A short outline of the Bush Administrations attempts to rein in the GSEs, beginning in 2001, contains this:
When Republican Richard Shelby of Alabama, then chairman of the Senate Banking Committee, pushed for comprehensive GSE reform in 2005, Democrat Sen. Chris Dodd of Connecticut successfully threatened a filibuster. Later, after Fannie and Freddie collapsed, Mr. Dodd asked, “Why weren’t we doing more?” He then voted for the Bush reforms that he once called “ill-advised.”
But Mr. Dodd wasn’t the only Democrat to heap abuse on the Bush reforms. Rep. Barney Frank of Massachusetts defended Fannie and Freddie as “fundamentally sound” and labeled the president’s proposals as “inane.” He later voted for the reforms. Sen. Charles Schumer of New York dismissed Mr. Bush’s “safety and soundness concerns” as “a straw man.” “If it ain’t broke, don’t fix it,” was the helpful advice of both Sen. Thomas Carper of Delaware and Rep. Maxine Waters of California. Rep. Kendrick Meeks of Florida berated a Bush official at a hearing, saying, “I am just pissed off” at the administration for raising the issue.
Just in case you were wondering where the regulatory oversight wasn’t.
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.”
And this was from a NYT editorial in 2003:
The Bush administration is rightly pushing for the Treasury Department to regulate the two giants, along with the network of federal home loan banks. Freddie Mac and Fannie Mae provide financing to lenders by creating a secondary market for mortgages. All told, these two institutions’ debt portfolio exceeds more than $1.5 trillion. Their current regulator is ill equipped to keep tabs on Freddie’s and Fannie’s sophisticated hedging strategies and the other financial moves they use to manage their huge investments.
Lax regulatory oversight of these companies is made more worrisome by confusion over the extent to which Uncle Sam backs them up. An ”implied guarantee” gives Freddie and Fannie a competitive advantage in the marketplace, part of which is passed on to home buyers. But there is a danger (remember the savings and loan crisis?) in having the marketplace complacently assume that normal risk assessments need not apply to these players.
Even without signs of an imminent calamity, it is hard to argue that these financial enterprises — essentially two huge hedge funds — should continue to evade the type of rigorous oversight that banks face on issues like capital requirements and new lines of business. Yet it looks as if Freddie and Fannie, along with the home builders’ lobby, may succeed in blocking legislation to transfer regulatory oversight to the Treasury.
The two mortgage enterprises have helped to add liquidity to the housing market and put more working families in new homes. That mission need not be threatened by stronger oversight of their finances. Indeed, it will be protected.
Comments from the lunatics blaming Boooosh in 5…4…3…2…
Considering that I’ve seen them blame the Vietnam War on Nixon and slavery on the Republicans before, nothing will surprise me.
Lefty sorts wailing “WTF did you just say Obama? Keep the Boooosh tax cuts and look at trimming medicare and social security?” in a couple hours..
I’ll believe it when I see, it, serr8d. Then again, maybe SS/Medicare reform – real reform, not the cosmetic shit we’ve seen for 25 years – can only be done by a Democrat, much as only a Republican could go to China. God knows these programs are going to blow up in an explosion that will make us look back on this financial crisis with nostalgia.
That said, the perfidy, corruption and stupidity of the Democrats (and some Republicans) on Fan and Fred is absolutely criminal.
OT, but important…
All the PWers need to show up and show out! for the 2008 weblog awards. Just go to this site:
http://2008.weblogawards.org/polls/best-very-large-blog/
And vote for our site. Right now Pandagon has twice as many votes!; so let’s get cracking…
You can vote once every 24 hours from each computer you have access to. Voting will be open through the 13th. Let’s give Jeff G a nice happy new year! present from all of us, and show those PJM guys what for!
That is all,
Best Wishes
B-B-But, isn’t it all Boooooooosh’s! fault; the MSM has been essentially saying that, and so has the One!…
Everyone knows! that eeeeeeeeeevil RethugliKKKans! and their [Grrrr!]deregulation! are the whole and only cause of the mess we’re in today…
Can’t have anything to do with CRA, Fannie, Freddie, and the congressional Democrats!; the same ones who got sweetheart deals from countrywide, [gasp!] that eeeeeeevil exploiting bunch of RAAAAAAAACISTS!, or said they’d rather roll the dice with the economy rather than reign in the GSEs.
