This is a video from 2004 where Democrats seem to oppose and Republicans seem to favor stricter review and regulation of Fannie Mae and Freddie Mac. This is not to say that the Democrats did not favor stricter review or that the Republicans are innocent from blame and I do blame both sides for the mess.

But for those who try to paint the other picture, the Democrats being those who fought for regulation against the GOP, it does change things a bit.

It’s all in their own words, so watch it for yourself

http://www.youtube.com/watch?v=_MGT_cSi7Rs
PATRICK EDABURN, Assistant Editor
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Copyright 2009 The Moderate Voice
  • PJBFan

    Well, this is no surprise to me. This came out during the campaign and the Democrats just brushed it off as irrelevant.

  • elrod

    Well, one BIG problem with this piece of garbage is the claim that Franklin Raines was an economic adviser to Barack Obama. This also came up in the campaign and was revealed as a thinly veiled racial charge – Obama MUST have taken advice from Raines because, well, they’re both black!

    What’s most troubling about this video, however, is that it never discusses exactly what the Republicans wanted to regulate Fannie Mae for. The only substantive issue that came up here was bonuses. In fact, the hearings in this video were connected to fraudulent accounting of expenses (which forced Raines to resign) – NOT securitizing risky mortgages. But clearly that is not what is at the heart of the problem for Fannie Mae.

    Find me a video that shows a regulator – or anybody for that matter – who says, “Fannie Mae is securitizing risky sub-prime loans that will explode and bite us if we don’t regulate them.” Barring that, this video is just hackish nonsense.

    If you want a far more balance account of Fannie Mae’s role in this mess – and it is a big role – read this.

    http://www.nytimes.com/2008/10/05/business/05fannie.html

    Here’s the reality: Fannie Mae was losing business in the securitization market to Wall Street. The CEO of Countrywide told Fannie Mae head Daniel Mudd that if he wanted any more of Countrywide’s prime business then he better start buying up Countrywide’s sub-prime loans too. Mudd then made the fateful decision to jump into the subprime business. And, yes, Democrats in Congress (who wanted more loans available), the White House (who wanted to expand its “Ownership Society”) and investors (who saw huge profits in sub-prime loans pushed Fannie Mae toward securitizing sub-primes.

    This video is misleading because it conveys the impression that Republicans were trying to reign in a problem that they themselves did not see.

    • sumlikeit

      Actually, elrod, somebody did warn that Fannie Mae’s involvement in these new kinds of subprime loans (which were specifically designed to expand them and make them more accessible and affordable). His name is Peter Wallison, a fellow at American Enterprise Institute.

      He actually warned of it in 1999, shortly after Fannie embarked on the practice at the behest of HUD and private originators. His actual quote, by way of the NYT’s Steven Holmes, was:

      “‘From the perspective of many people, including me, this is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

      I’d say Mr. Wallison gets a gold star for his prescience on the matter.

      As for what to do about it, I’ve resigned myself to thinking that the least bad option at this point is to let insolvent firms go under and just put the toxic assets up for a fire sale. We pick up the pieces and move forward. The actions the government has been taking, in my mind, are doing nothing but delaying the inevitable reckoning — and recovery along with it.

      • politicalminded

        Unfortunately our government and our regulation of our government officials has left us where we are today. It’s up to all of us (republican, democrat, non-partisan…etc) to take ownership of the solution.

        The last couple of weeks bank nationalization has been the hot topic. I saw an interesting article at The People’s Place (Anita Estell’s Blog) that gives a true history of financial regulation and offers some solutions worth considering. Check it out.

        http://anitaestellblog.com/?p=309

    • Rick Caird

      You are cherry picking from the NYT story. You must have missed this part:

      “Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.

      “When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.””

      Mozilo had no authority over the Fannie nor did the hedge fund manager. Only Congress did and the Democrats wanted more sub prime mortgages. In fact, Fannie and Freddie were ordered to increase the sub prime portfolio to 50% and they complied.

      The NYT story also said that “Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors’. I doubt it, The securitization of mortgages was exploding. I suspect the story meant to say that Fannie and Freddies share had gone down to 56% or so. That was from the greater than 80 of the market they had preveiously.

      No, it is clear that Bush wanted more regulation over Fannie and Freddie from 2001 on. He might have gotten it if iit were not for Water and Frank in the House and Dodd’s threatened filabuster in the Senate.

      The only garbage here is your misleading post.

      Rick

  • greenschemes

    Elrod.

    It goes beyond that. It goes to the heart of the matter that Barak Obama and Dodd received more campaign contributions from Fredie Mac then did any other Politician.

    On 16 July 2008 The Washington Post reported that Franklin Raines had “taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters.” [23]. Also, in an editorial in August 27, 2008 titled “Tough Decision Coming”, the Washington Post editorial staff wrote that “Two members of Mr. Obama’s political circle, James A. Johnson and Franklin D. Raines, are former chief executives of Fannie Mae.

    http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html

    Neither the Campaign nor Raines disputed this article or the assertion. After the McCain campaign ran an add then everyone began denying it and even the Post backtracked. Shoddy reporting I would say.

