in Maryland, Michigan, and other states, and would be more effective if instituted at the federal level. Conditions in inner-city neighborhoods must be made hospitable to residents for housing investment to be attractive. No neighborhood can flourish when fear of crime is paramount. Hunter College Professor of Urban Affairs Peter Salins, a veteran observer of New York City housing issues, wrote in 1986, "The heart of the contemporary housing problem is that many of the poor live in fairly decent dwellings in rotten neighborhoods, and they have little money left over after they pay their rent." (Peter D. Salins, "Toward a Permanent Housing Problem," The Public Interest, No. 85 (Fall 1986), p. 29.) His comment is as valid today as it was then. Housing policies, therefore, ought to be geared toward enabling the poor to have more money left over after paying rent, and to live in safe neighborhoods of their choice.

The internet caused the housing bubble. It also caused low end education inflation (the online schools), increased credit card spending.

http://www.americanthinker.com/2008/10/what_really_happened_in_the_mo.html

1977

Sen. Proxmire (D-Wisconsin) introduced a "creeping socialism" 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 or those of banks.

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

To boost community development laws, CRA was a provision 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 are 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."

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 (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. They began pressing the semantic open door and stretching the "discrimination" provision to complain about enforcement of the regulations as lending institutions resisted bad lending practices in poor minority communities.

August 1989

To deal with the savings & loan fallout of the 1980s, Congress enacted the Financial Institutions Reform Recovery and Enforcement Act. In a move with ominous portent, FIRREA mandated public release of lender evaluations and performance ratings, resulting in added pressure on the banking industry. Such public oversight enabled bullying abuses of community organization groups like ACORN to further influence bank 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 radical Alinsky intimidation tactics Obama had learned and was teaching -- "direct action" -- 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 to the media and government officials.

The agitators could now stall or hijack bank mergers by filing complaints of non-compliance 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.

Initially 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. The government-backed Fannie Mae and Freddie Mac of the Clinton reforms became "a feeding trough," in the phrase of Peter Ferrara.

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 and guaranteed 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.

In the period 1989-2008, topping the list of recipients of contributions from Fannie Mae and Freddie Mac is the chairman of the Senate Banking Committee, Sen. Dodd (D-Connecticut), who received $165,400. Second on the list is Sen. Obama (D-Illinois), receiving $126,349 with only three years in the Senate. Rep. Frank (D-Massachusetts), 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, who responded that they were 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.

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." Co-author 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 Kurtz, "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. As the Washington Post reports, his concern was that Congress was "hamstringing" the regulator. 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. Barney Frank (D-Massachusetts) countered, as the Post reports, "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 that Citibank had "intentionally discriminated against the Plaintiffs on the basis of race with respect to a credit transaction," calling their action "racial discrimination and discriminatory redlining practices."

November 1994

President Clinton addresses homeownership: "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."

June 1995

Republicans had won control of Congress and planned CRA reforms. The Clinton Administration, however, allied with Rep. Frank, Sen. Kennedy (D-Massachusetts) and Rep. Waters (D-California), 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 percent 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, with a number of bank lending discrimination settlements already, 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," reiterated Reno.

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. Announcing the Accubank settlement, Secretary Cuomo said, "discrimination isn't always that obvious. 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."

May 1999

The LA Times reports that African Americans homeownership is increasing three times as fast as that of whites, with Latino homeowners is 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, lending practices were based upon concerns of discrimination in the banking system regardless the consequences. The administration threatened to veto a bill passed by the Senate which had "shortsightedly voted to retrench" CRA, as the advocative Times put it.

Under pressure, Fannie Mae was resisting increased targeting, arguing that the result would be more loan defaults. Barry Zigas, heading 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 of 1999

Treasury Secretary Lawrence Summers warned, "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. 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," reported the New York Times.

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. "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.

September 1999

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-$75,000 have on average worse credit records than whites making under $25,000, showing that the difficulty in qualifying was not because of race but because of bad credit records. The Federal Reserve Bank of Dallas accordingly entitled a paper "Red Lining or Red Herring?"

2000

The National Community Reinvestment Coalition instructed 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 equipped the ACORN groups for the 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

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-Louisiana) proposed a bill to reform Fannie and Freddie's oversight in a House Subcommittee on Capital Markets.

Rep. Frank (D-Massachusetts) dismissed the idea, saying concerns about the two were "overblown" and that there was "no federal liability there whatsoever."

Treasury Undersecretary Gary Gensler testified in favor of GSE regulation. He argued that 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 the testimony "inept," "irresponsible," and "unprofessional."

Wallison of the American Enterprise Institute testified to the subcommittee 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."

