October 9, 2008
Nailing Jell-O To The Wall— A History
Lesson.
Vol. 3 Issue 19
Barack Obama wants to be president and
increase the size of government. He claims
the private sector is the wrong way to go.
Government knows best. Here is a history
lesson that will tell you why he is wrong.
Sgt. Joe Friday of the "Dragnet" day's
always said, "Just the fact's maam, just the
facts." Here they are:
1977: Pres. Jimmy Carter signs the Community
Reinvestment Act into Law. The law pressured
financial institutions to extend home loans
to those who would otherwise not qualify.
The principle was home ownership would
improve poor and crime-ridden communities
and neighborhoods in terms of crime,
investment, jobs, etc. It did not work.
The reason the government became so
intensely involved in the housing market
because it was what Bill Clinton wanted.
Where has he been the past few weeks?
1992: Congressional representative Jim Leach
(R-IO) warned of the danger that Fannie and
Freddie were changing from being agencies of
the public at large to a money machine for
the principals and its few stockholders.
1993: Pres. Clinton broadly rewrote Fannie
Mae and Freddie Mac's rules turning the
quasi-private mortgage-funding firms into
semi-nationalized monopolies dispensing cash
and loans to large Democratic voting blocks
and handing favors, jobs and contributions
to political allies. This potent mix led
inevitably to corruption and now the
collapse of Freddie and Fannie.
1994: Despite all the warnings, Clinton
unveiled his National Home-Ownership
Strategy, which broadened the Community
Reinvestment Act in ways congress never
intended.
1995: Congress was about to change from a
Democrat majority to Republican one, Clinton
ordered Robert Rubin Sect. of the Treasury
to rewrite the rules. Rubin reworked the
rules, which forced banks to satisfy quotas
for sub-prime and minority loans to get a
satisfactory CRA rating. The rating was the
key to the expansion and mergers for banks.
Loans started to be originated based on
race.
1997 - 1999: Clinton, bypassing Republicans,
enlists Andrew Cuomo, Sect. of HUD to allow
Freddie and Fannie to get into the sub-prime
market. With Rep. Barney Frank and Sen.
Chris Dodd taking the lead, congress doubled
down on the risk by reducing the capital
limits. This allowed them to hold just 2.5%
of capital to back their investments vs.
en-percent for banks. Since they could
borrow at lower rates than banks, their
enterprises boomed.
With incentives in place, banks poured
billions of dollars in loans into poor
communities, repeatedly followed by no money
down and no verification of income.
Worse still was the cronyism: Fannie and
Freddie became home to out-of
work-politicians and Clinton Democrats. At
least 384 politicians got big campaign
donations from Fannie and Freddie. Over $200
million was spent on lobbying and political
activities. During the 1990's Fannie and
Freddie enjoyed a subsidy of as much as $182
Billion. Most of these funds went to
principals and shareholders, not the
unfortunate borrowers as claimed. Was it
successful? Minorities, which made up 49% of
the over twelve-million new homeowners, have
had their loans go bad. This led to a
reduction in minority homeownership as
interest rates dropped.
1999: , Lawrence Summers, New Sect of the
Treasury, became concerned at Fannie and
Freddie's extremes. Congress held hearings
the following year but nothing was done
because Fannie and Freddie had donated
millions to key congressional
representatives and radical groups, ensuring
no meaningful changes would take place. "We
manage our political risk with the same
intensity that we manage our credit and
interest rate risks," Fannie CEO Franklin
Raines, a former Clinton official and
current Barack Obama advisor, bragged to
investors in 1999.
2000: Treasury Sect. Summers sent
Undersecretary Gary Gensler to Congress
seeking an end to the "special status".
Democrats raised an uproar as did Fannie and
Freddie, headed by politically connected
CEO's who knew how to reward and punish. "We
think that the statements evidence a
contempt for the nation's housing and
mortgage markets" Freddie spokesperson
Sharon McHale said. It was the last chance
during the Clinton era for reform.
2001: Republicans try repeatedly to bring
fiscal sanity to Fannie and Freddie but
Democrats blocked any attempt at reform;
especially Rep. Barney Frank and Sen. Chris
Dodd who now run key banking committees and
were huge beneficiaries of campaign
contributions from the mortgage giants.
2003: Bush proposes what the NY Times called
"the most significant regulatory overhaul in
the housing finance industry since the
savings and loan crisis a decade ago". Even
after discovering a scheme by Fannie and
Freddie to overstate earnings by $10.6
billion to boost their bonuses, the
Democrats killed reform.
2005: Fed chair Alan Greenspan warned
Congress: "We are placing the total
financial system at substantial risk". Sen.
McCain, with two others, sponsored a
Fannie/Freddie reform bill and said, "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". Sen.
Harry Reid accused the GOP of trying to
"cripple the ability of Fannie and Freddie
to carry out their mission of expanding
homeownership" The bill went nowhere.
2007: By now Fannie and Freddie own or
guarantee over one-half of the $12 trillion,
(that is trillion with a T) US mortgage
market. The mortgage giants, whose elaborate
executive offices were top-heavy with former
Democratic officials, had been working with
Wall St. to repackage the bad loans and sell
them to investors. As the housing market
fell in 2007, subprime mortgage portfolios
suffered major losses. The crisis was taking
form; it was 15 years in the making.
2008: McCain has repeatedly called for
reforming the behemoths; President Bush
urged reform 17 times. Still the media have
repeated Democrats' talking points about
this being a "Republican" disaster. A few
Republicans are complicit but Fannie and
Freddie were created by Democrats, regulated
by Democrats, largely run by Democrats and
protected by Democrats. That is why
taxpayers are now being asked for $700
billion!
Remember the saying, "I’m from the
government, I am here to help you."
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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