Five years ago, Republicans proposed "the most significant regulatory overhaul in the housing finance industry [in a decade]." (Source: New York Times)
Democrats on the House Financial Services Committee blocked efforts at fixing Fannie and Freddie. Rep. Barney Frank (D-MA) said, "Fannie Mae and Freddie Mac... are not facing any kind of financial crisis,"
At least 18 times since 2001 Democrats blocked efforts at overhauling Fannie and Freddie even as accounting scandals and executive rip offs became public.
Why? For starters, the top two recipients of Fannie and Freddie campaign donations were Democrat fat cats Chris Dodd ($165K) and Barack Obama ($126K) (Source: Open Secrets)
And Fannie Mae paid well. Clinton-era Democrats, serving as the CEO, CFO and Vice Chairman, paid themselves $200 million in only six years even while a $10 billion accounting scandal was exposed. (Source: Wall Street Journal)
And Democrats like Chris Dodd also got favorable loans under a "VIP program." Dodd alone saved over $75,000 on his mortgage payments. (Source: Conde Nast Portfolio)
So where are former Fannie Mae CEOs like Franklin Raines ($90 million in salary) and Jim Johnson ($21 million in salary in one year)? As you might expect, they're serving as Barack Obama's key economic advisers. (Source: Washington Post)
Hiring Fannie Mae's two former CEOs as economic advisers?
Barack Obama: not ready to lead.
Tuesday, September 30, 2008
A quick explanation of the financial crisis
Got this in my e-mail today- thought it was helpful:
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11 comments:
Unreal!!!! Thanks for the explanation. Could everything going on in our world today signal the end of times? I believe we all need to do a quick evaluation of Revelations. I don't think it is going to get any better any time soon. My mother told me yesterday "Make sure you and your household are ready".
Hey Donna,
Great explanation.
I have a great link for you. YouTube post on how Republicans were trying to pass tougher regulations on Fannie and Freddie, but were stonewalled by the good ol' dems.
http://hotair.com/archives/2008/09/29/video-democrats-insist-nothing-wrong-at-fannie-mae-freddie-mac-in-2004/
Take care,
Jeff and Catherine
There are quite a few people blame because of this financial crisis and putting the blame solely on Fannie Mae and Freddie Mac isn't entirely accurate.
The current crisis is a result of Greenspan's loose money policies for the last 10 years (i.e. really low Federal interest rates), which created a massive housing bubble. The housing bubble, coupled with adjustable rate mortgages (ARMs), poor lending practices to unqualified borrowers, and new, poorly understood (and poorly regulated) financial instruments are what led us to where we are today.
In short, Fannie and Freddie failed because they were tied to this messed up system, and not solely because of the actions of either political party.
The BBC, while a little windy, gives some more useful information on the situation:
http://news.bbc.co.uk/2/hi/business/7073131.stm
This is one of those issues where there is enough blame to go around, so that it doesn't have to sit in the lap of one political party. ;)
I believe that Fannie Mae and Freddie Mac were key indicators of what was happening all over the financial sector (No regulation/minimal oversight. Dick Grosso said it best "it was a 'free-for-all market' not a 'free market'), also govt forcing financial institutions to hit quotas of loaning money to people who should never have been approved for loans. When the housing bubble burst, the chicken came to roost and behold, those who should have never had loans couldn't pay (coupled with rising price of gas and food) and the companies that gave the bad loans and those companies who bought the debt were never paid and folded. There is one party who was pushing these types of bad business practices (Bill Clinton even admits that the dems were resitant to the republicans call of more regulation). There congressional leaders asking for more regulation and then there were those did not want the regulation because there was "no crisis and everything was fine", (Sen.Meeks, Sen. Dodd, Rep Frank-just to name a few). As you look and see who these people were who fought oversight and regulation then you start to see a pattern.
Jeff and Catherine -
We need to be careful in crediting this current credit crisis to government's attempts to ease the entry point to home ownership for low-income families. Janet Yellen, the President of the Federal Reserve Bank in San Francisco, addressed the role of the Community Redevelopment Act (CRA) in the recent financial crisis in March of this year:
"Before I turn to potential interventions, I want to make one final point. There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term."
See http://www.frbsf.org/news/speeches/2008/0331.html#17
The so-called Liar Loans, NINJA loans, etc., were products of a financial system focused on greed, short-term gains, and protected by a lack of transparency and risk shifting that was systemic; it shouldn't be attributed to any one political party.
As a colleague has reminded me, we Christians must "give our shirt as well to whoever asks only for our coat, to love and give and not to count the cost, because our reward is in heaven".
This crisis should not result in us turning our backs on the poor.
http://www.businessweek.com/investing/insights/blog/archives/2008/09/fannie_mae_and.html
not to keep beating the dead horse, but business week has an interesting article on Fannie and Freddie's role in this deal.
The problem lies with CRA is when it is used as a weapon by minority groups such as ACORN and others. The New York Post article has a pretty good description.
http://www.nypost.com/seven/09292008/postopinion/opedcolumnists/os_dangerous_pals_131216.htm?page=0
As Christians we ought to give the shirt of our backs to others, but Christ also demands responsibility for our actions. We would be doing an injustice if we would keep giving the shirt off our backs to the people who abuse the gift or coerce us in to continually giving our shirts...pretty soon we will run out of shirts.