Wallison explained why Fannie and Freddie "pose a serious problem for both the public and private sectors." 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."

He sounded an alarm on a "vicious and dangerous cycle." "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, Freddie Mac spokeswoman. Congressional Democrats and GSE representatives prevailed.

June 2000

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 these GSEs were "strange organizations, neither private-sector fish nor political-sector fowl" and that "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-Pennsylvania): "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."

Rep. Marge Roukema (R-New Jersey): "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."

Rep. Carolyn Maloney (D-New York) regarding the Treasury Department line of credit: "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

Fiscal Year 2002 Budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity," says a White House release.

July 2001

Subcommittee hearing 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-Pennsylvania) responded: "This 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

Business Week interview with Fannie Mae Vice-Chairman Jamie Gorelick about the prospects for the coming year:

Gorelick: "we are expecting a very, very strong 2002."

Gorelick: "We believe we are managed safely. . . . Fannie Mae is among the handful of top-quality institutions. . . . . And we have consistently exceeded every standard that the examiners have set for us."

May 2002

In an OMB Prompt Letter to OFHEO, the President 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.

2003

Rep. Richard Baker (R-Louisiana), 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." "The political arrogance exhibited in their heyday, there has never been before or since a private entity that exerted that kind of political power," he said.

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-Nebraska), Elizabeth Dole (R-North Carolina) and John Sununu (R-New Hampshire) 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 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.

Rep. Barney Frank (D-Massachusetts): "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.

Rep. Barney Frank (D-Massachusetts): "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. Melvin Watt (D-North Carolina): "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 $1.2 billion accounting error.

November 2003

Council of the Economic Advisers Chairman Greg Mankiw 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," from a White House release.

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

Fiscal Year 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," reports a White House release.

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," says a White House release.

June 2004

Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), 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," the White House reports.

September 2004

OFHEO reported that Fannie Mae and CEO Raines had manipulated its accounting to overstate its profits. Congress and the Bush administration sought strong new regulation and authority to put the GSEs under conservatorship if necessary. As the Washington Post reports, 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.

October 2004

Rep. Baker again warned about the coming crisis in the Wall Street Journal: "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."

Baker adds, "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 a 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 very angry at the OFHEO Director as they attempt to defend Fannie Mae and protect their CRA extortion racket.

Chairman Baker (R-Louisiana): "It is indeed a very troubling report, but it is a report 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 clean up 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."

Rep. Maxine Waters (D-California): "Through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke."

Rep. Maxine Waters (D-California): "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. Gregory Meeks (D-New York): "And as well as the fact that 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 that we have and that 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, uh, 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, you know, with uh Fannie Mae. Freddie Mac has come up on its own. And the question that then presents is the competence that, that, that, that your agency has, uh, with reference to, uh, uh, deciding and regulating these GSEs. Uh, and so, uh, I wish I could sit here and say that I'm not upset with you, but I am very upset because, you know, what you do is give, you know, maybe giving any reason to, as Mr. Gonzales said, to give someone a heart surgery when they really don't need it."

Rep. Ed Royce (R-California): "In addition to our important oversight role in this committee, I hope that we will move swiftly to create a new regulatory structure for Fannie Mae, for Freddie Mac, and the federal home loan banks."

Rep. Lacy Clay (D-Missouri): "This hearing is about the political lynching of Franklin Raines."

Rep. Ed Royce (R-California): "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-New York): "What would make you, why should I have confidence? Why should anyone have confidence, and uh, in, in you as a regulator at this point?"

Armando Falcon, OFHEO Director: "Sir, Congressman, 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-Connecticut): "And 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 and I'm tempted to ask how many people in this room are on the payroll of Fannie Mae, because what they do is they 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. Artur Davis (D-Alabama): "So the concern that I have is you're making very specific, what you have correctly acknowledged, 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 ‘em. Uh, that sounds like some kind of an invisible line has been crossed."

Rep. Christopher Shays (R-Connecticut): "Fannie Mae has manipulated, in my judgment, 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. Barney Frank (D-Massachusetts): "Uh, I, this, you, you, 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. Maxine Waters (D-California): "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-Missouri): "I find this to be inconsistent and a 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. Barney Frank (D-Massachusetts): "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-Illinois): "Mr. Raines, 1.1 million bonus and a $526,000 salary. Jamie Gorelick, $779,000 bonus on a salary of 567,000. This is, what you state on page eleven is nothing less than staggering."

Rep. Don Manzullo (R-Illinois): "The 1998 earnings per share number turned out to be $3.23 and 9 mills, a result that Fannie Mae met the EPS maximum payout goal right down to the penny."

