Democrats thought they'd dammed up the truth about government's role in the financial crisis via Congress' Financial Crisis Inquiry Commission. But the levies are breaking, thanks to a spate of rogue new books on the subject.
The latest, "Reckless Endangerment," shreds the narrative carefully constructed by Democrats and the liberal media that Fannie Mae and Freddie Mac were only bit players in the crisis and followed Wall Street into subprime lending.
It details how the federally chartered mortgage giants in fact led the way in relaxing underwriting standards for the entire industry — thanks to relentless pressure from Democrats, who used them as off-budget piggy banks to fund their social crusade to boost minority homeownership (and shore up their voting base).
Though "Reckless Endangerment" largely repeats what conservative books like "The Great American Bank Robbery" and "The Housing Boom and Bust" have said, "Reckless" is written by a New York Times business writer.
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NOTE: Harry Reid now says he regrets naming fellow Democrat Byron Georgiou to the Financial Crisis Inquiry Commission. because of "ethical concerns" WRT Georgiou's tenure at the FCIC. "I wish I hadn't done it," Reid said. The Senate majority leader complained that Georgiou, one of six Democrats appointed to the 10-member panel, misled him about his affiliations.
Reid's sudden renouncement casts doubt on the FCIC's findings, which were released in its final report last January. The panel pinned the mortgage mess on Wall Street......when many savvy observers say Fannie and Freddy bore the responsibility.
more below
REFERENCE---BY MICHELLE MALKIN Fannie Mae serves as an industrial-sized patronage factory -- sharing profits with political allies, spreading taxpayer funds to voting blocs----like ethnic groups-----and doling out jobs to left-wing academics, Washington has-beens and back-scratching buddies. Obama insider Fannie Mae exec Jim Johnson got sweetheart loans from shady subprime Countrywide. Pols raked in six-figure salaries as F/F engaged in Enron-style accounting, plunged into debt and helped usher in the subprime housing meltdown through cockamamie lending practices.
Bill Clinton appointed Franklin Raines, Daley and Rahm Emanuel just as the quasi-governmental F/M engaged in rampant book-cooking so that F/M insider could help themselves to massive bonuses. The Chi/Tribune exposed how Emanuel's "profitable stint" was low-show w/ no work involved. Emanuel was not even assigned to committees, according to company proxy statements (more on Raines and Emanuel below).
Immediately upon joining the board, Emanuel and other insiders qualified for $380,000 in stock and options plus a $20,000 annual fee, public records indicate. W/ Wall Street Emanuel there, accounting tricks were used to mislead shareholders about outsize profits F/M reaped from risky investments. The goal was to cook the books to keep fraudulent earnings on the books, to make Freddie Mac look profitable on paper-----AND to fraudulently obtain humongous annual bonuses for political insiders.
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Freddie and Fannie, the two big quasi-govt mortgage banks that HAVE ALREADY RECEIVED HUGE federal bailouts, had huge lobbying budgets that they used for political contributions to keep regulators off their backs.
So which politicians get Fannie and Freddie political contributions.
The top three U.S. Senators getting big Fannie and Freddie political bucks were Democrats and number two was then-Senator Barack Obama who had only been in the Senate four years but still managed to grab the number two spot ahead of John Kerry, decades in the senate, and Chris Dodd then-chairman of the powerful Senate Banking Committee.
Fannie and Freddie were creations of the Congressional Democrats and the Clinton White House, designed to make mortgages available to more people, and as it turned out, some many many who couldn’t afford them.
Fannie and Freddie have also been places for big Washington democrats to go to work in the semi-private sector and pocket millions.
The Clinton Administration’s White House budget director Franklin Raines was appointed by Clinton to run Fannie........ and collected $50 million dollars. Jamie Gurilli Gorelick (now BP's attorney), a Clinton Justice Apartment Official, worked for Fannie and took home $26 million dollars in mfg bonuses.
Big Democrat Jim Johnson, recently on Obama’s VP search committee hauled in millions from his Fannie Mae CEO job. Now remember, Obama’s ads and stump speeches attacked McCain and Republican policies for the financial turmoil. It is demonstrably not Republican policy and worse, it appears the man attacking McCain, Senator Obama, was at the head of the line when the piggy’s lined up at the Fannie and Freddie trough for campaign bucks...." - FoxNews, Sept. 2008
The Office of Federal Housing Enterprise Oversight’s report reported that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives.
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Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets (by cooking the books).
Ex-Fannie CEO Franklin Raines (Clinton appointee) is a parasitic crook of the first order. This thief cooked the FM books precipitating losses of $9BILLION (that we know of) for the single purpose of creating $50 million fraudulent bonuses for himself (and millions for other F/M insiders). The SEC said Raines broke accounting rules by playing with risky derivatives.
