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The Fanny Mae & Freddy Mac debacle is Barney Franks fault

It was more a lack of enforcement of proper accounting standards (obviously aided by the (legal/legislative leverage) via their extensive lobbying and gift giving to influential congresspersons (on both sides). Let's not also forget the subsidies handed out by the federal government to companies to help provide low-income families with housing, encouraging more risk taking. It was a bubble, and the over-invesment was worsened by government (and aided by their inability to enforce current accounting standards).

That could be part; an argument can also be made that it was systematic which had developed in which the risk for bad mortgages was passed from the folks making the mortgage (brokers) to the folks buying them (ie financial institutions). The brokers had no incentive to make good loans; they got their fee and sold the mortgage. The financial institutions made a lot of money on them short term; no one considered the long term ramifications.
 
I agree with your point. I simply pointed out the error in the claim he took the chair in 2006.

I don't know where I got 2006. I read his bio prior to posting about it too, so I screwed up.

I immediately went back to my browser history to rub the article in your face. :3oops:
 
How many piece of legislation that would have halted this situation did Democrats oppose?
 
No, That's not what is listed in his bio.

I became Chairman of the Committee on Financial Services in January, 2007.

Congressman Barney Frank - MA-04

My point is you are wrong saying he was chair in 2006.

Fair enough, you pointed out when Barney took over the chair. Perhaps you'd like to address Barney's assesment of the situation here:

"These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis," said Rep. Barney Frank, then ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

When McCain was saying this two years earlier:

"If Congress does not act," McCain said in 2005, "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."

Bottom line, Barney Frank dropped the ball. McCain & Bush were calling for intervention before Frank even took over the committee, and Frank still did nothing.

Investor's Business Daily: Congress Lies Low To Avoid Bailout Blame
 
Apparently Dodd, Frank, Clinton, Rangel and other Democrats grew fat on FM/FM donations. Why would they reign in the golden goose?
 
Um, sorry, no, but "proper accounting standards" had nothing to do with it.

Let's put aside, for just a moment, that banks are allowed to commit fraud every day that they're in business.
This has nothing to do with accounting practices, and everything to do with a financial system rigged to benefit the big boys on the backs of the little boys and the taxpayers.

It's as simple as that.
I never said the entirety of the crisis resulted from lack of enforcement, however, it is hard to deny that many of these firms cooked the books to help ensure that money continued to flow into their institutions. Accounting fraud was certainly present in this case.
Who did the rigging? Who set the rules of the game and handed out the favors?
 
I don't agree with this at all. Write downs of the level 3s were occurring almost immediately after the housing market went bad. There was bad times a stewing at the investment houses well before the average person got wind of it. Citi went out to find a sovereign wealth fund to shore up their balance sheet relatively early in the crisis.

What is more of an issue was that rating agencies were sellings rates, you could buy whatever rating for your product that you wanted, similar to how in 1999 you could buy an audit. How S&P and Moody's haven't been shutdown or fined yet amazes me.
So cooking the books had nothing to do with it? Who allowed the ratings system to break down? Who would have prevented fraud from taking place in a just environment? The selling would not have been as fierce if it weren't for government giving hand-outs to ensure Freddie Mac and Fannie Mae could guarantee such large profit margins, further increasing the rush to these types of securities, or if the cost of capital was raised.
 
So cooking the books had nothing to do with it?

Come again? Who was cooking the books? Bad policies regarding buying and selling of bad loans is not cooking the books.

Who allowed the ratings system to break down?

That's a good question. But that doesn't deal with the heart of the problem. Why weren't the companies buying the securitized mortgages looking at the revenue streams behind these derivatives? I have no sympathy for the companies that had to write down billions because they were too dumb to figure out that they should not have bought that crap. It's like buying a used car without even looking at it.

Who would have prevented fraud from taking place in a just environment?

What fraud existed?

The selling would not have been as fierce if it weren't for government giving hand-outs to ensure Freddie Mac and Fannie Mae could guarantee such large profit margins, further increasing the rush to these types of securities, or if the cost of capital was raised.

That's probably true. And you can blame both parties for this. The GOP for attacking the down payment system as well as pushing bad loans the Dems for not allowing laws to correct at least some of freddie and fannie's bad policies.

Bush Profiteering from Housing Defaults by James Bovard
 
Fair enough, you pointed out when Barney took over the chair. Perhaps you'd like to address Barney's assesment of the situation here:

"These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis," said Rep. Barney Frank, then ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

When McCain was saying this two years earlier:

"If Congress does not act," McCain said in 2005, "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."

Bottom line, Barney Frank dropped the ball. McCain & Bush were calling for intervention before Frank even took over the committee, and Frank still did nothing.

Investor's Business Daily: Congress Lies Low To Avoid Bailout Blame

Frank's statement was made in 2003.

McCain's statement was made May 26 2006, not 2005,

Retrieve Pages

which was two days after the Office of Federal Housing Enterprise Oversight ripped Fannie Mae for its accounting practices:

http://www.nytimes.com/2006/05/24/b...sq=may 24 2006&st=cse&oref=slogin&oref=slogin

Since the Republicans controlled Congress before 2007, one might wonder why they didn't do something about it if their leaders like John McCain and George Bush thought it was such a problem.

Recognizing that there is a problem and doing nothing about it is worse than not recognizing a problem at all.
 
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This whole thing is like murder on the orient express.The democrats and republicans are both complicit the bankers and the people borrowing.Barney Frank encouraged lending to poorer people in the name of fairness.
 
Frank's statement was made in 2003.

