So I saw a video earlier this evening that basically
blamed the current financial crisis on Democrats. Particularly, on the
Community Reinvestment Act, supported by and passed by Carter in the late 70s, and changes to it instituted by President Clinton in 1995. At first I assumed it was typical Republican propaganda but now I'm starting to wonder.
One of the things I've learned is that back in 2003 the Bush administration wanted to alter the oversight of how the GSEs (Freddie Mac and Fannie Mae) were operating and to put more of the control over their lending onto the Treasury department rather than HUD, the Department of Housing and Urban Development. Apparently there were concerns in the administration that the GSEs, under direction of HUD, were being too loose in their lending standards to low-income borrowers. From what I've seen and read so far, it was the Democrats who fought this change. Their success in fighting it might be the cornerstone of why we're where we are today.
http://commdocs.house.gov/committees/bank/hba92231.000/hba92231_0f.htmhttp://www.c-spanarchives.org/library/index.php?main_page=product_video_info&products_id=178110-1&showVid=trueHere is Barney Frank (D-MA) during the opening statements:
I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury.
Fannie Mae and Freddie Mac have played a very useful role in helping make housing more affordable, both in general through leveraging the mortgage market, and in particular, they have a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing, and that is what I am concerned about here. I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals. I worry frankly that there is a tension here.
The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a problem, the Federal Government doesn't bail them out. But the more pressure there is there, then the less I think we see in terms of affordable housing.
Rep. Frank is the ranking Democrat on the House Financial Services Committee. His sole concern was over affordable housing and didn't seem to have any concern over the solvency of Fannie/Freddie. I skipped ahead a bit and caught this gem, by Maxine Waters (D-CA)...
Fannie Mae has worked with lenders to expand access to low down payment mortgages and to extend financing to those with imperfect credit. These innovations are possible because they are not stifled by an additional layer of government approval.
This morning we have the opportunity to establish the framework of how the government sponsored enterprises, the Federal National Mortgage Association, Fannie Mae, and the Federal Home Loan Mortgage Corporation, Freddie Mac, will be regulated. Fannie Mae, as the number one provider of mortgage funds to low-income families, has been a strong and consistent partner in providing homeownership. Last year they served 2.9 million families in their affordable housing goals, and 1.8 million families were served in their underserved areas, geographically targeted goals.
Nothing has happened with Freddie Mac that has raised any questions about the mission or charters of the two companies. Given housing's importance to the economy and the importance of homeownership to America's families and communities, there should be no interest in changing the GSE's mission.
Later, Treasury Secretary Snow speaks:
First, let me outline the proposal itself, our recommendation. What is the Administration recommending? Well, we recommend that Congress enact legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related GSEs. Housing finance is so important, it is so far reaching, has such significance to the national economy that we need a strong, world-class regulatory agency to oversee the prudential operations of the GSEs and the safety and the soundness of their financial activities—consistent, however, with maintaining healthy national markets for housing finance, which always has to be a priority.
Oh wow, I'm now writing as I skim the transcript. Check out this gem. First, Rep. Frank:
Let me ask you, Mr. Secretary—and again I appreciate that there is not a lot of rhetoric in here about how terrible these are. I appreciate that you think we should enhance the regulation, but I get the impression that you were talking more about guarding against potential future problems developing, rather than feeling that there is an urgent need to stave off some crisis.
Are we in a crisis now with these entities?
Secretary Snow responds...
No, that is a fair characterization, Congressman Frank, of our position. We are not putting this proposal before you because of some concern over some imminent danger to the financial system for housing; far from it. Rather what we are saying is, since 1992, or whenever it was that OFHEO was established by statute, over a decade ago, these housing markets have developed. ("Getting bigger." Rep Frank interjects.) Huge. Hugely. And those entities have grown and become now very large players on the whole financial landscape of the United States. We just feel it is time to...
Rep. Frank takes over again.
Good. I think it is important to have that, to make it clear that that is the context.
Let me just close by saying, I look forward to this, and I have given you my skepticism. Housing has been my primary issue, affordable housing has been my prime issue, and I need to be convinced. We haven't done as good a job as we should in enforcing those goals, but I will have to be convinced that they won't be at an institutional disadvantage.
All Rep. Frank cares about is that Fannie/Freddie are being encouraged (pushed, one might say) to extend credit to low-income individuals. This is a Finance committee, he is the ranking Democrat, and he doesn't even seem to care if what the GSEs are doing is financially sound. Wow! As long as the crisis isn't short-term, he doesn't care. He's as moronic as those idiot CEOs running financial firms (over-)playing in the sub-prime market... all about votes (profits) now and "screw the future."
Maybe if the Finance Committee had been a little more concerned about the financial well-being of Fannie/Freddie back in 2003 we'd be in a different place today.
Oh, and what did
McCain have to say about
the proposal when it reached his committee in the Senate two years later.
I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, 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.
Yeah, he was in support of it! Maybe he isn't the crazy old man I thought he was.
Update 9/29/2008: I'm not trying to say that I all of a sudden think the Democrats are wholly to blame for this mess. There is a lot of blame to go around. I'm just amazed to see that the Bush administration tried to do anything to stop it and that it was (at least to some degree) Democrats standing in their way.