    Directed to anyone who has continued to read:

    In addition Barak Obama claims that he is opposed to earmarks and special interests running our country and yet this omnibus bill has so many ear marks in it that it turns ones stomach. Also Isnt Fredie Mac a special interest group who literally oversaw the collapse of our banking and finance sectors cheered on by BOTH Dems and Repubs.

    I don’t know. Spin it the way you want but the failure of government is coming from both sides of the isle as they simply cannot say no to money stuffed in their pockets by smiling turd salesmen.

    And now. Now. We have a one party system whos proponents claim they have all the answers. What a frightening proposition. I only wonder how the American voters could be so stupid.

  • DdW

    “I only wonder how the American voters could be so stupid.”

    They showed it at least twice in the past decade: 2000 and 2004

  • greenschemes

    D.E

    That they did.

    The question is why? What has changed in the last dozen years to make the American public so dense.

  • Janjanjan

    The video is interesting, but I still want to know how a Republican Congress and a Republican President were unable to push through this regulation they so badly wanted–if they really wanted it that is. I can’t find any legislation which was derailed by the Democratic minority filibustering, for example. The Republicans were in undisputed control of Congress for a decade, and for 6 of those years, they had a Republican president. I think the truth was that everybody seemed to win with an economy financed by rising home prices. If 15% of household spending came from dollars many people found by continuing to refinance their homes, and 60% of the economy is comes from consumer spending, then this was inevitable the moment house prices stopped rising. We didn’t even need prices to begin to fall. Add in factors such as rising foreclosures, risky loans, fraudulent loans, and greed, and where we are today is inevitable. This isn’t truly a Democratic or Republican issue–the fault lies squarely at the feet of all who believed that home prices would rise forever and could be used like piggy banks with impunity. And, that includes average homeowners, speculators, bankers, Wall Street, Alan Greenspan, and most politicians.

    • There were, in fact, several Republicans who also benefited from the contributions of FNMA and FHLMC, and resisted any meaningful oversight by Congress; Mike Oxley comes to mind. The Republican party in Congress was not pure as the wind-driven snow here. Nonetheless, the Bush administration not only saw the crisis looming for at least 5 years before it hit, but made more than a dozen attempts to address it. So, you’re wrong; when we look to place blame for the crisis, the Democrats in Congress, who uniformly opposed oversight of the GSEs and who represented the deluge of bad loans as harmless, line up squarely in our sights. Wall Street, not so much; they were fooled by a rating agency that had conflicting interests. Banks, not so much; they were forced by Congress, then encouraged by two administrations, into making unsavory loans, and they backed out of mortgage-backed derivatives almost 2 years before F&F collapsed. Greedy investors, yes, they’re at fault. But Fannie and Freddie guilty above all, and fully supported by 100% of the Democrats in Congress.

  • rudi

    JJJ – You nailed it. Even without legaslation, HUD under Bush enabled this mess to prop up his administration economy.
    http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

    In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

  • elrod

    Greenschemes,
    That’s a fair point. Franklin Raines is a scumbag. And the incestuous relationship between Wall Street and politicians (including many prominent Democrats) is deeply troubling. But it still doesn’t get to the heart of the issue, which is securitization of sub-prime loans.

    And no, I don’t think the Democrats have all the answers. I just don’t think the Republicans are proposing anything that remotely resembles an answer at this point.

  • There were proposals for regulations. There were sponsors. There were votes taken. You don’t have to depend on videos which can be misleadingly edited. This is an important story about how our country was shafted.

    My understanding based on my own research is that Both President Bush and Sen McCain proposed additional regulations following Fannie/Freddie accounting scandals earlier in the decade. Both institutions had spread plenty of money around Washington and called in favors on both sides of the aisle. The bipartisan coalition they put together was most of the Democrats and enough bought Republicans to defeat the largely Republican reform efforts.

    Largely corrupt Dems + a minority of corrupt Reps makes this a Dem scandal.

    • sumlikeit

      “Largely corrupt Dems + a minority of corrupt Reps makes this a Dem scandal.”

      Honestly, I don’t think anybody’s corruption has played a significant role in this. Yeah, the Democrats were protecting Fannie Mae and Freddie Mac in recent years. It’s no secret. But, for one thing, the cat was largely out of the bag by then. By that time, most of the subprime debt wasn’t flowing back to Fannie and Freddie, it was being bought up by private-label agencies on Wall Street.

      And I didn’t see anybody trying to bear down on them.

      For another, the reform that Bush sought on Fannie Mae had nothing to do, from what I can tell, with their securitizing subprime affordability loans. Fannie Mae had a massive accounting scandal — and OFHEO felt stymied by them. That’s what that was all about, as I recall.

      The problem we’re dealing with now, at its core, was the massive influx of risky loans made on bubble-inflated real estate. The most obvious cause of this was the rock-bottom interest rates along with the weak dollar. However, those don’t explain the breakdown in risk management among lenders and the secondary market.

      IMO, the primary turning point for that came back in the mid-to-late 90s when HUD pushed lenders and bundlers (starting with Fannie Mae) to expand their acceptance of subprime loans — and Fannie Mae (reluctantly, as I understand it) acquiesced.