Rep. Don Manzullo (R-Illinois): "Fannie Mae understood the rules and simply chose not to follow them that if Fannie Mae had followed the practices, there wouldn't have been a bonus that year."

Rep. Christopher Shays (R-Connecticut): "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%?"

Franklin Raines, Fannie Mae CEO: "Because banks don't, there aren't any banks who only have multifamily and single-family loans."

Franklin Raines, Fannie Mae CEO: "These assets are so riskless that their capital for holding them should be under 2%."

January 2005-July 2006

Sen. Chuck Hagel (R-Nebraska), co-sponsored by Sens. Sununu and Dole and later Sen. McCain, re-introduced legislation to address GSE regulation.

"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," reports the Wall Street Journal.

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."

Bloomberg writes, "If that bill had become law, then the world today would be different. . . . 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 John Snow again calls for GSE reform, "Events that have transpired since I testified before this Committee in 2003 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," from a White House release.

May 2005

At AEI Online, 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."

January 2006

Chairman Greenspan, in a letter to Sens. Sununu, Hagel and Dole, warned that the GSE practice of buying their own MBS "creates substantial systemic risk while yielding negligible additional benefits for homeowners, renters, or mortgage originators." He stated, ". . . the 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 introduced 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 the legislation, Sens. Hagel, Sununu, Dole and McCain write a letter to Majority Leader William Frist and Chairman Richard Shelby expressing 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

Sen. McCain (R-Arizona) addressed 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."

McCain stressed, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation."

April 2007

Sens. Sununu, Hagel, Dole, and Mel Martinez (R-Florida) re-introduced legislation to improve GSE oversight.

April 2007

In "A Nightmare Grows Darker," 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 percent 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."

True that Riversider... what a complete clusterf-ck that is our TAX SYSTEM. Most regressive tax on renters = home mortgage deduction. I just don't appreciate residential borkers in general!!!!

We need a flat tax so special interests stop trying to rip everyone off. Let everyone spend their money as they see fit. Stop making brokers and accountants rich.

http://www.openmarket.org/2008/09/16/clinton-pressure-to-promote-affordable-housing-led-to-mortgage-meltdown/

The current mortgage crisis came about in large part because of Clinton-era government pressure on lenders to make risky loans in order to “make homeownership more affordable for lower-income Americans and those with a poor credit history,” the DC Examiner notes today. “Those steps encouraged riskier mortgage lending by minimizing the role of credit histories in lending decisions, loosening required debt-to-equity ratios to allow borrowers to make small or even no down payments at all, and encouraging lenders the use of floating or adjustable interest-rate mortgages, including those with low ‘teasers.’”

The liberal Village Voice previously chronicled how Clinton Administration housing secretary Andrew Cuomo helped spawn the mortgage crisis through his pressure on lenders to promote affordable housing and diversity. “Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments.

http://www.villagevoice.com/content/printVersion/541234?ref=patrick.net

WHAT REALLY SUNK FANNIE & FREDDIE!!!!

In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy. The GSEs don't actually sell mortgages to borrowers. They buy them from banks and mortgage companies, allowing lenders to replenish their capital and make more loans. They also purchase mortgage-backed securities, which are pools of mortgages regularly acquired by the GSEs from investment firms. The government chartered these banks to pump money into the mortgage market and, while they did it, to make a strong enough profit to attract shareholders. That created a tug-of-war between their efforts to maximize shareholder value, which drove them toward high-end mortgages, and their congressionally mandated obligation to finance loans for those who needed help. The 1992 law required HUD's secretary to make sure housing goals were being met and, every four years, set new goals for Fannie and Freddie.

Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income." Part of the pitch was racial, with Cuomo contending that Fannie and Freddie weren't granting mortgages to minorities at the same rate as the private market. William Apgar, Cuomo's top aide, told The Washington Post: "We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible."

AND A WORD OF CAUTION FROM FRANK RAINES(PRE CORRUPTION DAS I GATHER)

While many saw this demand for increasingly "flexible" loan terms and standards as a positive step for low-income and minority families, others warned that they could have potentially dangerous consequences. Franklin Raines, the Fannie chairman and first black CEO of a Fortune 500 company, warned that Cuomo's rules were moving Fannie into risky territory: "We have not been a major presence in the subprime market," he said, "but you can bet that under these goals, we will be." Fannie's chief financial officer, Timothy Howard, said that "making loans to people with less-than-perfect credit" is "something we should do." Cuomo wasn't shy about embracing subprime mortgages as a possible consequence of his goals. "GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas," his report on the new goals noted.

i think what caused the housing bubble is mindless cutting and pasting of obviously partisan moronic idiocy and blind following of RNC talking points.

http://5west.files.wordpress.com/2009/03/donkey-democrat-logo.jpg

Step 1. Admit there was a bubble.

http://blog.redfin.com/sfbay/files/2008/04/20050817-mr_housing_bubble.jpg

it is obvious the republicans are trying to change history and shift the blame. You guys caused this by your party's legislation. you devastated our country for decades.

