Who’s to blame for the financial crisis — and why does that matter?

posted at 3:40 pm on September 22, 2008 by Ed Morrissey

The 109th Congress has become the focus of hindsight in the financial meltdown of the past few days.  With perhaps as much as one trillion dollars in federal funds in play for bailouts under a Bush administration proposal, people want to know why no one saw this coming before now.  As Kevin Hassett reports at Bloomberg, Congress had an opportunity to force better practices on Fannie Mae and Freddie Mac, but some familiar names failed to act:

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission’s chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie’s position on the relevant accounting issue was not even “on the page” of allowable interpretations.

Then legislative momentum emerged for an attempt to create a “world-class regulator” that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Alan Greenspan told Congress that they needed to act, and quickly:

If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”

What happened?  Despite moves from Republicans such as Chuck Hagel, John Sununu, Elizabeth Dole, and John McCain to get more regulatory oversight on Fannie and Freddie, Congress took no action.  Why?  Fannie and Freddie had already co-opted Chris Dodd with over $130,000 in campaign contributions over 20 years, and over $120,000 to Barack Obama over less than four years.  Hillary Clinton  took tens of thousands in eight years, and Chuck Schumer also opposed any new regulation on markets that Congress had forced open.

We can play blame games for the next several months and years, but what would be the point?  In this case, there is a point, and it couldn’t be more clear or important.  We have two candidates running for President who would bring much different styles to executive authority over regulatory responsibility.  Barack Obama and his allies took the money and stayed on the sidelines rather than take proactive action to resolve the credit crisis.  McCain and his co-sponsors of this bill had the right idea and instincts, but could not get any cooperation from Clinton, Schumer, or Obama.

Does this mean that Obama gets the entire blame for the financial crisis?  Of course not; it’s shared among many people who failed to act, and some who acted poorly to create the problem in the first place by mandating loans to ill-qualified lenders and then allowed those loans to form the basis of widely-traded securities.  McCain doesn’t become the sole protagonist in this morality play, either.  However, this demonstrates the qualities of both judgment and leadership of both men — and those two qualities are critical for determining which man should be running the executive branch for the next four years.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Comment pages: 1 2

But it could fit in a one minute ad.
And be repeated over and over.

Right_of_Attila on September 22, 2008 at 4:53 PM

Guys, that was a slam against the mentality of the liberals. Anything that doesn’t fit on a bumper sticker is foreign to them.
I dig on the one minute ads…but this is more complicated and don’t count on the majority to “get it”.

right2bright on September 22, 2008 at 5:13 PM

The crisis is quite simple. We spend more than we earn. We consume more than we produce. We give people more than they contribute. It couldn’t go on forever.

angelat0763 on September 22, 2008 at 5:16 PM

Here’s a fun explanation of how this happened:
http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true

You’ll have to put these back together in your broswer address bar.

Bhagwani on September 22, 2008 at 5:18 PM

No matter how great Palin is, there’s no doubt McCain was stupid picking her instead of Romney. It would have been all wrapped up long ago.

Dr B on September 22, 2008 at 5:25 PM

petunia on September 22, 2008 at 4:49 PM

I think maybe the builders tried to stretch it out too long. They keep building to the top of the market and driving up the cost of land. This results in people who should be able to easily afford a home have to look for creative financing. The balloon mortgages worked great when prices were skyrocketing. We have known about the housing bubble for what, 5 years now? That didn’t have much effect at all we ignored it and kept right along as usual. During the heat of the boom, money was so cheap, everyone got in. I can’t imagine anyone in the housing business is shocked.

mike_NC9 on September 22, 2008 at 5:26 PM

1. Republicans
2. Because it proves your governing philosophy doesn’t work.

Nonfactor on September 22, 2008 at 5:30 PM

DR B:

Oh yeah, all of America would want to vote for a billionare businessman right now.

Terrye on September 22, 2008 at 5:31 PM

Nonfactor on September 22, 2008 at 5:30 PM

The Republican governing philosophy is based on freedom. We don’t just get to make it up as we go along like the Democrats and Obama.

mike_NC9 on September 22, 2008 at 5:36 PM

Jiang:

I used to be a realtor. I would say that most of the people I dealt with were just ordinary people looking to buy a house. Some of them were people buying investment property, but the vast majority were regular people, often times young people who saw an advertisement from a mortgage broker and went to them and got a loan. They did not break any laws.