      That’s naivete and stupidity — but it’s not corruption.

      • A number of government missteps caused what could have been a small problem to grow to the huge size it has reached at the present time. Bad accounting practices are at the heart of it all.

        Nobody went into those votes without understanding that they were supporting or opposing corrupt accounting. The Dems and Reps that voted the reforms down just thought it didn’t matter as opposed to the continuing cash spigot from Fannie and Freddie. That was corrupt. Those people need to be replaced.

  • pp91303

    Is this post a joke? If it isn’t, it’s a text book example of the echo chamber that liberals live in. Why are you just now posting it in March 2009? This video was all over the internet last October. It was discussed ad nauseum. It was on Fox etc. It apparently never saw the light of day in liberal la-la land. The video and the idiotic claims by Barney Frank, Maxine Waters, et al. speak for themselves. Nonetheless, the post and some of the comments try to gloss over the facts and avoid scrutiny of idiotic liberal policy.

    First of all, commenters who say that there is lots of blame to go around are truly in command of the obvious. Culpability lies with everyone from borrowers who lied on their “no doc” loans, to mortgage brokers in strip malls who facilitated the fraud, to mortgage companies that originated this toxic waste and sold them almost immediately, to Fannie and Freddie, Goldman Sachs, etc. who bundled and securitized them, to the sellers of credit default swaps, to inept rating agencies. However, Democrats in the Clinton administration and in Congress are at the top of the list. Richard Fuld, along with hundreds of thousands of former financial industry employees, have been fired or laid off yet Barney, Maxine and their fellow idiots are still on Capitol Hill wreaking havoc with our economy (e.g. the non-stimulative porkulus bill).

    For commenters lamely attempting to defend Democrats, here are some facts.

    1. The Republicans actually did have a specific proposal in mind. They wanted to replace OFHEO with a new regulatory body that actually had power to regulate Fannie and Freddie. The regulatory plan included capital requirements (that were lowered to 2.5% by the Clinton administration) that would have reined in Franklin Raines’s incompetent strategy to have Fannie and Freddie acquire and hold hundreds of billions of dollars worth of mortgages in addition to securitizing $ trillions more. One of the liberal defenders got it right by pointing out that the Republicans controlled congress in 2003. However, the GOP Senate contingent had idiots like Lincoln Chaffee, Arlen Spector, Susan Collins, Olympia Snowe, and Gordon Smith. They were/are left of center and the GOP never had a conservative majority. Furthermore, Democrats played the race card and said that Republicans were merely criticizing Franklin Raines because he was black and that they didn’t want black people to get mortgages. It was lame that the GOP caved, but the Democrats affirmatively blocked the enhanced regulation and they are culpable.

    http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

    2. Barney Frank really did make the following idiotic comment back in 2003: ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the 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.”

    http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

    3. The Washington Post reported that: “In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion — 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.”

    http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626_pf.html

    4. Plenty of people knew that the Federal Government and its evil twin GSE’s were setting us up for a fall. In its now infamous September 1999 story, the New York Times referenced that expansion in sub-prime lending: “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits……In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.” Peter Wallison explains that “In 1994, Fannie Mae replaced its initial $10 billion [sub-prime] program with a $1 trillion affordable housing initiative, and both Fannie and Freddie announced new $2 trillion initiatives in 2001..” [http://www.aei.org/publications/pubID.28704,filter.all/pub_detail.asp]. Peter Wallison is quoted in the 1999, NY Times article sounding the alarm. Fannie and Freddie eventually held one third of outstanding sub-prime and alt-A loans. There were no two other entities with that much involvement in the toxic waste market.

    http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&scp=1&sq=september%201999%20fannie%20mae&st=cse

    5. When he wasn’t misappropriating tax payer money for boondoggles like the Erie Canal Museum to help his impending gubernatorial run, Andrew Cuomo forced Fannie and Freddie to increase their minority and sub-prime lending (they overlap to a significant degree) and purposely reduced HUD oversight over the loan portfolio. His political aspirations mixed with his lack or experience and incompetence to generate many of the problems that imploded today.
    http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac//

    There is lots of blame to go around, but no one is more responsible than the Democrats who massively inflated the real estate bubble by pumping trillions of dollars of liquidity into the subprime mortgage markets. Now we have a Democrat controlled federal government that is trying to prop up the still over valued real estate market and is trying to address a recession caused by too much borrowing by borrowing five times as much. Democrats will never take responsibility for what they have done. They don’t have the psychological capacity to do so.

  • dustinjruybal

    He actually warned of it in 1999, shortly after Fannie embarked on the practice at the behest of HUD and private originators. His actual quote, by way of the NYT’s Steven Holmes, was
    “‘From the perspective of many people, including me, this is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out thrift savings plan the way it stepped up and bailed out the thrift industry.”I’d say Mr. Wallison gets a gold star for his prescience on the matter.As for what to do about it, I’ve resigned myself to thinking that the least bad option at this point is to let insolvent firms go under and just put the toxic assets up for a fire sale. We pick up the pieces and move forward. The actions the government has been taking, in my mind, are doing nothing but delaying the inevitable reckoning — and recovery along with it.