Posted on 09/24/2008 2:15:45 PM PDT by Congressman Billybob
Alexander Pope’s original quote was, of course, “all’s fair in love and war,” meaning you can get away with anything in those two areas. Now, as we all know, the entire economy of the United States is threatened with collapse because of supposed “errors and outright fraud on Wall Street.”
Let’s step back a bit. The crisis began with the financial collapse and federal take-over of the two “private” organizations which insured and/or bundled and marketed a major part of all home mortgages in the US. These two organizations had gone along for decades, serving the public one mortgage at a time. What brought Fannie Mae and Freddie Mac to “suddenly” collapse?
A decade ago, Congress changed the rules of operation of both institutions. It ordered banks to broaden their lending into areas where the risks were greater, and to make loans to borrowers they previously thought would not pay those mortgages when they came due. The two institutions would then buy those loans.
Then, those loans were bundled into pools and sold on national and international markets. They were attractive, because they paid high interest rates, because they were, after all, high risk loans. The mortgages had low or no down payments. So all it took was a downturn in the housing markets and many of these loans went below zero in value. The home owners walked away. The banks were left with piles of bad paper.
Congress created this problem by telling banks that water would run uphill, that they had to accept bad risks. But some in Congress realized the danger, In 2003 a new and tight regulation bill on the mortgage giants was introduced in the Senate. It was roundly defeated there, and seriously attacked in the House. Who led the charge to stop better regulation of these markets?
In the Senate, it was Christopher Dodd of Connecticut. Not coincidentally, he received more money from Fannie Mae executives and interests than any other Senator or Representative. (He also received a sweetheart, jumbo personal loan courtesy of the President of Countrywide Mortgage, one of the first financial institutions to collapse.)
The Senate Democrats as a block defeated the reform which could have stopped this train wreck. Fannie Mae, being a “private” company, spent money on lobbying about $200 million, all told. A brand new Senator, Barack Obama of Illinois, managed to become the second-highest recipient of Fannie Mae in Congress, despite his short career in the Senate.
But there was also opposition in the House. Among the leaders of that was Congressman Barney Frank of Massachusetts. He denied in the press as late as this year that Fannie Mae and Freddie Mac were in serious trouble.
Cong. Frank was well down the list of financial assistance from Fannie Mae, but he formerly dated, and referred to as his “spouse,” Herb Moses. Moses was then assistant director in charge of new markets for mortgage securities at Fannie Mae, including the relaxation of underwriting standards which led to the current collapse. Cong. Frank was at all times on the House Banking Committee. He is Chairman of that Committee, today.
The specific Senators and Representatives in charge of the Committees which are considering the current bail-out are Dodd and Frank. Doesn’t that make you just a little nervous, that whose who helped create the mess are in charge of solving it?
And then, there is one more wrinkle which Michelle Malkin, a very able reporter, has just dug up. The mortgage failure rates are highest in precisely the jurisdictions which have the highest level of illegal alien “residents.” The banks have been making mortgage loans to illegals, who could lose their jobs and be deported at any time. That would seem to be a disqualifying factor to any bank, making a 20- or 30-year loan.
Or, am I just nitpicking?
Lastly, the question it what will happen, or not happen, to get us out of the pickle. As I write this, I am listening to Senator Obama’s reply to Senator McCain’s initiative. Obama again blames the crisis on “Wall Street greed,” ignoring the fact that two of his advisors, Franklin Raines and Jim Johnson, were previously officers of Fannie Mae when it was being mismanaged into disaster.
Right now, it looks like Senator McCain will go to Washington, where action needs to be taken. It looks like Senator Obama will stay on the campaign trail, where words need to be said.
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About the Author: John Armor practiced law in the US Supreme Court for 33 years. He now lives in Highlands, NC, and is working on a book on Thomas Paine. John_Armor@aya.yale.edu
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John / Billybob
Bump!
CRA has to go, period. And FNM's and FRE's loan officers need to have, 24/7, someone sitting next to them with a loaded pistol pointed at their collective (and collectivist) heads.
Bump !
Bump. Makes sense to me. Thank you! :)
“Wall Street greed” has a nice ring to it.
