Housing & Financial Crisis Caused By Government

A congressional report points the blame directly at Fannie and Freddie for the housing crisis and resulting financial crisis.

Thank you Barney Frank, et al.

http://www.cnsnews.com/public/content/article.aspx?RsrcID=50680

Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday.

The claims in the report have long been advanced by conservatives, who argue that the Community Reinvestment Act and other federal programs fed the housing bubble that burst in 2007 and led to the economic downfall in 2008.

But the report explains in detail how Fannie and Freddie -- government sponsored enterprises (GSE) that were not subject to the same oversight as other publicly traded firms -- “privatized their profits but socialized their risks.”

“In the short run, this government intervention was successful in its stated goal – raising the national homeownership rate,” says the report, the result of an investigation launched last fall by Republican members of the House Oversight and Government Reform Committee.

“However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy,” says the report. “While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.”

The report talks about the Clinton administration’s National Homeownership Strategy, citing President Clinton’s directive to “lift America’s homeownership rate to an all-time high by the end of the century.”

The Clinton strategy further said that Freddie and Fannie should reduce down-payment requirements and, according to the report, “called for increased use of ‘flexible underwriting criteria,’ which it said could be achieved in concert with ‘liberalized affordable housing underwriting criteria.’”

“That is the perfect smoking gun that tells how Barney Frank [D-Mass.], the Clinton administration and others would do it in those days,” Rep. Darrell Issa (R-Calif.), the ranking member on the House Oversight and Government Affairs Committee, said Tuesday in a speech at the Heritage Foundation.

“The seeds of the meltdown began with the well-intentioned goal that everyone have a home even if they can’t afford it,” he said. “It led to one of the biggest ponzi schemes ever.”

Fannie Mae and Freddie Mac made 54 percent of the “subprime” mortgage loans from 2002 to 2007, or about $1.9 trillion in mortgage loans to borrowers with credit scores lower than 660.

The report comes after Rep. Barney Frank (D-Mass.) – who fought against regulation of the two quasi-public mortgage giants -- and Rep. Anthony Weiner (D-N.Y.) wrote a letter in June to Fannie Mae and Freddie Mac calling on the GSEs to lower lending standards on condo buyers.

The report argues that lowered lending standards were the cause of the housing crisis and did not exempt the Republicans or the Bush administration from blame. It said placing certain lending quotas for under-served populations allowed “both Democratic and Republican administrations to consistently make campaign promises to boost homeownership through government intervention in the market.

Consequently, under both the Clinton and Bush administrations, HUD dramatically increased these quotas, which reached their zenith when the Bush administration raised them to 56 percent, 27 percent and 39 percent, respectively.”

“As home prices continued their dizzying rise, many people decided to cash in by buying a house with an adjustable rate mortgage featuring a low introductory teaser rate set to increase after a few years,” the report continues.

“These borrowers, confident in the oft-cited assertion that U.S. home values had never before fallen in the aggregate, planned to sell or refinance their investment before the mortgage rate adjusted upward, pocketing the difference between the initial purchase price and the subsequent appreciation in value,” says the report. “However, buyers failed to grasp the effect of a government policy that had quietly eroded the prudential limits on mortgage leverage, creating a dangerous speculative bubble.”

The report also talks about how the two GSEs became a powerful lobby. Fannie Mae CEO Jim Johnson opened up “partnership offices” in congressional districts, hired relatives of members of Congress, and GSE employees contributed $15 million to federal campaigns from 1998 to 2008. Throughout that time, all attempted reforms in Congress were blocked.

Also, in 1995, “Johnson seeded the Fannie Mae Foundation with $350 million of Fannie stock. The company used this foundation to spread millions of dollars around to politically connected organizations like the Congressional Hispanic Caucus Institute,” states the report.

Fannie and Freddie were not subject to regulation by the Securities and Exchange Commission, while executives were paid well. Former Fannie CEO Franklin Raines earned more than $50 million in compensation during his six-years at the helm, the report says. Fannie and Freddie paid billions more to shareholders. “Thus, the government subsidizations of GSE operations amounted to little more than corporate welfare,” the report says.

The report cites Frank’s accusations that to blame Fannie and Freddie is to blame only the lender and not the borrower.

“This misses the mark entirely. In fact, responsibility for the erosion of mortgage lending standards, which began with government affordable housing policy, rests squarely on the policy makers who advocated these ill-conceived policies in the first place,” the report says. “Borrowers quite naturally responded to the incentives they were given, irrespective of their socioeconomic status, and risky lending spread to the wider mortgage market."

 

reading that you just knew that there was right wing spin behind it:


"Study after study by the Media Research Center, the parent organization of CNSNews.com, clearly demonstrate a liberal bias in many news outlets – bias by commission and bias by omission – that results in a frequent double-standard in editorial decisions on what constitutes "news."

In response to these shortcomings, MRC Chairman L. Brent Bozell III founded CNSNews.com in an effort to provide an alternative news source"

 

Here is $100 billion/yr adding to the financial crisis.


http://www.atimes.com/atimes/South_Asia/KG09Df02.html

I was on active duty in 61-62, anybody know how many bases we had then?

 

Looks like the occupation of the Middle East is expanding. You have to wonder how an expanding global military presence can be sustained. I suppose it's no different than the national debt -- that keeps expanding too.

America is following the same course the Roman Empire did. Heavy social programs and an unsustainable expansion of the military took that giant down. A similar thing happened to England. America will be next. All empires eventually come to an end. The world is changing at warp speed these days.

 

But I was hoping it wouldn't happen in my lifetime. Guess I better hurry to the exit.

 

This is a good report. The Congressman who is committe chair (Darrell Issa) seems to be quite the bombthrower. Just a week or two ago, he dragged Bernanke in to answer questions. Issa didn't get very far with it.

This report looks to be fully fact based. Washington lit the fire that brought the banks down. But this news is likely going nowhere. Washington is nearly unaccountable now.