McCain's statement was made May 26 2006, not 2005,

Retrieve Pages


which was two days after the Office of Federal Housing Enterprise Oversight ripped Fannie Mae for its accounting practices:

http://www.nytimes.com/2006/05/24/b...sq=may 24 2006&st=cse&oref=slogin&oref=slogin

Since the Republicans controlled Congress before 2007, one might wonder why they didn't do something about it if their leaders like John McCain and George Bush thought it was such a problem.

Recognizing that there is a problem and doing nothing about it is worse than not recognizing a problem at all.

Thanks, you just proved my statement here:

GottaHurt said:
Bottom line, Barney Frank dropped the ball. McCain & Bush were calling for intervention before Frank even took over the committee, and Frank still did nothing.

Frank knew when he took over as Chairman of the House Financial Services Committee. Your NY Times article is the smoking gun. Frank is the current chairman, and has been sitting on this information for at least 18 months.

If it was the Republicans fault, as you claim, the democrats would have been all over this.
 
How long has Frank been on the committee? Hmmm?
 
Thanks, you just proved my statement here:

Frank knew when he took over as Chairman of the House Financial Services Committee. Your NY Times article is the smoking gun. Frank is the current chairman, and has been sitting on this information for at least 18 months.

If it was the Republicans fault, as you claim, the democrats would have been all over this.

Show us where I claimed it was the Republicans fault.

With Bush in the WH, no bill with meaningful regulation would have had a chance of passing.

The NYT article exposed an accounting scandal and earnings manipulation, but did not address the value of the mortgages that it was holding.
 
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Come again? Who was cooking the books? Bad policies regarding buying and selling of bad loans is not cooking the books.
FBI investigates sub-prime crisis | Business | guardian.co.uk
http://www.guardian.co.uk/business/2008/jan/30/subprimecrisis.creditcrunch?gusrc=rss&feed=networkfront said:
"Fourteen companies, including some of the world's largest banks, are being investigated over possible accounting fraud, improperly securing loans and insider trading during the sub-prime mortgage scandal.

The FBI said yesterday that it had opened criminal investigations into improper lending in the American housing market.

Neil Power, head of the FBI's economic crimes unit, told journalists that the investigation includes the companies that securitised the loans and investment banks that bought those products, as well as the developers and sub-prime lenders.

"We're looking at the accounting fraud that goes through the securitisation of these loans," said Power.

Several of the world's largest banks separately revealed yesterday that they are cooperating with official investigations. Bear Stearns, Goldman Sachs and Morgan Stanley all announced, via official filings to the US Securities and Exchange Commission, that government investigators have asked for information about their sub-prime lending practices."


That's a good question. But that doesn't deal with the heart of the problem. Why weren't the companies buying the securitized mortgages looking at the revenue streams behind these derivatives? I have no sympathy for the companies that had to write down billions because they were too dumb to figure out that they should not have bought that crap. It's like buying a used car without even looking at it.
The heart of the problem is that this is an example of over-investment (which can happen naturally in markets). The severity results more from government than from markets.
Because Hedge Funds and Investment Banks don't necessarily make money off of the fundamentals of stocks. Hedge Funds have made money for years this way. That of course does not necessarily mean they need a bailout, but one might ask if the ratings of these securities caused banks not to evaluate their revenue stream. I would like more concrete evidence that the revenue streams on these derivatives was bad in the first place (if you can acquire such data.)
 
George Will makes another interesting point that Prez Johnson sold Fannie Mae into semi-privatization to fund the Vietnam War. Democrats haven't been able to keep their hands off of it since they invented it.
 

That's not fraud on Fannie Mae's side.

I would like more concrete evidence that the revenue streams on these derivatives was bad in the first place (if you can acquire such data.)

It's actually really simple. A pack of mortgages that have been securitized are bought because of the mortgage payments are paid to the holders of these derivatives. If mortgage payments stop, the derivative is worthless. Therefore, those who were buying these should have looked into how good the mortgages were and what the fundamentals of those mortgages. They didn't and bought them with loans.
 
I don't think you can pin all of this on any one person.

I say the problem was caused by poor regulation, especially by Alan Greenspan & Co., greed, and the ability to make bad business decisions and pass the associated risk on to someone else. The FED and the SEC both could have stopped this in its tracks early on.

Barney Franks had a role by encouraging bad loans and refusing to address the growing problems at Fannie and Freddie when they were pointed out to him; in fact he insisted there was no problem. But he wasn't the root cause any more than many others who are now having fingers pointed at them.

Over the long term, additional regulation won't help and may hurt if done poorly. Better regulation would help, but that's very difficult to achieve. The best way to prevent this problem in the future is to make the businesses who made bad decisions pay, really really pay. That extends down to the people who originally made the bad loans, some of whom are probably guilty of fraud.
 
That's not fraud on Fannie Mae's side.
.
Did I ever specifically say Fannie Mae? It was a point relating to general accounting fraud within the markets that fueled excessive trading based off of false information.
It's actually really simple. A pack of mortgages that have been securitized are bought because of the mortgage payments are paid to the holders of these derivatives. If mortgage payments stop, the derivative is worthless. Therefore, those who were buying these should have looked into how good the mortgages were and what the fundamentals of those mortgages. They didn't and bought them with loans.
Like I said, investment banks and hedge funds don't make their money like a mutual fund does. It is more relient upon quickly responding to markets. There weren't defaults initially (or they were rather limited). When a bunch of securitized mortgages are bought together it's somewhat hard to evaluate the long-term returns of each. There were certainly gaps in information, and of course if banks are "cooking the books" then it's hard to make a wise decision in the face of faulty numbers.
 
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