American Elephants

Bush and McCain each tried to reform Fannie Mae. Democrats Blocked them both times. by The Elephant's Child

First from the New York Times: Note the date!

September 11, 2003– The Bush Administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry,

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies.  It would exercise authority over any new lines of business.  And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken.  A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

From the Congressional Record: Again, Note the Date!

The United States Senate, May 25, 2006

Sen. John McCain [R-AZ]:  Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives.  In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets.  The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac. …

For Years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac — known as Government-sponsored entities or GSEs— and the sheer magnitude of these companies and the role they play in the housing market.  OFHEO’s report this week does nothing to ease these concerns.  In fact, the report does quite the contrary.  OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

Democrats blocked both attempts to reform Fannie Mae.

Thanks to Sweetness &Light which has printed these two articles in full.

Barack Obama is out trying to blame this all on the Bush Administration, as usual, and scare people as much as he can, — so that he can promise to “rescue” them.  But his solutions are the worst possible, and his speeches are irresponsible.

First Trust economists note that:

The most important thing to remember is that the emphasis belongs on the word financial. These financial market problems are not a result of general market weakness, otherwise known as a recession.  In fact, real GDP has grown 2.2% in the past year and accelerated to a 3.3% annualized growth rate in the second quarter.

The economy is not taking down investment banks; lousy lending standards and the excessive use of leverage are taking down investment banks.

This whole thing had its’ beginnings in a well-intentioned law during the Carter Administration, The Community Redevelopment Act, which was designed to encourage minority homeownership.  President Clinton, influenced by multiculturalism, encouraged it further by dictating where mortgage lenders could lend.  Tough new regulations required that lenders increase their lending in high-risk areas where they had no choice but to lower lending standards to make loans that sound business practices had previously rejected.  Clinton cronies Franklin Raines and Jamie Gorelick became multimillionaires through their supervision of the quasi-governmental agencies that came to manage the real estate market in America.

Low interest rates in the marketplace persuaded Investment banks to purchase packages of sub-prime loans, and risky decisions and a little greed, of course, let them use too much leverage.

This is not the first time that Investment Banks have failed and disappeared. E.F. Hutton, Goodbody & Company, and Kidder Peabody are three of the vanished.  Today’s Investment Banks did not do anything against the law, they just exercised bad business judgment.

Unemployment in the economy is largely confined to the housing crisis with home builders and related trades suffering, as well as the auto industry and related trades and now there will be some investment bankers on the unemployment line.

They are in trouble because they are affected by unfortunate laws made by a Congress that does not always understand what they do. Remember that most congressmen never read the bills that they sign. Congress has long been inclined to well-intentioned regulation to help the poor and save the planet.  They fall in love with the goals, and never consider or learn about the consequences of what they do.

It seems kind to help a poor family get into a house larger than they can really afford, with less of a down payment, but it isn’t really kind.  Kindness would be helping them to learn how to work hard and save their money, and how to move up to better jobs. Government can make it easier for private industry to build smaller, more affordable houses, without telling them what kind of houses to build, where to build them and under what qualifications to sell them.

The great problem with Socialism is their pursuit of “social justice”.  They believe that they can make the poor — not poor — by taking money from the well-to-do and giving it to the poor.  Never works.  Though there is extraordinary mobility in our society, those who are induced into dependency on government are inclined to lose that mobility.

Barack Obama, in all his economic plans, is extraordinarily invested in the pursuit of “social justice”. That should be a serious warning.

19 Comments so far
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[…] not up to speed on how this crisis came about, check out The Elephant Child’s post below) McCain has come out swinging. I hope we see lots more of this, including lots of […]


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According to the New York Times, Democrats blocked Bush’s Fannie Mae and Freddie Mac reforms so low income people with bad credit could buy houses.
”These two entities -Fannie Mae and Freddie Mac – are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, and the less we will see in terms of affordable housing.” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee.


Comment by Charles Hill

Thanks for the link Charles.


Comment by American Elephant

Barney Frank(D-MA) has been stalwart in his defense of Fannie and Freddie. When Franklin Raines walked out with $100 million, when economists warned of big problems, when think-tanks pointed out the danger, Barney was there defending them.

It’s really nice to help low income people to buy their own homes. The best way is to teach them how to work hard, get promoted and save their money. Well-meaning giveaways to people who don’t know how to manage what they have been given, may make the giver feel good, but doesn’t really help anyone.