Always had mortgage deduction.
Didn't have the ability for people to trade bets against debt default which was then 100 Senators who approved. 100. Both Democrats and Republicans. All of both

The Commodity Futures Modernization Act of 2000 was signed into law on December 21, 2000 by Bill Clinton. The purpose was to allow new financial products called swaps to be unregulated. Neither the SEC nor he Commodity Futures Trading Commission (CFTC) would be able to regulate them.

Senator Phil Gramm (R-TX), the Chair of the Senate Banking Committee, was quoted as insisting that any bill brought to the Senate Floor would need to be expanded to include prohibitions on SEC regulation of the swaps market......

After the House passed H.R. 4541 press reports indicated Sen. Gramm was blocking Senate action based on his continued insistence that the bill be expanded to prevent the SEC from regulating swaps and the desire to broaden the protections against CFTC regulation for “bank products.”[

Hey Riversider you forgot to mention that it was written by a Republican and voted through a Republican Congress.

Are you being disingenuous or just a blantantly ignorant partisan?

http://www.wral.com/golo/blogpost/5884246/
The chairman of the Commodity Futures Trade Commission (CFTC) Brooksley Born issued a first call for her regulatory commission to have power to oversee financial derivatives. While previous legislative attempts had been made earlier, Born's efforts were the most direct and threatening to the financial industry. During an April 1998 meeting of the President's Working Group on Financial Markets, Federal Reserve chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin (and later Secretary Larry Summers), and Securities and Exchange Commission (SEC) chairman Arthur Levitt opposed Born's efforts and attempted to derail her.

[A]n unregulated derivatives market ... could "pose grave dangers to our economy."

Soon afterwards, Born released a "concept" paper with ideas of what regulation of derivatives and swaps could look like under the CFTC's oversight authority. The response to Born's paper was swift. The financial industry and government officials responded fiercely in opposition to Born's ideas. Greenspan, Summers, and Senate committee chairmen all criticized her and her proposals.

In the midst of this debate Long Term Capital Management (LTCM), a major hedge fund employing some of the top economists, collapsed. LTCM was highly over-leveraged and held a big portfolio of swaps. In the end, during the government organized bailout of the company, LTCM recorded a loss of $1.6 billion on swaps alone.

Born felt that an unregulated derivatives market that spawned the LTCM bailout could "pose grave dangers to our economy." In the end, Born lost her battle and, in May 1999, asked to be replaced as CFTC chairman. The new chairman, William Rainer, was more amenable to the positions of industry leaders and the major government officials Summers, Greenspan, and Levitt. Later that year, the President's Working Group on Financial Markets released a report calling for "no regulations" of derivatives and swaps and began crafting a program to make that possible. Meanwhile in Congress, lawmakers were still up-in-arms over Born's attempts to regulate the financial derivatives market and began working to pass their own set of deregulatory language.

Leading the charge in Congress were Sens. Phil Gramm (R-TX) and Richard Lugar (R-IN) and Rep. Thomas Ewing (R-IL). In May of 2000, Rep. Ewing introduced his Commodity Futures Modernization Act. While Ewing's bill sailed quickly through the House, it stalled in the Senate, as Sen. Gramm desired stricter deregulatory language be inserted into the bill. Gramm opposed any language that could provide the SEC or the CFTC with any hope of authority in regulating or oversight of financial derivatives and swaps. Gramm's opposition held the bill in limbo until Congress went into recess for the 2000 election.

ok, I'll give you Gram,Lugar & Ewing, but the fact is the President can veto. He did not and Democrats always want to excuse this. I'll also give you Greenspan who as we now know read to much Ayn Rand, but Clinton had Rubin & Summers who were ardent supporters, so the White House very much supported this.

No one thought about it very far. If they all voted for it then they didn't read it and didnt get advice. Shame. All of them. Just like this messed up healthcare overhall.

I can agree with that. I doubt the parties realized where this would ultimately lead.

Riversider the liar says " the President can veto. He did not and Democrats always want to excuse this"

except that when this was passed it had enough votes and the Republican had enough seats in Congress to make this legislation veto proof.

Republicans tend to forget that they conceived, wrote, pushed for, passed, this legislation. This legislation is at the heart of the Republican free market ideology. Now that it blew up and has been proven wrong, you try to pass the blame to democrats.