I mean, they’ve told me so…
Well, to be fair, Republicans were in power then and did have the power to fix things, and did not. It doesn’t matter how many Democrats refused to vote against it, they couldn’t stop it on their own. Sure, they set up the problem and lie about it constantly, but this was a joint effort of both parties.
President Bush tried, but he couldn’t get it done with his own party.
Which ultimately means that nothing short of an Augean Stables event could be expected to even begin to deal with San Fran Nan’s beloved “culture of corruption”…
Having helped drive the Conservative movement over the cliff, Rove’s lying. When it counted, the Bush Administration supported the sub-par mortages. Yet another part of compassionate conservativism’s ingenius plan to elect Republicans by adopting socialism. As in so many other areas, they bought into the nonsense. That’s part of the reason why the Bush Administration didn’t defend itself. They were not as guilty as the Democrats, but they were guilty.
“When it counted, the Bush Administration supported the sub-par mortages.”
Check the link, and check your facts. Rove is not the one lying, you are, sir.
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=2
Now we have quasi-concern trolls.
Me think thou doth protest, too much!
thinks
Firstly I’m humbled by Dan Collin’s continued interest in these fail financial institutions, FNMA and FHLMC. As I’ve pointed out before, no matter how gracefully one politicizes the failure of FNMA and FHLMC the politicization process itself is the last tranche (pun intended) of the disaster, and, as a reminder, the last tranche is always the cheapest. Take part of Greenspan’s comment, “If Fannie and Freddie ‘continue to grow, continue to have the low capital that they have,'” then ask why they weren’t more heavily capitalized. FNMA and FHLMC relied mostly on equity capitalization, taht’s one reason. If they sold more stock, adding capital to their books, that would have been prudent but also dilutive to earnings on a per share basis. And for those whose bonuses required increased EPS and stock price inflation to trigger stock options to in-the-money status, what motivation did they have to adequately capitalize if it risked millions in compensation?
As FNMA and FHLMC grew so did the differing motivations and interests of an increasing number of persons. That’s why it got so complicated. And with everyone being compensated so well, and with Bush himself trumpeting their success back in 2005, and with the economy and the stock market racing along under the banner of laissez-faire and deregulation, who would have guessed that this era of market triumph was a illusion? Some might have foreseen the pending disaster but did anyone expect such heady analysis from Maxine Waters? Really, now. Replace Mrs. Waters name with any redumblican and unless you are that stupid you’ll come to the same “really, now.”
As the Bushian Duuuh Squadron was flying high and parroting every golden cliche meant to prove deregulation was the path to infinite prosperity, what was going on at the “new and friendlier” S.E.C., or better yet, the OTS, office of thrift supervision? Their budgets were slashed and they incorporated a new “customer friendly” attitude, their customers, of course, being the financial institutions these agencies were designed to regulate. Total folly with a straight face, in retrospect.
For a fee, for a commission, for a bonus, for a Corinthian leather upholstered Lexus, most people will stampede head first into the abyss. That’s why on Wall Street the individual’s motivation for financial success is and should be a regulated game for, essentially, they’re playing with our tax money, when it comes to MBS (mortgage backed securities) anyway.
“who would have guessed that this era of market triumph was a illusion.”
I did.
You’re an embarrassment to financial people everywhere.
Sorry I don’t feel did anywhere enough to end the abuses of Fannie Mae and Freddie. Its sort of like the Capt. of the Titantic who is warned of an iceberg dead ahead and orders the speeed reduced by a knot. Not enough by a mile.
While the burden of the blame goes to the Barney Fags and Dodds of the world the Bushies still share for this disasterous affirmative action lending scheme.
I’ll duly note the lack of rebuttal from the likes of JHo, Ric Locke or Monsieur Collins as indicative of their acceptance that all the finger pointing politically driven non-sense is a bubbly lather resulting from the shampooing of inconvenient facts. In these instances I stand with Sir Isiah Berlin in his call for “the modern plea for a greater effort at understanding,” temperamental political differences not withstanding.