Terrye on September 22, 2008 at 5:36 PM

No matter how great Palin is, there’s no doubt McCain was stupid picking her instead of Romney. It would have been all wrapped up long ago.

Dr B on September 22, 2008 at 5:25 PM

Reminds me of the “McCain is going to dump her” crowd… I find this very hard to believe. I know more people who would have jumped ship over a Romney pick (or anyone else for that matter – Huck, Rudy, Lieb, etc.) and were overjoyed with the Palin selection than vice versa. Far more.

Might just be my experience though, you might know different folk.

*eats*

Grue in the Attic on September 22, 2008 at 5:37 PM

No matter how great Palin is, there’s no doubt McCain was stupid picking her instead of Romney. It would have been all wrapped up long ago.

But would have been getting the crowds and the excitement and support for his campaign? I doubt it.

And I really wanted Romney, too. But one look at Sarah it it was Mitt who?

Queen0fCups on September 22, 2008 at 5:49 PM

Greed, for lack of a better word, is good

And it can bite you on the butt if you’re not careful.

mike_NC9 on September 22, 2008 at 5:50 PM

Terrye on September 22, 2008 at 5:36 PM

If they were regular, normal, hardworking, honest people, then they would know what they can afford. It is a matter of personal responsibility. It is expected of adult Americans. If they are easily led, then they will learn the lessons they should have learned at home in the school of hard knocks, where the rest of us did. Also, if these are people who put little or no money down, what exactly have they lost when they get kicked out? They never “owned” anything.

JiangxiDad on September 22, 2008 at 5:54 PM

Who’s to blame for the financial crisis — Ed Morrissey

It’s not you
It’s surly not me
Must be that uppity fellow behind the tree

Tav on September 22, 2008 at 5:55 PM

Terrye on September 22, 2008 at 5:36 PM

If they were regular, normal, hardworking, honest people, then they would and should know what they can afford. It is a matter of personal responsibility. We should expect and require it of adult Americans. If they are easily led, then they will learn the lessons they should have learned at home in the school of hard knocks, where the rest of us did. Also, if these are people who put little or no money down, what exactly have they lost when they get kicked out? They never “owned” anything.

JiangxiDad on September 22, 2008 at 5:56 PM

sorry for double post.

JiangxiDad on September 22, 2008 at 5:56 PM

No matter how great Palin is, there’s no doubt McCain was stupid picking her instead of Romney. It would have been all wrapped up long ago.

Dr B on September 22, 2008 at 5:25 PM

We needed an real conservative on the ticket. Sorry but Mitt dumped record amount of money on his bid, and he basically went nowhere, he just doesn’t connect. Great for the cabinet, but weak on the ticket.
You are right, it would have been all over by now…Obama would have had a huge lead.
Romney is just “of the people”…something is missing.

right2bright on September 22, 2008 at 5:57 PM

McCain doesn’t become the sole protagonist in this morality play, either. However, this demonstrates the qualities of both judgment and leadership of both men — and those two qualities are critical for determining which man should be running the executive branch for the next four years.

Rick Davis was a top lobbyist for Fannie and Freddie.

He even wrote a letter to OFHEO (Office of Federal Housing Enterprise Oversight) saying, “Still others have and will try to make the argument to OFHEO that Fannie Mae and Freddie Mac create systemic risk. Those that say that do so either because they are hostile to homeownership or because they have competitive needs to try to hamper the two most efficient private sector engines for homeownership. The Homeownership Alliance hopes that OFHEO will scrutinize the motives of those who make such claims. Any objective analysis of the roles played by Fannie Mae and Freddie Mac would show that they in fact reduce systemic risk while anchoring a housing finance system in which consumers have the upper hand.

Rick Davis is John McCain’s campaign manager.

KentAllard on September 22, 2008 at 5:57 PM

Romney is just “of the people”…something is missing.

Should have read “…just not of the people…”

right2bright on September 22, 2008 at 5:58 PM

. but regular house buyers bought more house than they should have been able to afford. But it wasn’t obvious to many that they were doing that.

