Framing the Dialogue

Out With A Whimper

How many times have you heard this comment in the last six months?

“Worst economy since the Great Depression”

I think that the latest congressional plan for paying off the massive deficit will be to collect a nickel for every time that phrase is mentioned.  If they had a nickel for each time that was mentioned, our deficit would be halved by the end of the year.  That would probably work, except for the “had.”  I suspect we would be “had.”

There was a lot of finger pointing when the economy went down the tubes, but things got fairly silent as the politicians went on spending spree after spending spree.  You would expect a lot of fanfare and hoopla when the results of an investigation hit the streets.  I must have missed the headlines, because I missed the announcement.

The U.S. House of Representatives Committee on Oversight and Government Reform released a 26 page report on July 7, 2009 titled The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008.  This is a fairly detailed document and obviously written by the GOP.  The Republicans issued a press release that outlined some of the major points in the scandal.  That is my term as this crisis and the causes are scandalous.

Here are their main points (bold) followed by my comments:

  • Political pressure led to the erosion of responsible lending practices.  Lending institutions were “encouraged” to lend money to risky borowers.  Lending rules were relaxed to increase the number of Americans’ ability to realize the American dream of home ownership.  There were reports where applicants did not even have to prove that they were gainfully employed.
  • Lower down payments led to housing prices that outpaced income growth.  Lower down payments allowed folks to borrow more and buy bigger houses.  This is the housing bubble where housing prices skyrocketed.
  • Members of an “affordable housing” coalition shared profits with political allies to help legitimize their business practices.  Fannie Mae and Freddie Mac gave lots of money to their political protectors and were politically protected.  You get the politician that you pay for.
  • The Government Sponsored Enterprises led the way into the housing crisis.  Fannie and Freddie (both Government Sponsored Enterprises or “GSE”) purchased these risky (or sub-prime) loans from the original lenders.  “Fannie Mae and Freddie Mac, which privatized their profits but socialized their risks, creating powerful incentives for them to act recklessly and exposing taxpayers to tremendous losses (they played and we payed).

The connection between “Wall Street” and the housing mortgage scam was with the sale of these now “toxic assets.”  Essentially they lent money to people who could never repay the loans, packaged the bad loans with good loans and sold them to us through the two GSEs (they played and we payed).  One of the best explanations (not short and with a few curse words) was written for Rolling Stone.  It can be found at this link.

If you look at the amount of money that is involved in this scandal, it makes Bernie Madoff’s $65 million ponzi scheme look like a two-bit corner hustle.  He was convicted and got the maximum of 150 years in prison.  I have not heard anyone screaming for prosecutions in the housing crisis.

Here is a rogue’s gallary of the players in this scandal in no particular order:

George W. Bush:  President Bush was in charge when the housing crisis accelerated.  He bought into the goal that every family deserved to own a house as if this is a right.  The buck stops there.  He and the GOP had control of both houses of the legislature and did nothing.  He could have had the Justice Department investigate.  He did “try” to make reforms, but trying is not the same as succeeding.  Shame on him and he deserves a great deal of blame.

Barney Frank:  Representative Frank tagged by the Wall Street Journal as the “Patron Saint” of Fannie Mae and Freddie Mac.  Rather than reiterate the history of Mr. Frank’s guardianship I highly recommend you read the WSJ report here.  I disagree with the “Saint” moniker as apparently Barney has an ulterior motive.  “But the biggest payoff for Mr. Frank is the “affordable housing” trust fund he managed to push through as one political price for the recent Fannie reform bill. This fund siphons off a portion of Fannie and Freddie profits — as much as $500 million a year each — to a fund that politicians can then disburse to their favorite special interests”

Frank RainesMr. Raines has had a very connected career and did a stint as CEO of Fannie Mae.  Even though Fannie was caught cooking the books during his tenure, he still managed to collect approximately $90 million in payments.  That is the American dream.  You cook the books, make your “company” look like it is performing better than it is, collect obscene salary and bonuses, bail out before the collapse and get away with it.  Why is this guy not in jail?

William Jefferson Clinton:  Our “first black president” was in office when pressure was applied to banks to lesson standards for home mortgage loans.  Here is where the political pressure came in to play as noted by the American Thinker, “To support “home ownership for all” was the key to popularity, political donations, and power. To oppose it, or to propose even a smidgen of common sense regulation and risk management to the mortgage process, was certain political suicide.” 

Andrew Cuomo:  Mario’s boy was the head of the Department of Housing and Urban Development under President Clinton.  It did not matter than Mr. Cuomo did not have any banking or real estate experience.  Stuff like that only counts in the real world.  This from the Village Voice, “In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy…The government chartered these banks to pump money into the mortgage market.”  We will be paying for his efforts for many years to come.

Maxine Waters:  Congresswoman Waters was a staunch defender of Fannie Mae and Frank Raines in particular commenting that “We do not have a crisis at Freddie Mac and particularly Fannie Mae under the outstanding leadership of Frank Raines.”  We can be sure that her defense of Mr. Raines had nothing to do with the fact that the Political Action Committees from Freddie and Fannie contributed $15,000 to her campaigns.  In her defense, she is way down on the list of politicians who took money.

Chis Dodd:  The senator from Connecticut tops the aforementioned list of campaign contributions from Fannie and Freddie to the tune of $165,400.  What does that much money buy?  “I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. And we don’t want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that’s been done here.”  Someone needs to investigate Mr. Dodd about his VIP mortgage from Countrywide.

Barack Obama:  Our new president came in second to Dodd on the payroll of Fannie and Freddie at just over $126,000.  This is more remarkable considering that he had only been on the national political scene for a few years while the others on the list accepted contributions over a 20-yr period.  No word on what “access” that kind of money buys.  This is probably unrelated, but there has not been any noticeable activity or investigations into Fannie or Freddie.  As with Bush and Clinton, Obama is the president and has the ultimate responsibility rests with him.

The Media:  Where are the investigative reporters?  Where is Deep Throat?  Anyone who cracks this has to get a Pulitzer Prize.  We have come to expect our elected officials to be corrupt; we just try to elect the less corrupt when possible. 

This has to be the biggest story since the Great Depression and all we get is a whimper.

Here an additional link for your amusement.

7 CommentsLeave one

  1. Jamie Holts says:

    Hello.

    I would like to put a link to your site on my blog roll if you want to do the same for mine. It would be a good way to build up both of our readerships.

    thank you.

  2. Jamie Holts says:

    A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks

  3. Jamie Holts says:

    Would you be interested in exchanging blogrolls links with my site? Please email me if you are interested

  4. Jamie Holts says:

    I’ve been reading along for a while now. I just wanted to drop you a comment to say keep up the good work.

  5. Jamie Holts says:

    You know, I have to tell you, I really enjoy this blog and the insight from everyone who participates. I find it to be refreshing and very informative. I wish there were more blogs like it. Anyway, I felt it was about time I posted, Ive spent most of my time here just lurking and reading, but today for some reason I just felt compelled to say this.

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