Ha.
…use of TrollHammer.
Embarrassment isn’t something you have worry about, it being outside the range of emotions in retards.
…all the finger pointing politically driven non-sense is a bubbly lather resulting from the shampooing of inconvenient facts.
Like redumblican hicktards?
That’s it, Bmoe!
You’re redumblicanhammered! Into the hicktard hamper you go!
I ain’t even close to wearing out the redumblican hicktard moniker. BJT is just jealous.
Well you know, when you point out ill doing by Democrats, the scream will always be that it is politicization. When you claim it was by Republicans, there’s thunderous applause from the same people who screamed before.
“As the Bushian Duuuh Squadron was flying high and parroting every golden cliche meant to prove deregulation was the path to infinite prosperity, what was going on at the “new and friendlier†S.E.C., or better yet, the OTS, office of thrift supervision? Their budgets were slashed and they incorporated a new “customer friendly†attitude, their customers, of course, being the financial institutions these agencies were designed to regulate.”
thor – Nice to see you reaching for the convenient dumbocrat conventional wisdom. Did you actually have anything to back up your assertions? I did not note anything. I believe the SEC enjoyed its largest staffing levels and budgets in history under GWB, so you can stuff that one back up your anus. As to the OTS, I didn’t even bother checking that after your whopper about the SEC. I’m just going to assume it’s wrong as well, but the OTS should be directly affected by the number of institutions it supervises, which is considerably smaller than when it was established.
Demented dick dipping dumbocrat stumblebum.
Do some homework before addressing your betters next time.
thor – I forgot, suck my sphincter.
Boy, you sure showed me with your facts!
One way of under-staffing is to increase staff at a far slower pace than the growth of an industry. Do your homework! Or better yet, know what the fuck you’re talking about before doing your homework.
I’ve worked with the S.E.C. and the N.A.S.D. and I know of the changes and the policy shifts firsthand, and for reasons of convenience I might indict the regulatory bodies in a screed but in reality some of their initiatives and upgrades have been quite impressive, but none of their upgrades excuses their lack of ability to regulate due to staff and policy deficiencies. The ability to file FOCUS reports and due partial filings and the convenience of having a help desk to call is all beneficial to financial institutions, but it can also make fraudulent filings more convenient and easy.
You’re a politically goggled partisan in need of a witch burning, and of course the witch you wish to burn will be a Dem since any and every issue to you is seen as politics instead of wholly American.
Is that not the sad truth?
And by the way, the quotation marks around “new and friendlier S.E.C.” in my original post are referencing George W. Bush’s words. Cooperative regulatory agencies aren’t a bad thing unless that pendulum swings too far to friendly, see Madoff scandal. Reference growth in hedge fund industry as a basis for my incremental growth deficiency at the S.E.C. if you’re in need of additional homework.
oh, must be around the same time he said this.
So what laws were broken that a beefed up SEC might have detected?
“Their budgets were slashed”
thoare – What part of your statement above is correct? Reaching for the conventional dumbocrat wisdom was wrong once again, but you haven’t admitted it.
Suck my sphincter.
The regulatory agencies budgets have been reduced.
Hold Larry Craig’s balls in one hand and wish in the other and see which one is warms to the truth faster.
Cuss and/or beg for a sphincter-suck all you want but I doubt you’re impressing anyone. I ask that you consider upping the quality of your attempted snark.
“The regulatory agencies budgets have been reduced.”
Got any backup for that stumblebum? I think I must have missed it. Your point in comment 12 was not understaffing, but budgets being slashed. Sorry for noticing you are switching arguments midstream. I has direct contact with the SEC as well but did not find myself dependent on their help desk to make periodic filings. I guess if you couldn’t figure out their detailed published instructions and couldn’t get any responses from the help desk a logical response might be to think they were understaffed. Were your cries for help unanswered thoare? That mean old SEC. Why wouldn’t they just hold your widdle hand so you could get your Focus reports done?
Check on their budget, idiot.
Meanwhile, suck on my sphincter. I had Mexican for lunch and there should be some nice stuff heading that way.