And if they’re loans were redone at a low fixed rate they could make the payments. But their credit is shot now and they owe back payments so they are going to end up paying that mortgage money–to some investor–in rent, instead of paying off their own house. Because they got lousy financial advice. Most people aren’t as sophisticated as you.

They are the victims.

petunia on September 22, 2008 at 5:10 PM

They’re not victims, they’re saps. Now they have the chance to learn how not to be saps again. They didn’t lose anything. They never owned much if anything in “their” house to begin with. What kind of equity did they lose? They can rent the same house right back from the bank that now owns it, or from the taxpayer.

JiangxiDad on September 22, 2008 at 5:59 PM

*** Because they got lousy financial advice. Most people aren’t as sophisticated as you. ***
petunia on September 22, 2008 at 5:10 PM

I see three kinds of “subprime” transactions:
1) People buying way more house than they could afford. These are people who could comfortably borrow $200,000 but instead borrowed $300,000 — and did so without a down payment (i.e. “skin in the game”). They did so because interest rates were low and it was assumed the property value would always go up. “Hey, when the ARM interest rate goes up, go for it!” I have zero sympathy for these borrowers. It is the borrower’s responsibility to make sure they were not buying more house than they could afford.

2) Borrower-implicated scams. These are subprime loans fraudulently made by the borrower, and oftentimes took the form of a refinancing or home equity transaction with old housing stock in inner cities and rural areas. The borrower gets the money with no intention of paying it back, and levered the sloppy underwriting practices of the bank to do this. I have zero sympathy for these borrowers and also have zero sympathy for the lenders.

3) Broker-initiated scams. These are subprime loans where the borrower was honest, but the broker and those associated with the lender (e.g. home inspectors and appraisers) lied to the borrower and to the lender to place loans that shouldn’t have been placed. These are the cases where the borrower’s income is altered on the application without the borrower’s knowledge, the home value is inflated, and the true interest rate and terms of the loan are withheld from the borrower. Here, I do feel bad for the borrower and for the lender.

But the vast majority of the subprime that I am aware of falls into categories 1 and 2 — not category 3.

Outlander on September 22, 2008 at 6:06 PM

It will be a tough-field-to-plow to convince anyone outside of a very partisan McCain supporter that McCain is anything remotely like a Sir Galahad in all this.

McCain said that the fundementals of the economy are STRONG!

His campaign manager is Rick Davis, lobbyist for among others, Fannie and Freddie.

His grand economic adviser was, and may still well be, Phil “Whiny Americans in a Mental Recession” Gramm.

McCain has said many times that he thought that the less regulations (aka, over-sight) the better.

And then, of course, there was The Keating Five.

He may have been right a couple of times, like a stopped clock, but that’s about it.

All-and-all, McCain as anything like a hero in all this is a dog-that-dont-hunt.

KentAllard on September 22, 2008 at 6:10 PM

I used to be a realtor too and my buyers were pre-approved:

They were approved for more house than they could comforterably afford….if you are not clear about how much you can afford per month, maybe you should stick to renting.

There is this long forgotten term….personal responsibility.

HornetSting on September 22, 2008 at 6:12 PM

….and Obama…how about his ecomonic advisors…get a clue, Mallard.

HornetSting on September 22, 2008 at 6:13 PM

Nonfactor on September 22, 2008 at 5:30 PM

Because voting present is the exact quality needed in a leader. That governing style worked perfectly for Nero.

jdkchem on September 22, 2008 at 6:24 PM

KentAllard on September 22, 2008 at 6:10 PM

Yes, lobbying for fannie and freddie is so much worse than taking fannie and freddie money to do nothing.

jdkchem on September 22, 2008 at 6:26 PM

Kent:

That lie you told about Rick Davis has been debunked time and again and yet you keep saying it over and over. Do you have cognitive problems?

Terrye on September 22, 2008 at 6:27 PM

Davis did not lobby for them, he worked for someone who did PR for them among others. He had nothing to do with how they ran their business.

Terrye on September 22, 2008 at 6:28 PM

Outlander:

That is not representative. I sold houses to young people who both worked but had very little credit history. And they did not spend $200,000 either. All sorts of people got those loans.

Terrye on September 22, 2008 at 6:30 PM

HornetSting on September 22, 2008 at 6:12 PM

That’s changed now. I went to two banks to get “pre-approved” and the maximum they would give me was about 75% of what I could comfortably afford. (Because I’m a single guy and a cheapskate, I only intended to buy a property that required a loan of 66% of my approved amount, so only about 50% of what I could comfortably afford). Lending standards are right back where they should be, thank goodness!

