How the Democrats created the Financial Crisis

Discussion in 'Politics' started by wareco, Sep 22, 2008.

  1. Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

    Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

    But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

    Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

    In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

    The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

    Turning Point

    Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

    It is easy to identify the historical turning point that marked the beginning of the end.

    Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

    Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

    Greenspan's Warning

    The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``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,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

    What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

    Different World

    If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

    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. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

    Mounds of Materials

    Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

    But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

    Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

    Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

    There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

    Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

    (Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

    To contact the writer of this column: Kevin Hassett at
  2. sho-tim


    Dems in congress wanted these sub-prime loans to be made, pointed a figurative gun at the heads of banks to make them, created regs for fnma to securitize them, installed their people in the gse's to get it done and ran cover for them, blocked legislation proposed by mccain and pushed by bush to curtail the buildup in bad loans, .............and now say (pelosi in particular), that it's not their fault. They say it's the fault of greedy wall street people.

    In the old days, they'd have their way. Now, there's an alternative media. It will get out.
  3. Hmm, interesting. Play the blame game if you want but history is repeating itself with the Bush family and Republicans. HUGE spending and deficits. A war in Iraq. Bank bailouts. Like father, like son.
    The Republican party has become the party of lower taxes for the rich, zero financial control, and fucking the middle class to pay off their Wall Street buddies.
    Fucking clowns.
  4. Kevin Hassett, director of economic-policy studies at the American Enterprise Institute,

    Says enough.

    These God Damned imbeciles have been in power for 12 years AND they STILL blame the "liberal press" and the democrats.

    Someone ought to drag them out and hang and quarter every one of them.

    As for their retarded voter base, they breed like rabbits and have diluted the gene pool with their retarded genes. Time to begin forced sterilization on the imbeciles. :D
  5. (Edited by me to illustrate the flip flops)

    WASHINGTON (AP) — Sen. John McCain defended deregulation on Wall Street even as he endorsed a $700 billion bailout of financial firms in an interview broadcast Sunday.

    McCain, the Republican presidential nominee, has long supported fewer regulations for businesses. But as the financial crisis on Wall Street worsens, McCain is calling for more government.

    McCain was asked if he regretted supporting a 1999 law that removed barriers between investment banks and commercial banks that were erected in 1933, in response to the 1929 stock market crash.

    "No," McCain said. "I think the deregulation was probably helpful to the growth of our economy."

    "We're going to take over these bad loans," McCain said. "And we're going to have the taxpayer help you out. But when the time comes and the economy recovers, then anything that's gained back is going to go to the taxpayers first.

    "I'm not saying this isn't going to be messy. And I'm not saying it isn't going to be expensive. But we have to stop the bleeding," McCain said.

    The administration proposal would be the biggest government intervention since the Great Depression. It would dole out huge sums of money to financial firms to purchase their holdings of bad mortgage-backed securities so that these firms can resume normal...
  6. If you are waiting for Howard Dean or some high ranking Democrat to expose the corruption within Fannie and Freddie I wouldn't hold your breath.

    Usually it's the other party that exposes the corruption, not the party itself.

    This was all well known years ago, that's why Franklin Raines was kicked out.

  7. I hate being lied to and misled.

    This guy says

    "Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000. "

    Note the employees referred to above are regular employees. They do not include the senior officers and lobbyists because such officials have a tendency to sit on more than one company's board or lobby for more than one company.

    If you look at the officers and lobbyists this is what you see:


    If this is indicative of McCain's forthrightness while in office then it does not look like he's very trustworthy at all.