Gentlemen-
We have not been on-line in a few days, and so have not participated in this good and helpful discussion.
There are certainly many from both sides that share some blame in this (not to mention those who took out loans they knew or shold have known they could not pay back). And of course we never want to turn our backs on the poor -- quite the contrary.
However, it is also our duty as Christians to stand for truth, and to avoid the oft-played "equivocation game." This is the game where virtually no objective lines can be drawn because, rather than admit clear failures (as Bill Clinton actually did on this point), we point fingers across the aisle knowing that that will leave the impression in the public's mind that "it is all very complex and convoluted, and so everybody must be to blame somehow."
This is one of those situations where the primary blame is, in fact, in the Democrats' lap. While there are differences and complexities on the edges, it is an objective fact that the GOP (especially McCain and many of Bush's appointees) for years called for greater regulation and oversight of Fannie and Freddie, citing the coming of the very problems that exist now. And it is an objective fact that a large portion of the problem was coming from Democrat-pushed feel-goodism lending practices that were not backed up by reality (or any money). Lending institutions were under tremendous government pressure to make loans to those who could not afford them, and, when challenged on this point, Barney Frank and others explicitly (on the record) called those challenges "fear-mongering" and hinted that this "fear" was really a pretext for racism (of course). And of course, we have seen that the media has not only refused to acknowledge these points, but has repeatedly called the Fannie Mae and Freddie Mac problems a result of "Bush's failed policies."
As Christians committed to truth, this just cannot be allowed to stand. Legitimate criticism of Bush's policies is fine (I have many myself), but this issue is being wrapped in a shameful, all-out media push to get Obama elected. That is the problem.
Marc
Unfortunately, everything is being politicized these days. The arguments that the CRA was primarily to blame for the subprime crisis simply aren't there. Consider the following:
1) Ben Bernanke in a speech in March 2007 discussed the Community Reinvestment Act, noting that, "CRA-related lending activity was at least somewhat profitable and usually did not involve disproportionately higher levels of default".
Further, Bernanke said that the amount of CRA lending was decreasing "as mortgage lending by nonbank institutions expands". Nonbank institutions includes the companies giving out paycheck loans and Independent Mortgage Companies like New Century Financial. The reduced effectiveness of CRA-lending due to increased participation from unregulated lenders in low income areas was also cited in a Fed report in 2003.
http://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm
2) Supporting the Fed's view of the role of unregulated lending (i.e., non CRA lending) in the crisis, Michael Barr, Professor of Law at the University of Michigan, cited in prepared testimony before the Financial Services Committee in March 2008, that "More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision (i.e., non CRA-related loans); another 30 percent of such originations were made by affiliates of banks or thrifts, which are not subject to routine examination or supervision, and the remaining 20 percent were made by banks and thrifts."
Banks and thrifts are protected by FDIC deposit insurance, and therefore subject to the provisions of the CRA.
3) Even if the quality of the borrowings was purely the result of Democratic policies to expand credit to lower income borrowers, it still wouldn't explain why the market is so late to understand the risks associated with these investments. Investment bankers took the bad loans from banks and mortgage brokers, securitized them, often buying credit "sweeteners" to mask them as high-grade, safe investments, in order to sell them to local governments, non-profits or any other company looking for a safe return on investment.
The lack of transparency was systemic and the result of accounting and regulation that hadn't caught up to Wall Street. Once housing prices dropped 25%, everyone sobered up a bit.
I'm sure we can go back and forth on this at length, and I'm even willing to concede that perhaps a portion of the higher default rates was caused by social policies. However, to say that the "subprime crisis was caused by the Democrats and the CRA" is at best a gross oversimplification.
Marc and Donna, thanks for letting me use your blog as a place to air my opinions! One day maybe we can do it over a beer in Alabama!
Hey, when you do go out for a beer with Marc, if you don't mind I would like to tag a long since I live in Alabama as well. We both will buy a round or two for Marc and Donna.
My sole point in all of this is that I believe you have resistance to oversight and regulation by the democrats; when some saw this crisis coming years back, they raised the flags and the democrats balked, and said there was nothing wrong with Fannie Mae and Freddy Mac. It turns out the the CEOs Mr.Reigns, Jim johnson frauded the company out of millions, and some Democrat politicians took in 500K+ salaries from Fannie Mae and Freddie Mac; then you have Sen.Dodd and Country mortgage company....so just from all the facts, the dems seems knee deep in all of this and I find it disgusting. To me it just shows when you have govt getting involved with companies, or just about anything, they mess it up.
States Rights and less Federal Govt is the way to go.
Greetings fom Disney World---Mickey, Goofy, and Donald Duck say hello....Perhaps they are involved with the financial crisis as well :)
Great quote I saw today:
"Frankly, I wish that my Democratic colleagues would admit that when it comes to Fannie and Freddie, we were wrong."
-Rep. Artur Davis (D-AL), 9/30/08
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