September 25 2008
"There's A Hole In The Bucket, Dear Liza,
Dear Liza..."
Vol. 3 Issue 16
Only it is not a bucket, it is the U.S.
economy. It has been said, the only two
products
you will ever need to fix anything are "Duct
Tape" and "WD-40."
The bucket has been leaking since designer
mortgages [My italics] were invented
during the Clinton administration, which
allowed low-income families to become
homeowners. If you were able to sign your
name, you were able to get a loan. The
emphasis was placed on your credit score not
your income. If you had a combined
income of $30,000, which was inadequate by
most loan officer’s standards to get an
auto loan, it did not matter. Lenders did
not verify income, they only looked at FICO
scores. As long as your credit score was at
least 690 you could probably purchase a
$250,000 home.
FNMA and FMAC have been backed by the
federal government. They buy mortgage
loans from the lenders who originate them.
Four-years ago they were both in trouble
because of fuzzy accounting practices. FNMA
CEO, Franklin Raines, Pres. Clinton's
former budget director, was fired. However,
he did not leave quietly. It appears that he
must have sprayed the hinges on the office
door with WD-40 so he would not be heard
sneaking out with a $90 million dollar bonus
he gave himself for outstanding
performance. (?)
FNMA placated Congress by promising to
help more poor people buy homes by
helping them to get mortgages. This led them
to buy riskier and riskier loans from
private lenders who did not care because
FNMA was going to buy them. This created
the chance for everyone to formulate shakier
loans. FNMA and FMAC bought trillions
of dollars of these loans. In turn, they
then sold them to financial institutions,
who
purchased them believing that they were safe
because the government was behind
them. It was only an appearance the
government backed them; in fact, they were
not.
These institutions did not pay attention to
the assets they were acquiring or the risks
they were taking as they were spread
throughout the financial system.
However, in 2005 the Senate Banking
Committee, chaired by Republican Richard
Shelby, tried to put a stop to these
practices by writing strong new regulations.
This
would have prevented both Fannie and Freddie
from further acquiring these bad
mortgages. These new regulations would have
given the same power to a new
regulator that the regulator of the banking
authority had.
The vote was split right down the middle
on party lines. All the Republicans voted in
favor of the new regulation. The Democrats
unanimously voted against it. This
included the vote of Senate Banking
Committee Chairman, Sen. Christopher Dodd
(D-
CT), who received the largest share of
campaign donations FNMA distributed. Next in
line, behind Dodd was Barrack Obama,
followed by Hillary Clinton.
This occurred in 2005 after the then Fed
Chairman, Alan Greenspan, issued a harsh
warning to the Senate that both agencies
were playing with fire. Greenspan said,
"Without further regulations we increase the
possibility of insolvency and a major
financial crisis. Without restricting the
size of FNMA and FMAC we put at risk our
ability to provide safe and sound financial
markets in the U.S." His prediction was
right on the mark.
However, because Democrats blocked them,
the new regulations never got the
consideration by the full Senate they
deserved. They died in committee. That is
how
we shot a hole in the bucket.
In 2006 Sen. John McCain, once again
warned of the impending doom and tried to
write legislation to plug the leak. McCain
said, “For years I have been concerned with
the rules that govern Fannie Mae and Freddie
Mac and the shear magnitude of these
companies and the role they play in the
housing market. The GSE’s (Government
Sponsored Enterprises) need to be reformed
without delay.”
Once again, the Democrats ignored the
warnings. We missed the opportunity to avoid
this meltdown. And, if we think duct tape is
going to fix it, we are very much mistaken.
We just cannot put a band-aid on it.
Senator Charles Schumer (D-NY) in April,
2005, during the Senate Banking
Committee hearings, said, “I think Fannie
and Freddie over the years have done and
incredibly good job and are an astringent
part of making America a part of the best
housed people in the world. If you look over
the last twenty or whatever years, they
have done a very, very, good job” That was
the first time “Chuck,” as he is known,
caused a disaster in the economy. The second
was in June, 2008 when he said Indy
Bank probably could not meet its financial
obligations. This time he was stupid
enough to put it in writing in the form of a
letter questioning their solvency and
viability.
This caused a run on the bank and their
failure within a week.
The irony is, Barack Obama who is trying
to put the blame on the Bush administration
for the mess we are in, is enjoying the
company of Franklin Raines as one of his
chief
advisors. Yes, that is the same Franklin
Raines who looted FNMA of $90 million by
cooking the books. He cooked them so well;
he should be given a guest appearance
on Iron Chef America.
Has he forgotten that in 2003 President
Bush wanted to regulate Fannie and Freddie?
When he asked Congress for regulation, it
was Rep. Barney Frank (D-MA) who said,
"Freddie and Fannie are fine, there is
nothing wrong." Frank then locked it up in
committee.
The Washington Post reported Frank, who
is openly gay, was involved in a
relationship with a Fannie Mae executive,
and named Herb Moses as his lover. Frank
referred to Moses as his spouse. The Post
revealed the two who had split up remained
friends. Frank was and remains a stalwart
defender of Fannie Mae and Freddie Mac.
Both organizations are now under an FBI
investigation. Frank has derailed efforts to
regulate the institution, and keeps denying
it poses any financial risk. Is he deaf,
dumb
and blind? When I looked up the definition
of arrogance in the dictionary, it said,
Barney Frank, Chuck Schumer and Christopher
Dodd.
Sen. McCain has suspended his campaign
and returned to Washington to work on the
bailout package. Yes folks, he does have a
day job; running for President at this
moment should be considered an
extracurricular activity, something that
Barrack
Obama clearly wants to continue to enjoy. If
President Bush did not invite both
candidates to meet with him, do you really
believe Obama would have left the
campaign trail? After all, he said he has
the ability to walk and chew gum at the same
time. Obama wants to continue, shaking hands
and kissing babies. He calls himself a
leader? Does the name Nero sound familiar?
Warren Buffett labeled the current
problem as, "The next Pearl Harbor."
If the Senate and Congress listened to
Shelby, McCain and Bush years ago, we
wouldn’t be in the mess we are in today.
Good instincts usually tell you what to do
long before your head has figured it out. It
is like driving down the road, if you only
look over the hood of your car you are bound
to hit an obstacle, because you cannot
see the road ahead.
Now don’t lose control of your senses,
what the rescue of Fannie and Freddie really
means is, the government is now in the
mortgage business. And, since over 98% of
all
homeowners are paying their mortgage each
month and on time the government may
actually make a profit with the bailout.
When we bailed out the Chrysler Corporation
in
the seventies, the government actually made
a profit. After the automaker paid back
the loans the government sold the warrants
on the open market.
Here is the real irony.
Seven-hundred-billion dollars, isn't that
the same
amount of money we send to the Saudis and
their friends for oil each year?
So where does the blame lie? The French
philosopher, Voltaire, once said, "Everyone
is guilty of the good they do not do." You
decide!
And, that is my opinion.
Michael Solomon
If you want to
help restore sanity to America, join the
Flag Day campaign.
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