The US Government filed suit against Franklin Raines when the depth of the F/M accounting scandal became clear. READ IT HERE http://housingdoom.com/2006/12/18/fannie-charges/
The Government noted, "The 101 charges reveal how the individuals improperly manipulated earnings to maximize their bonuses, while knowingly neglecting accounting systems and internal controls, misapplying over twenty accounting principles and misleading the regulator and the public.....explains how they submitted six years of misleading and inaccurate accounting statements and inaccurate capital reports that enabled them to grow Fannie Mae in an unsafe and unsound manner."
These charges were made in 2006. The Court ordered Raines to return $50 Million Dollars he received in bonuses based on the misstated Fannie Mae profits. (Soon going to trial.)
Peter J. Wallison, a senior fellow at the American Enterprise Institute, served on the Financial Crisis Inquiry Commission (FCIC) panel. His dissent from the FCIC report was published recently.
Excerpts from Peter Wallison's review of Reckless Endangerment (2011) by Gretchen Morgenson and Joshua Rosner (Times Books, 352 pages) in
Fannie, Freddie and Other Villains: A new book exposes the true culprits in the financial crisis - B, 2011 July 02, edited by Gene Epstein
This new book by New York Times business reporter Gretchen Morgenson and financial analyst Joshua Rosner remedies that deficiency. It starts at the beginning — in 1991, when Jim Johnson, a political operative and former top aide to Sen. Walter Mondale, took over as Fannie Mae's CEO. Previously, Fannie had been run as a business; afterward, it was run like a political machine. The story is all here, covering the political manipulations, the excessive compensation, the improper use of the Fannie Mae Foundation, the corruption of Congress and the thuggery and lies during and after the Jim Johnson era. ..... < snip > ..... A major myth about the financial crisis, also perpetuated by the inquiry commission, is that Wall Street led the way into subprime lending, and Fannie and Freddie followed. The authors show that it was exactly the reverse. After Johnson saw that lending to low-income borrowers would guarantee Fannie's support in Congress, the affordable-housing requirements were soon enacted by Congress, and were tightened and expanded by the Department of Housing and Urban Development, or HUD. By 2002, government participation in nonconventional mortgages was far greater than private-sector involvement, which totaled only 4% of the market. By mid-2008, toxic private mortgage-backed securities were still less than a third of all subprime and other weak loans outstanding. More than two-thirds were held or guaranteed by Fannie, Freddie, other government agencies and banks subject to government requirements under the Community Reinvestment Act. In contrast, the FCIC said Fannie's role in the crisis was "marginal." ..... < snip > Among the many deficiencies of the majority report of the Financial Crisis Inquiry Commission — repeated in numerous popular books on this subject — was the failure to examine just how the U.S. financial system became larded with subprime and other high-risk mortgages before the 2008 crisis struck. It's as though all the bad mortgages simply sprang into being between 2004 and 2007.
Wallison notes that the politics was paramount for Johnson. He realized that a [later] discredited study published by Boston Fed which said there was "racial discrimination" in bank-mortgage industry "could help his company's expansion efforts, as well as its image," and used it to fan the flames of preferential lending to minorities, at the same time protecting GSEs against additional regulation or full privatization (taking away implicit government-backing guarantees) by promoting and exploiting Clinton's interest in extending mortgage credit to low-income borrowers.
Wallison also notes some flaws in the book, e.g., how the authors described the repeal of Glass-Steagall Act wrong as a matter of law. In fact, banks could and did buy and sell mortgages and packaged MBS, CDOs and SIVs before and after the repeal and repeal has not granted the banks any new powers or affected them in any way relevant to mortgage crisis. It is clear, in the aftermath of the crisis, that the [post-repeal] integrated U.S. consumer-investment banks that survived the financial liquidity crisis the best, while single-purpose non-integrated consumer banks (Countrywide, IndyMac, Washington Mutual, Wachovia, and many smaller consumer banks and lending institutions) and non-integrated investment banks (Bear Stearns, Lehman Bros, Merrill Lynch etc.) didn't survive and were liquidated, while some other large non-integrated investment banks (Morgan-Stanley, Goldman Sachs) were on the brink of liquidation, yet large integrated (post-repeal) JPMorgan, BoA, Citigroup, Wells Fargo etc. not only survived but actually helped in handling of the crisis by absorbing failed consumer and/or investment banks (in some cases at the expense of their balance sheets and shareholders). So the repeal of Glass-Steagall was actually helpful in resolving the crisis.