And it helps us to avoid naming names. But, it so happens that the people involved have names, and we know their names. The most effective thing we can do is to name them, and keep naming them. Wrap this thing around their necks and don’t let anyone forget who these people are.
The fact that the architects of this collapse happen to be on Obama’s campaign, and the collapsed companies among his biggest donors, the fact that the fatcats he’s railing against happen to be Obama-supporters, well thats just icing on the sponge cake.
At 4:40 P.M. the Chairman went into mega CYA mode when he interrupted the question of another committee member to interject something alone these lines:
"President Bush has been president since 2001; the president's party was in the majority until 2006; the Democrats took control of Congress in 2007 and at the time I became chairman of this committee. This problem has been in the making for all that time."
What a shameless act of damage control! His multi-decade relationship to Fannie Mae and his role in creating this disaster needs to be investigated.
“..it so happens that the people involved have names, and we know their names. The most effective thing we can do is to name them, and keep naming them. Wrap this thing around their necks and don’t let anyone forget who these people are.” ~ marron
bttt
I’ll do my part. (Click URL below to access the embedded hot links in the article)
Media Mum on Barney Frank’s Fannie Mae Love Connection
Watch the video here: http://www.businessandmedia.org/printer/2008/20080924145932.aspx
Democratic House Financial Services Committee Chair promoted GSEs while former ‘spouse’ was Fannie Mae executive.
By Jeff Poor
Business & Media Institute
9/24/2008 4:00:57 PM
Are journalists playing favorites with some of the key political figures involved with regulatory oversight of U.S. financial markets?
MSNBC’s Chris Matthews launched several vitriolic attacks on the Republican Party on his Sept. 17, 2008, show, suggesting blame for Wall Street problems should be focused in a partisan way. However, he and other media have failed to thoroughly examine the Democratic side of the blame game.
Prominent Democrats ran Fannie Mae, the same government-sponsored enterprise (GSE) that donated campaign cash to top Democrats. And one of Fannie Mae’s main defenders in the House – Rep. Barney Frank, D-Mass., a recipient of more than $40,000 in campaign donations from Fannie since 1989 – was once romantically involved with a Fannie Mae executive.
The media coverage of Frank’s coziness with Fannie Mae and his pro-Fannie Mae stances has been lacking. Of the eight appearances Frank made on the three broadcasts networks between Jan. 1, 2008, and Sept. 21, 2008, none of his comments dealt with the potential conflicts of interest. Only six of the appearances dealt with the economy in general and two of those appearances, including an April 6, 2008 appearance on CBS’s “60 Minutes” were about his opposition to a manned mission to Mars.
Frank has argued that family life “should be fair game for campaign discussion,” wrote the Associated Press on Sept. 2. The comment was in reference to GOP vice presidential nominee Sarah Palin and her pregnant daughter. “They’re the ones that made an issue of her family,” the Massachusetts Democrat said to the AP.
The news media have covered the relationship in the past, but there have been no mentions since 2005, according to Nexis and despite the collapse of Fannie Mae.
The July 3, 1998, Reliable Source column in The Washington Post reported Frank, who is openly gay, had a relationship with Herb Moses, an executive for the now-government controlled Fannie Mae. The column revealed the two had split up at the time but also said Frank was referring to Moses as his “spouse.” Another Washington Post report said Frank called Moses his “lover” and that the two were “still friends” after the breakup.
Frank was and remains a stalwart defender of Fannie Mae, which is now under FBI investigation along with its sister organization Freddie Mac, American International Group Inc. (NYSE:AIG) and Lehman Brothers (NYSE:LEH) – all recently participants in government bailouts. But Frank has derailed efforts to regulate the institution, as well as denying it posed any financial risk. Frank’s office has been unresponsive to efforts by the Business & Media Institute to comment on these potential conflicts of interest.
While the relationship reportedly ended 10 years ago, Frank was serving on the House Banking Committee the entire 10 years they were together. The committee is the primary House body which along with the Office of Federal Housing Enterprise Oversight (OFHEO) has jurisdiction over the government-sponsored enterprises.