Outlander on September 22, 2008 at 6:31 PM

Jiang:

That is not fair. As the price of houses went up, it became more and more difficult for people, especially young people to come up with the 20% down. And if everyone, from the title people to the lawyers to the brokers to the bankers are telling them these are good loans, they are not saps for getting them.

Terrye on September 22, 2008 at 6:32 PM

Everyone is concerned about home prices coming down, but they are so much higher than they were even a decade ago that they still need to come down somewhat. That will make it easier for people to buy them, obviously.

Terrye on September 22, 2008 at 6:34 PM

KentAllard on September 22, 2008 at 5:57 PM

You might want to link us to where you got that information.
That letter was written in 2001, before any of these problems manifested themselves.
As you can see after reading the letter, that your taking out of context distorts the letters intention. I would probably guess that you got that quote off of an Obama website.

A portion of the rest of letter…next time be more honest and forthcoming.

The Homeownership Alliance welcomes this opportunity to provide our input on the question of systemic risk as it applies to Fannie Mae and Freddie Mac.
The former secretaries of the Department of Housing and Urban Development, Jack Kemp and Henry Cisneros, have noted on our web site:
“America has created the most remarkable system for promoting homeownership the world has ever known. It is a vibrant system that benefits consumers. It links home builders, realtists and Realtors, mortgage lenders, government agencies, secondary
market companies, mortgage insurers, community groups and
nonprofit organizations, all in a shared desire to expand
homeownership opportunities to more American families. The role of the secondary market in this system is vital, and unique to America. Without the American secondary market, the 30-year fixed-rate mortgage that we take for granted would be as rare as it is in other developed nations.”
Over the last year, some critics have questioned the level of America’s investment in housing. Still others have and will try to make the argument to OFHEO that Fannie Mae and Freddie Mac create systemic risk. Those that say that do so either because they are hostile to homeownership or because they have competitive needs to try to hamper the two most efficient private sector engines for homeownership. The Homeownership Alliance hopes that OFHEO will scrutinize the motives of those who make such claims.
Any objective analysis of the roles played by Fannie Mae and Freddie Mac would show that they in fact reduce systemic risk while anchoring a housing finance system in which consumers have the upper hand.
There are multiple manifestations of this point:
1. As opposed to local lenders, the secondary market mixes and matches mortgages from all over the country. This disperses the otherwise concentrated credit risk from local economic slumps safely across a wide universe of entities. As mortgage debt outstanding continues to grow at a pace of 6 percent a year – a rate controlled by consumers and not the lending industry – Fannie Mae and Freddie Mac are second to none in managing the
risks associated with that debt.
2. As former Secretaries Kemp and Cisneros mentioned, the 30-year, fixed rate mortgage simply would not exist were it not for Fannie Mae and Freddie Mac. You only need look to other industrialized countries, none of which have a secondary market, to see this. Adjustable rate mortgages dominate these countries and down payment requirements in many countries limit
homeownership to those with considerable means. As you know, adjustable rate mortgages pose more credit risk than fixed-rate mortgages as borrowers always face the prospect of rising monthly mortgage payments. Fortunately, American homeowners have the peace of mind of knowing their monthly
mortgage payment can be the same every month for 30 years.
3. The desire of Americans for fixed rate financing has to be matched with willing providers of that financing. In general, it is more difficult for banks and thrifts to offer fixed-rate financing because of the short-term
characteristics of the federally insured retail deposits on which they rely for much of their funds. The secondary market, on the other hand, funnels funds from willing private investors to the borrowing public seeking fixed-rate
financing.
4. A strong secondary market protects homeowners and buyers from economic shocks such as global credit crunches and local recessions. For example in the 1980s when thrifts in California, Texas and Oklahoma were failing in large numbers, Fannie Mae, Freddie Mac and the Federal Home Loan Bank System kept mortgage money flowing in those states. In 1998, when a credit crisis shook the financial world, homebuyers never felt it because Fannie Mae and Freddie Mac raised billions of dollars in capital, and kept it flowing to lenders

