Blame Fannie Mae and Congress For the Credit Mess

The Wall Street Journal ^ | SEPTEMBER 23, 2008 | CHARLES W. CALOMIRIS and PETER J. WALLISON

[Herakles]

Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves.

How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing."

Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator.

All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

[uncommonsense]

add a bit more of an explanation for Barney Frank of how none of what Fannie Mae, Freddy Mac, or the Feds have done has helped make housing more affordable

Exactly! As the Fed study showed, Fanny and Freddy didn’t fulfill their mission of providing affordable housing. Fan/Fred/The Fed created very cheap money. As we know, too much money chasing too few goods causes upward price momentum that looks like it will continue in that direction. This invites speculation, miscalculation of risks, and the inevitable bubble.

This bubble has propelled house prices to stratospheric levels causing housing to be far less affordable and causing people to optimistically over-leverage themselves, become ever more creative in their financing (e.g. 50 year, interest-only, nothing down, low-doc loans - sheesh!). The median cost of a home nearly doubled in the last decade, while savings is down and household debt is up. Meanwhile, total compensation has been increasing at about 3% per year - not nearly enough to keep pace with the artificial, self-inflicted housing bubble.

[antonia]

Jeepers! in Fannie Mae's very first sentence, on their official web page, describing their mission, they lie like a bad rug!

"Fannie Mae provides stability, liquidity, and affordability to the nation's housing finance system under all economic conditions. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. "

[uncommonsense]

"Fannie Mae was created in 1938, under President Franklin D. Roosevelt...The government established Fannie Mae in order to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home."

Didn't work too well, did it...? In fact, just the opposite happened.

If we start the story with the action of "government intervention in a free market" - can anyone guess the ending?

[uncommonsense]

What the O-blame-a camp is saying is that Bush / McCain deregulation caused the meltdown. According to this WJS article "'Wall Street' No Longer Exists", it actually saved the taxpayers from paying the bill for the investment banks:

"Second, recent events highlight the absurdity of the attempt by several pundits to blame recent problems on "financial deregulation." That complaint was aimed at the Financial Modernization Act of 1999, which passed the House by a vote of 362-57 and the Senate by 90-8, yanking the last brick out of the 1933 Glass-Steagall Act's regulatory wall between commercial banks and investment banks.

If it was somehow possible in today's world of global electronic finance to the rebuild such a wall, that would mean J.P. Morgan could not have bought Bear Stearns, Bank of America could not have bought Merrill Lynch, Barclays could not buy most of Lehman, and Goldman Sachs and Morgan Stanley could not become bank holding companies. It is hard to imagine how things would have worked out in that situation, but it surely would not have been an improvement.

[antonia]

"Fannie Mae was created in 1938, under President Franklin D. Roosevelt...The government established Fannie Mae in order to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home."

Didn't work too well, did it...? In fact, just the opposite happened.
If we start the story with the action of "government intervention in a free market" - can anyone guess the ending?

Have you read; "FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression" By Jim Powell? I think that you would enjoy it very much.

Also, take a look at this page; "Hey Congress, You Already Passed Homeowner Bailout (uuhhmm,there's an existing $300 BILLION package)" http://www.freerepublic.com/focus/f-news/2088719/posts .  There is no end to congress' perfidy.

[Steve Van Doorn]

can someone help me? Looking for a better source

McCain's speech on the Senate floor during debate of Federal Housing Regulatory Act Of 2005

“OFHEO’s report solidifies my view that the GSEs need to be reformed without delay. 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.”

Found it here:
But his link is broken or something

Here is one source but can not seem to pull it up (shows 15 speeches January 2005 but none show):
McCain speeches

This one is bugged GPOaccess