Comment by The Elephant's Child

Specifically, how did the dems block the oversight proposal in 2003 and again in 2005 with a republican majority?


Comment by nick

The Republicans had a majority, but a small one. Not all votes are party line votes, there are some on each side who disagree, depending on the issue. And remember that the President doesn’t get to vote, he only can propose, and sign a bill into law or not.

Some members may favor a law, but refuse to vote for it because of some language in the bill, or something that has been added. It is a complicated process — which is as was intended. Our founders wanted us to talk, discuss, argue and fight in the hope that through much discussion we would come up with better laws. Sometimes it works, sometimes not.


Comment by The Elephant's Child

[…] by YouTube and Warner. I suspect with some pressure from the Obama campaign. The other videos and this previous article and this one cover much of the same […]


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My question is…how can Democrats block this when a simple majority was all that’s needed? And there was no attempt or record of filibuster if the Republicans did pass it. Republicans had control of the White House and the Congress and they oculd have passed this without the help of the Democrats.


Comment by JBT

Good question JBT. The fact is lots of things get blocked without actual fillibusters. There are actual fillibusters and there are virtual fillibusterss. No one of either party brings anything to a vote without first knowing exactly how many yes and no votes it’s going to get. Every single Democrat on the committee voted against reforming Fannie Mae, that IS on the record, and it was clear that Democrats were going to make this a partisan issue and Republicans simply didnt have enough votes to overcome a Democrat fillibuster, so they didnt bring it to a vote.

Even Bill Clinton admits Democrats blocked reform.


Comment by American Elephant

Did you notice that the “bailout” bill did not pass on Monday? This was Speaker Pelosi’s big deal, but in case things did not work out, she wanted cover from Republicans. They could have passed it with only Democrat votes if they voted on a party line. They didn’t.

Congress people do not always vote with their party unless it is a highly politicized vote for one side. Who knows why they vote as they do? Depends on the number of telephone calls, or whether they have acid stomach that day. Or perhaps they are just unusually uninformed. Many do not read the bills that they vote on, and I know some that wouldn’t understand what they read, if they did.


Comment by The Elephant's Child

[…] surprised; these are the same people who blame Bush for the financial crisis despite the fact that the Democrats blocked his efforts to reform it beforehand, who blame gun manufacturers when criminals use guns to kill and blame tobacco companies when […]


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This entire financial meltdown is like the Emperors new clothes. The democrats said no no no no no to reform of Fannie Mae and Freddie Mac. They did nothing but praise Fannie and Freddi and point an accusatory finger at Republicans that raised valid and all to accurate points in regard to the dangers of the CRA (Community Reinvestment ACT) loans that were being made.

Chris Dodd, Charles Schumer, Maxine Waters ( what an idiot this woman is!) Barack Obama himself,Barney Frank were all against any reforms when recommended and blocked legislation that would have avoided this mess.

Then the flood gates opened up and it was apparent in 2005 that we had passed the brink of sanitiy and there was trouble comming. So they jump in and act as if it was there idea and it was the Bush adminsistration that was at fault. Of course we know now as it is on video tape of just how all these Democrats sold a Nation and worlds economy down the river.

Just look at all the Democrats that lined their pockets from Fannie and Freddie and not one republican in office did.

This gets brushed under the rug by the heavily partisan press but the bow at the alter of to dump to walk and chew gum at the same time Dems like Pelosi, Reid, Boxer, etc..

What a night mare they caused all for political power. Pelosi and her cohorts say screw you to every American every day.


Comment by lablue

That should say “to dumb to walk and chew gum at the samt time in referring to the Dems Pelosi,Reid,Boxer, etc..


Comment by lablue

[…] policies that forced banks to make bad loans under the insane Community Reinvestment Act, and by blocking Republican attempts to reform Fannie Mae and Freddie Mac, have done nothing whatsoever to prevent […]


Pingback by Mountains of Our Money to Be Poured Down Fannie and Freddie | – Political Viewpoints

[…] are more sites than you can count. Betsy's Page: Who tried to reform Fannie Mae and Freddie Mac? Bush and McCain each tried to reform Fannie Mae. Democrats Blocked them both times. American Elephan… __________________ Obama's legacy, The National Debt […]


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[…] housing meltdown. The man is delusional. At one time, the White House had a list of the 17 times the Bush administration tried to get Congress to do something about the Community Reinvestment Act (CRA) – with each attempt failing. That record disappeared from the public on Barack […]


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