Get some balls, stand up for what you believe, take credit for the outcome of your policies. Stop trying to blame everyone else for the disaster that you created.

its funny that Riversider and the Rethuglicans argument is that all of this is the fault of the democrats because the democrats did not stop the Republicans from actually doing it. i.e. Clinton didnt veto the Republican legislation. the same moronic line of reasoning with the Iraq War - the democrats voted for the Republican lead War Cry. The war was democrats fault for not stoping republicans....

The Demobrats are the ones who wanted to spread wealth around and push for home ownership for people who shouldn't be home owners (aka petrfitz tenants). The Demobrats wanted to look tough on terrorists so they voted for Iraq.

"Let me tell you why I voted for it, before I voted against it"

Classic Demobrat line.

http://www.thenextright.com/soren-dayton/strangle-the-democrats-with-fannie-freddie-and-the-housing-crisis

The meltdown of Fannie and Freddie should be a transformative moment in American politics. It should discredit the whole Democratic economic agenda. It is too bad that it happened in the middle of the most interesting Presidential election in a generation because there are lessons to learn from it. Several points.

Let's start with some numbers. Contributions since 1989(!) to ALL members of Congress. Note that this is an aggregate over time. Note how a guy who has been in Congress for 3 years manages to come in 3rd on the list.

Name

Office

Party/State

Total

1. Dodd, Christopher J

S

D-CT

$133,900

2. Kerry, John

S

D-MA

$111,000

3. Obama, Barack

S

D-IL

$105,849
4. Clinton, Hillary

S

D-NY

$75,550

5. Kanjorski, Paul E

H

D-PA

$65,500

First, this is a Democratic scandal. In yesterday's WaPo Al Hubbard and Noam Neusner ask "Where was Senator Dodd?" The answer is clear. On the take. Open Secrets notes who gets money from these guys:

Fifteen of the 25 lawmakers who have received the most from the two companies combined since the 1990 election sit on either the House Financial Services Committee; the Senate Banking, Housing & Urban Affairs Committee; or the Senate Finance Committee. The others have seats on the powerful Appropriations or Ways & Means committees, are members of the congressional leadership or have run for president. Sen. Chris Dodd (D-Conn.), chairman of the Senate banking committee, has received the most from Fannie and Freddie's PACs and employees ($133,900 since 1989). Rep. Paul Kanjorski (D-Pa.) has received $65,500. Kanjorski chairs the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, and Freddie Mac and Fannie Mae are government-sponsored enterprises, or GSEs.

But they miss the important point. The GSEs give to Democrats primarily.

And this is the second point. These are partisan instituttions. Republicans tried to reform it, but got out lobbied every time. Hubbard and Neusner described how this works:

The administration did not accept half-measures. In 2005, Republican Mike Oxley, then chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddie's lobbyists set out to weaken it. The bill was rendered so toothless that Card called Oxley the night before markup and promised to oppose it. Oxley pulled the bill instead.

When there was a Republican Congress, Congressional leadership tried to do the right thing, but Fannie and Freddie's lobbyists picked off some weak Republicans. With a Democratic Congress, Fannie and Freddie just feed at the trough.

Third, these guys are some of the most powerful figures in the Democratic lobbyist-operative firmament. Obama was forced to fire James Johnson, his first VP Vetter. Johnson had been CEO of Fannie Mae. But it doesn't stop there. Johnson, while a consultant for Fannie and Countrywide, was passing out below market loans to Senator Dodd, among others.

The recent CEO of Fannie was Franklin Delano Raines. (what do you bet his parents politics were?) Raines was a Clinton OMB Director and worked in the Carter White House. Raines was replaced with an actual business guy.

Fourth, it doesn't stop there. Not only that, but the affordable housing racket is also used as a way to launder government money into corrupt Democratic voter registration practices. One of the organizations pushing subprime loans and other "affordable housing" financial vehicles... ACORN, which got a sweet deal in the Housing Bill.

What is the upshot of all of this? The housing meltdown has both causes and effects that are ideologically aligned with Democratic objectives. While gutting the regulatory apparatus for a huge segment of our economy, leading Democrats were receiving contributions and below market loans from the very people whose regulations their were gutting. It was used to move money into Democratic grassroots campaign vehicles. And it moved substantial parts of the economy into government control. According to financial analyst Barry Richoltz, "socialism for the rich."

petrfitz, Republicans have their favored industries, Oil, Big Pharma, Defence etc.
All fair game, but housing is primarily Democratic

pretty funny that you have perfitz here on record defending acorn...