I went a few rounds last night with a commenter over on the UpperCase Woman blog. So to assure her that I do, let me throw this out there.
1. Former Fannie Mae Chairman and CEO Franklin Raines was the White House budget director under Bill Clinton. He was also cited by the Washington Post as an economic advisor to Barack Obama. Obama, in his very short time in the U.S. Senate also quickly became the second largest recipient of campaign contributions from Fannie Mae, ahead of even John Kerry.
2. Jamie Gorelick served as Bill Clinton’s Deputy Attorney General and served as Vice Chairman at Fannie Mae. In 2002, she told “BusinessWeek” that Fannie Mae was “very, very strong” and was “managed safely”. For her efforts, driving the company to the brink, she received $26 million plus bonuses.
3. Fannie Mae is heavily involved with the Congressional Black Caucus. Interim CEO Daniel Mudd described the relationship Fannie Mae and the Congressional Black Caucus shared as a “family” relationship. The Caucus pressured Fannie Mae to get mortgage loans for millions of Americans who couldn’t afford them. Fannie Mae and Freddie Mac were the worst offenders in this housing loan crisis, which in turn caused so many banking institutions to go down with it. The crisis has had a domino effect throughout our financial institutions. In fact, AIG was in part brought down because it held $600 million in Fannie Mae and Freddie Mac. Meanwhile, President Bush has called for reforming Fannie and Freddie 17 TIMES this year alone! The democrats’ fingerprints are all over this crisis.
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.”
Also the New York Times does a surprisingly balanced piece with blame on the Republicans for not reigning in the time bomb set off and protected by the Democrats.
Clearly this isn’t a crisis that just popped up over the past month. It has been an eventual time bomb that was set during the Clinton administration. The Republicans are guilty of not watching the red flags and trying to avert this sooner.
Feel free to comment Meme!
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