right2bright on September 22, 2008 at 6:49 PM

KentAllard on September 22, 2008 at 6:10 PM

Well I have already showed your true colors, and now you continue.
The foundation of our economy is strong. Our GNP is strong, the stock market is still strong, unemployment is still around 6% not great but not weak. We aren’t even in a recession, cost of living decreased in Aug., and for the year up just a tick above 5%.
And what was he found guilty of in the Keating five?
Davis was a lobbyist in 2001, yet Obama’s two main guys rode Freddie and Fanny to about 30 mil in their pocket.
*
You liberals are all alike, can’t take the facts.
The foundation of our economy is strong, which is why we can ride out the debacle that the Democrat controlled congress got us into. Remember who was on guard, and who never told us what was wrong…the Dems…Dodd and Frank, Pelosi and Reid.

right2bright on September 22, 2008 at 7:01 PM

What happened? Despite moves from Republicans such as Chuck Hagel, John Sununu, Elizabeth Dole, and John McCain to get more regulatory oversight on Fannie and Freddie, Congress took no action. Why? Fannie and Freddie had already co-opted Chris Dodd with over $130,000 in campaign contributions over 20 years, and over $120,000 to Barack Obama over less than four years. Hillary Clinton took tens of thousands in eight years, and Chuck Schumer also opposed any new regulation on markets that Congress had forced open.

I think it’s a mistake to link too much of this fiasco to lobbyist cash as it is an, er, distraction from the key reasons this disaster occurred. Rush had a brilliant monologue on this today. Here is a short excerpt which digs at one of the roots of the problem:

A renewed and more vigorous emphasis was made on making these loans. Janet Reno and Roberta Achtenberg (who was a former radical member of the California board of supervisors and an assistant secretary of HUD, Housing and Urban Development), put enormous pressure on financial institutions to make more and more risky loans, and they began accusing banks of redlining when they didn’t meet the level of risky loans that they had imposed on them. They then prevented these financial institutions from expanding and merging unless they met a certain level of community redevelopment loan making — and they threatened these institutions with government action. Reno herself said, “There will be investigations if you do not follow these regulations. If you don’t make loans to these people.

Another excerpt:

The issue is not a runaway, unregulated free market. The issue is not the failure to regulate. The issue is not stupid and crooked executives throughout the banking industry doing stupid and crooked things, although there was some of that. There’s some of that in every area of life. But that’s not the cause. What you need to understand, my good friends, is that this situation has occurred and is occurring as a direct result of government policies: liberal government policies that were used to force the issuance of trillions of dollars in risky loans that people could not pay back. And when they couldn’t pay them back, people couldn’t get the asset value that they had sold and packaged the mortgages for, and everything crashed, everything crumbled.

Here’s the link to the transcript. Not sure if it works if you’re not a Rush 24/7 member.

Buy Danish on September 22, 2008 at 7:05 PM

That is not fair. As the price of houses went up, it became more and more difficult for people, especially young people to come up with the 20% down. And if everyone, from the title people to the lawyers to the brokers to the bankers are telling them these are good loans, they are not saps for getting them.

Terrye on September 22, 2008 at 6:32 PM

I couldn’t afford a house when I was young. I lived in a 1br basement apt until I had enough for a down payment. You are guilty of liberal thinking– that some people are not capable of doing what the rest of us are, and that well-intentioned people like you need to help them. I don’t buy that kind of thinking. Every young person who bought a house too early, with not enough down, or not enough income, because someone else told them to do it, deserves what happens. And if they’re smart, they’ll learn how to do the right thing next time. I still say they lost very littlė. They had little or no equity to lose. They pay almost no price, for a very important lesson.

Anyway, that’s how I was raised, and am now raising my kids. Save, save, save for a rainy day. Don’t live beyond your means. If you don’t need it, don’t buy it. Don’t go into debt for anything but a house, an education, or to start a business, and expect to pay your debts back.

btw, although I no longer have to, one of my two cars just celebrated it’s 10th birthday. I had a piece of cake. She’s a beauty, even if only one window opens.

JiangxiDad on September 22, 2008 at 7:06 PM

Here’s the link to the transcript. Not sure if it works if you’re not a Rush 24/7 member.

Buy Danish on September 22, 2008 at 7:05 PM

Nope, I got a “Login” screen.

