Alex

"HOW THE DEMOCRATS CREATED THE MORTGAGE MESS"

"Story Published: Sep 22, 2008
Sure, they had help, but the record is pretty clear.....
It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.
Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

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."

Looks like Republicans tried to stop the current economic struggles from happening. Democrats blocked it.

HOW THE DEMOCRATS CREATED THE MORTGAGE MESS | Newsradio 620 - Milwaukee, Wisconsin News, Talk, Sports, Weather | Charlie Sykes

obvious Child

On the contrary, the Bush Administration and the GOP systematically destroyed the down payment system as well as pushing NINJA loans starting in 2002.

Bush Profiteering from Housing Defaults by James Bovard

Still, I won't be dishonest like you. Both parties and a wide variety of groups all help create this mess.

__________________
"Maybe God doesn't care how you say your prayers, just as long as you say them" - Jeffery Sinclair

SouthernDemocrat

How many threads are going to be started throwing out the same tired debunked arguments?

Here we go, same response as before:

A basic rule of science, and economics is a science, is that while correlation does not prove causitation, a lack of correlation or flimsy correlation at best, disproves causitation.

It would seem that the right wing ideologues in their ever present struggle to not take responsibility for any of their failures are now trying to blame the current financial crisis on the Community Reinvestment Act of 1977.

Lets look at the facts:

Lets just look at the facts.

The CRA was enacted in 1977.

The CRA was reformed in 1995.

The Commodities Modernization Act was signed into law in 2000.

The vast majority of bad loans underlying the current financial crisis were written 2001 on. Moreover, the Bush Administration gutted CRA in 2004, yet huge numbers of toxic loans were still being written. Also its very questionable to equate subprime loans with inner city depressed areas. There are plenty of families earning a 100k a year buying 600k loans with a subprime mortgage or other creative financing, all of which is outside of CRA. Finally, CRA certainly is not responsible for the global housing bubble, that can only be made possible by instruments like Credit Swaps.

You have some ideologues desperately trying to pin this on CRA, but it just doesn't hold up under any sort of scrutiny.

The fact is, unregulated direvatives are to blame for this crisis. Nothing else makes it possible. No one would be writing toxic loans without a way of insuring their bet. (and that does not even get into how the Republicans gutted regulation of Appraisers) __________________

To carry this argument further.

What is the conservative ideological opposition to regulation of the financial markets?

Primarily, so the argument goes, market regulation curbs innovation, and absent regulation, the markets will self correct.

Now, what was this "innovation" that resulted from lightly regulated financial markets?

Well we had all kinds of "innovation" spring up:

Interest Only Loans

80/20 loans - No PMI

90/10 loans - NO PMI

Reverse Mortgages

Stated Income Loans - This one is where you just tell the mortgage broker what you make, no verification need. Don't worry, they will find an investor.

Credit Default Swaps

See thats the "market innovation" that we got when we deregulated. That is the "market innovation" that is completely to blame for the current crisis.

__________________
Charles Krauthammer describing Obama:

"He's got both a first-class intellect and a first-class temperament."

SouthernDemocrat

Both parties, although the Republicans certainly bear more of the blame, but only one ideology is behind it.

obvious Child

I wouldn't go that far. One obvious thing people fail to blame is greed. Without greed, there would be no crisis. Bush was right when he said that Wall Street got drunk. They got greedy and their greed blinded their rational judgment.

Iriemon

This article is a blatant plagarism of an article written by Kevin Hassert, an advisor to the McCain campaign. It's amazing that Sykes quoted Hassert verbatim and didn't give him a credit. Hassert's article is here:

Bloomberg.com: News

A number of things don't pass the logic test.

1) The assertion that Fannie/Freddie are the reason for the financial crises is incorrect. The well publicized failures of companies like Bear Stearns, AIG, Merrill Lynch and Lehman Brothers did not arise from Fannie/Freddie but the investment of these firms in subprime mortgages -- mortgages that did not meet Fannie/Freddie guidelines and were riskier. Fannie/Freddie loans were more conservative, but the huge drop in real estate prices coupled with hundreds of thousands of foreclosures have reached their loans as well and put the equity of these firms at risk, prompting the Govt to take them over. So to say this situation was caused by Fannie/Freddie IMO is a bit of a stretch.


If you want more information on the cause of the current crises there is a pretty good article in Wiki at Subprime mortgage crisis - Wikipedia, the free encyclopedia

2) The argument that Democrats prevented this bill is a stretch also. Republicans controlled the Senate and House in 2005, and the chairmanships of the committees, and could pretty much control what bills were sent to vote or not. Democrats had no real power to stop it when they didn't control the chair of a committee.

3) Until the last week or two, McCain has always claimed to be in favor of de-regulation, so one might be surprised to hear that he was in favor of a bill that increased regulation back in 2005, inconsistent with his position.

As far as John McCain's role in the 2005 proposed legislation and the procedural aspects of the bill, a different take on what happened is presented here: Daily Kos: McCain's claim of Fannie Mae reform. Daily Kos is a left leaning website, but no more biased than John McCain's advisor.

Interestingly, the writer of the article, Kevin Hasset, it the director of economic-policy studies at the American Enterprise Institute. That same organization slammed the House equivalent of the Senate bill that McCain (apparently belatedly) co-sponsored as, contrary to its proponents' claims, actually accomplished the opposite:

HR 1461--a bill that was supposed to create a “world class regulator”--is in fact a world class failure. Not only does it fail to improve significantly upon the regulatory authority of the Office of Federal Housing Enterprise Oversight (OFHEO), but it actually increases the opportunities for Fannie and Freddie to exploit their subsidies in order to expand into other areas of residential finance.

AEI - Short Publications - H.R. 1461: A GSE "Reform" That Is Worse than Current Law

Thus, according to Mr. Hasset's organization, the bill would have effectively de-regulated Fannie/Freddie more than any effective regulation that would have been achieved. That being the case, it makes more sense that McCain, a dedicated de-regulator, would have supported it.

Mr. Hasset apparently thought that the fact his own organization slammed the House version of the same bill he now claims would have saved the day was not a fact worth mentioning in his article.

Frankly, it seems more spin by McCain's advisor than fact to me.

__________________
Matthew 5:9

Alex

The site I source does indeed have a link to Kevin Hassert's article.

SouthernDemocrat

But wait a minute. You seem to forget that greed is exactly why liberals, and for that matter moderates, support a mixed economy where there is regulation and oversight that serves as check against greed.

Basically, had the cons not done everything they could since 1981 to dismantle every product of the progressive era, this crisis, as well as the oil speculative bubble, as well as the Enron debacle, as well as the Savings and Loan crisis, would have never been possible. They all required a lightly regulated market with toothless enforcement.

Their entire world view as it relates to the role of the pubic sector has been an abysmal failure. Now they are running around like a bunch of Maoists after the colossal failure of the Great Leap Forward trying to blame it all on landlords and spies.

Iriemon

Don't see it and no hit on a search for hassert.

Alex

Go to the site I linked and in the sentence, "Sure, they had help, but the record is pretty clear....." (beginning) click on "but the record is pretty clear."

They hid it in the sentence.