He has served on the committee since becoming a congressman in 1981 and became the ranking Democrat on the committee in 2003. He became chairman of the committee, now called the House Financial Services Committee, in 2007.
Moses was the assistant director for product initiatives at Fannie Mae and had been at the forefront of relaxing lending restrictions at the company for rural customers, according to the Feb. 23, 1998, issue of National Mortgage News (NMN).
“Herb Moses, who helped develop many of Fannie Mae’s affordable housing and home improvement lending programs, has left the mortgage industry,” Darryl Hicks wrote for NMN. “Mr. Moses - whose last day was Feb. 13 - spent the past seven years at Fannie Mae, most recently as director of housing initiatives. Over the course of time, he played an instrumental role in developing the company’s Title One and 203(k) home improvement lending programs.”
Hicks explained in his story how Moses orchestrated a collaborative effort between Fannie Mae and the Department of Agriculture.
“The Dartmouth grad also played a crucial role in brokering a relationship between Fannie Mae and the Department of Agriculture,” Hicks wrote. “This led to the creation of Fannie Mae’s rural housing program where the secondary marketing agency agreed to purchase small farm loans insured through the department.”
While Moses served at Fannie Mae and was Frank’s partner, Frank was actively working to support GSEs, according to several news outlets.
In 1991, Frank and former Rep. Joe Kennedy, D-Mass., lobbied for Fannie to soften rules on multi-family home mortgages although those dwellings showed a default rate twice that of single-family homes, according to the Nov. 22, 1991, Boston Globe.
BusinessWeek reported in its Nov. 14, 1994, issue that Fannie Mae called on Frank to exert his influence against a Housing & Urban Development proposal that would force the GSE to focus on minority and low-income buyers and police bias by lenders regardless of their location. Fannie Mae opposed HUD on the issue because it claimed doing so would “ignore the urban middle class.”
Moses left Fannie in 1998 to start his own pottery business. National Mortgage News called Moses a “mortgage guru” and said he developed “many of Fannie Mae’s affordable housing and home improvement lending programs. Moses ended his relationship with Frank just months after he left Fannie.
Even after the relationship ended, however, Frank was a staunch defender of Fannie Mae even as other experts suggested there were serious problems building in Fannie Mae and Freddie Mac.
According to an article by Kathleen Day in the Oct. 8, 2003, Washington Post, Frank opposed giving the Bush administration the right to approve or disapprove business activities that “could pose risk to the taxpayers.” He told the Post he worried the Treasury Department “would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks.”
Just a month before, Frank had aggressively thwarted reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were “exaggerated,” a gross miscalculation some five years later with costs estimated to be in the hundreds of billions.
“These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis,” Frank said to the Times. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Frank has also reaped campaign contribution benefits from Fannie Mae and its counterpart Freddie Mac. According a front page story in the Sept. 19, 2008, Investor’s Business Daily by Terry Jones, Frank has received $40,100 in campaign cash over the past two decades from the GSEs.
Frank is ranked 16th on a list that includes both houses of Congress and fifth among his colleagues in the House. According to data from the Center for Responsive Politics’ OpenSecrets.org, political action committees financed by both Freddie and Fannie have contributed $3,017,797 to members of Congress since 1989. And according to the July 16 issue of Politico, the two entities have spent a whopping $200 million to buy influence – including not only campaign donations to members of Congress, but also presidential campaigns and lobbying efforts.
In a July 23 op-ed, Wall Street Journal Editorial Page Editor Paul Gigot put the blame for the GSEs’ collapse firmly on the members of the liberal establishment who took money from Freddie and Fannie. “Fan and Fred also couldn’t prosper for as long as they have without the support of the political left... This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. [Paul] Krugman and the Washington Post’s Steven Pearlstein in the press.”
Frank was asked by CNN’s John Roberts on the Sept. 22, 2008 “American Morning” about this and his opposition to reform Fannie Mae and Freddie Mac. Originally, he claimed he didn’t think the two GSEs were facing any problems when the issue first surfaced in 2003. He instead blamed the Republican-controlled Congress for their ultimate fall, failing to mention his friendly relationship with Fannie Mae and the contributions it had made to his campaign over the years.