Wallison concludes his review by writing that not only the government, the media and the FCIC misled the public about real reasons, causes and origins of mortgage, financial and liquidity crises, but that the most ardent supporters of Fannie and Freddie, Chris Dodd and Barney Frank, became the principals in Dodd-Frank Wall Street Reform Act. Because Dodd and Frank ignored the role of GSEs and government policies such as CRA and "ownership society" and of abusive "enforcement" powers by HUD and DOJ of the policies based on politically biased assumptions that they supported, the new reform Act only put the financial institutions in a regulatory straitjacket which is making the U.S. financial system less competitive and is delaying a normal economic recovery.
Of course, in addition to Dodd-Frank Act and creation of extra-constitutional "consumer czar" (Elizabeth Warren) and rule-making Consumer Financial Protection Bureau (embedded into and financed by the Federal Reserve yet unaccountable to either the Fed or the Congress) the Chicago gang took over the IMF after the conveniently timely "incident" and arrest of DSK and his resignation, replacing him with a former Chicago lawyer Chrisine Lagarde -
Lagarde Names Obama Aide Lipton Top Deputy at International Monetary Fund - BL, by Sandrine Rastello, 2011 July 12
..... Lipton, who worked at the IMF for eight years after receiving a Ph.D. in economics from Harvard University, held various positions at Treasury from 1993 through 1998, including undersecretary for international affairs at the time of the Asian crisis. Before the White House job, Lipton was head of global country risk management at Citigroup Inc., taking home a $1,275,000 bonus in 2008 and a $762,000 bonus in 2009 ..... < snip > Christine Lagarde chose David Lipton, an adviser to President Barack Obama and a former U.S. Treasury Department official in the Clinton administration, to be her top deputy at the International Monetary Fund. ..... < snip >
With Hillary Clinton (another Chicagoan and Alinskyite) looking to be appointed as chief of the World Bank, the takeover of the U.S. and the world financial system would be complete... All done simply by firing up a populist sentiment against the generic "fat cat Wall Street bankers".
And there are new rules and regulations from Elizabeth Warren's BFFs in Obama's circle, outgoing FDIC Chair Sheila Bair and SEC's Mary Schapiro (who was promoted into the SEC after chairing FInRA and missing massive Madoff's Ponzi scheme and many "mini-Madoffs").
From Dodd-Frank Rulings on Risk Make Mortgages Less Profitable: One Year Later - BL, by Lorraine Woellert and Carter Dougherty, 2011 July 12
Lots of changes that have already taken place in the almost $11 trillion U.S. mortgage market have nothing to do with Dodd- Frank. Government-backed mortgage securitizers Fannie Mae and Freddie Mac have raised underwriting standards, the Federal Housing Administration more than doubled its fees, and many banks remain reluctant to lend at all. Even without the new law, mortgages are more expensive and harder to get. Still, Dodd-Frank, which marks its one-year anniversary on July 21, is expected to take those changes a few steps farther. The new rules are designed to tighten additional weaknesses in the mortgage system that contributed to the crisis, including no-downpayment loans, the "originate-to-distribute" business model, and mortgages with confusing terms and deceptively low teaser rates. ..... < snip > ..... For mortgage originators like McHugh, the most notable Dodd-Frank provision is a risk retention measure that would require most lenders and investors to keep a 5 percent stake in loans they bundle or sell. For McHugh, the outcome could mean life or death for his business. "We don't make 5 percent on a loan. To put 5 percent up on risk retention would put us out of business," he said. ..... < snip > < snip > ..... "The rules have been changed so many times," McHugh said. "If you're not on top of all the issues it's very, very difficult to stay in business today."
No wonder the Wall Street is finally shifting campaign contributions (usually "pay-for-play" or protezione money to elected Democrats) from Obama and Democrats to Republicans. Wall(et) Street - NYP, by Janet Whitman, 2011 July 10
"Financial reform is going to form a big part of the political rhetoric, everything from CEO pay to responsibility, not just to shareholders but to depositors, too," says Phillip Phan, a professor and executive vice dean at the Johns Hopkins Carey Business School in Baltimore. "It's all going to come up again because of the continuing mortgage crisis." Big banks are getting increasingly jittery about the cumulative effect of a regulatory revamp as both the internationally agreed Basel banking regulations and the massive Dodd-Frank financial reforms in the US start going into effect. ..... < snip > < snip > ..... Despite the spending shift, industry experts don't expect big banks to get easier treatment as new rules are written over the next few years. With the US home mortgage market still a colossal mess, banks will continue to generate plenty of outrage among voters, making any step toward leniency a risky move for lawmakers.