“Yes, I did not think we were facing a crisis in 2003, but that didn’t mean we didn’t have to have reform,” an animated Frank said when confronted with the question. “Here’s the deal, the Republicans controlled Congress from 1995 through 2006. They did zero to reform Fannie Mae and Freddie Mac.”
However, on Sept. 17, 2008, former Bush administration Deputy Chief of Staff Karl Rove elaborated on the Bush administration’s efforts to curb abuses at the two GSEs in 2003. He told Fox News’ “Hannity & Colmes” that Frank was among the most aggressive opponents of White House attempts to reform Fannie Mae and Freddie Mac.
“All of this bad stuff on Wall Street happened because people got greedy and the greed started at Fannie Mae and Freddie Mac,” Rove said. “And I know this because five years ago, the administration was alerted by the regulator, James Lockhart, that there was insufficient authority and that these institutions – particularly Fannie – were out of control.”
Rove said the Bush administration’s efforts to reform Fannie and Freddie were opposed by congressional Democrats – specifically Frank and Senate Banking Committee Chairman Christopher Dodd, D-Conn.
“And I got to tell you, for five years, I was part of an effort at the White House to fight this and our biggest opponents on the Hill who blocked this every step of the way were people like Chris Dodd and Barney Frank. And Fannie and Freddie are the $200 billion contagion at the center of this.”
Frank has been quick to blame deregulation for some of the problems in the financial environment, as he did on Bloomberg television’s Sept. 19 “Political Capital with Al Hunt.” However, as earmark crusader Rep. Jeff Flake, R-Ariz. pointed out – it’s not deregulation, but it was the structure of Fannie Mae and Freddie Mac that had been guarded by Frank and other members of Congress.
“Some people point at deregulation,” Flake said to the Business & Media Institute on Sept. 23. “It’s not deregulation at all. We have for far too long shielded Fannie and Freddie for example, with the implicit and now explicit guarantee. I just found it humorous.”
Flake specifically named Frank as one of the members behind letting allegations of transgressions at the two GSEs for slipping by without oversight from Congress.
“Just a few minutes ago, a reporter was asking me about this and saying, ‘Barney Frank is saying that’s just – because there were allegations,’ correct ones – ‘that Fannie and Freddie have been the playground for politicians for years and now the other side is saying Fannie and Freddie were just a small part of this and this goes far beyond.’ It does, but these same people a couple of weeks ago said, ‘You got to bail out Fannie and Freddie because they touch everything out there. They touch nearly every mortgage out there.’ And because of that explicit guarantee – that we would come and bail them out, nobody has been subject to market discipline.”
Frank claims differently, according to a letter to the editor published in the Sept. 17, 2008 Wall Street Journal. Frank noted that in 2005 he supported regulating compensation for Fannie and Freddie executives.
“In fact, my reform efforts had begun when we were still in the minority. In 2005, I joined Michael Oxley, then chairman of the House Financial Services Committee, in supporting legislation to increase the regulation of Fannie and Freddie that passed the House by a vote of 330 to 90,” Frank wrote. “When former Congressman Richard Baker proposed to examine the compensation structure of Fannie and Freddie’s top executives, and some members of Congress tried to block him, I explicitly spoke out in support of his right to do that and our right, as a Congress, to examine the GSE’s compensation practices.”
The red flags were raised long before the government bailed out the two GSEs in August 2008. The first egregious scandal involving Fannie Mae occurred in 2004. A 2004 Wall Street Journal editorial was first to point out claims in an OFHEO report that showed accounting malpractices by the GSE.
“For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility, the Oct. 4, 2004, editorial, “Fannie Mae Enron?” said.
“Now, thanks to Fannie’s regulator, we know the answer. The company was cooking the books. Big time.”
See Related Sidebar: Networks, Once Silent on Fannie Mae, Blame Capitalism for Debacle
Too bad that thing they did to William Wallace is no longer an option...as that seems most appropriate for Barney and the other villains in this fiasco. Once again the present steals from the future to “fix” a problem too big to kick under the rug.
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