*eats*

Grue in the Attic on September 22, 2008 at 7:10 PM

JiangxiDad on September 22, 2008 at 7:06 PM

+1! Echoes of my own family. Thumbs up, friend.

A piece of pie in your regard.

*eats*

Grue in the Attic on September 22, 2008 at 7:11 PM

Grue in the Attic on September 22, 2008 at 7:10 PM

Oh well, you get what you pay for :)

Here’s an article that Rush talked about today from the Village Voice of all places about Andrew Cuomo’s role in this disaster as HUD maestro.

Buy Danish on September 22, 2008 at 7:16 PM

A piece of pie in your regard.

*eats*

Grue in the Attic on September 22, 2008 at 7:11 P

tks. pecan. my favorite.

JiangxiDad on September 22, 2008 at 7:24 PM

However, some mortgage brokers found ways to take advantage of of the situation and did loan money out to people with dubious credit and then banks bought the loans.

Terrye on September 22, 2008 at 4:19 PM

I have heard of loan agents proactively helping home buyers falsify documents to fool the broker into qualifying them for a home loan.

csdeven on September 22, 2008 at 7:45 PM

Rick Davis is John McCain’s campaign manager.

KentAllard on September 22, 2008 at 5:57 PM

Right, and when he was working for fannie and freddie he also helped Habitats for Humanity and other worthwhile endeavors.

You need to get educated on this subject. And not from the daily KOS loons.

csdeven on September 22, 2008 at 7:50 PM

McCain’s camp needs to figure out a way to explain this in 2 or 3 sentences, and then McCain and Palin need to repeat the message over and over again in every speech and interview.

The MSM clearly are not going to do their job, so McCain and Palin will have to do it for them.

AZCoyote on September 22, 2008 at 3:57 PM

McCain also needs to figure out how to do it without being beaten over the head with the ‘r’ word–or at least neutralizing the word.

baldilocks on September 22, 2008 at 7:54 PM

They are the victims.

petunia on September 22, 2008 at 5:10 PM

They are victims of their own greed. I bought and sold 4 homes since 1992. Two were ARM’s. I could have afforded a home that was twice the value of what I purchased. I did not because I was responsible enough to understand that if my rate went to the max that the contract allowed, I could still make my payment. Consequently, I was able to afford my payments when the rates went up and while I refied to a fixed rate.

These peoples greed caused them to try to keep up with their friends by buying expensive homes that made them appear better off than they actually were.

Screw them! They can just take it in the shorts for their greedy ways!

csdeven on September 22, 2008 at 7:55 PM

A renewed and more vigorous emphasis was made on making these loans. Janet Reno and Roberta Achtenberg (who was a former radical member of the California board of supervisors and an assistant secretary of HUD, Housing and Urban Development), put enormous pressure on financial institutions to make more and more risky loans, and they began accusing banks of redlining when they didn’t meet the level of risky loans that they had imposed on them. They then prevented these financial institutions from expanding and merging unless they met a certain level of community redevelopment loan making — and they threatened these institutions with government action. Reno herself said, “There will be investigations if you do not follow these regulations. If you don’t make loans to these people.”

I can attest to this; I had completely forgotten about it, but I attended a meeting in 1998 at which Reno took the mortgage industry to the woodshed for not doing enough lending to minorities and lower-income people. The threat of investigations was VERY clear.

rockmom on September 22, 2008 at 8:10 PM

I don’t know if any of you ever read Big Lizards, but he has an interesting post up on this, here is a part of it:

As proposed by Secretary of the Treasury Henry Paulson and Chairman of the Federal Reserve Ben Bernanke, the putative “$700 billion” “bailout” is actually neither: It will neither cost that much, nor will it bail out those financial institutions that wrote bad loans for people they knew were not likely to be able to pay them off.

As I understand it, here is the basic plan. Note that I’m drawing this from many sources, it’s not yet written in stone — or even in ink — and I can’t give you sources. If you want more information, you’re on your own! But here is what I’ve been able to glean:

1. The Treasury is given authority to spend up to $700 billion (outstanding at any particular moment) to buy MBSs, CDOs, and related instruments that have become “illiquid.” These “toxic assets” will be purchased from their current owners at a huge discount… meaning the banks and other investors who purchased these pigs in pokes will, in fact, take a significant financial hit… they’re not being “bailed out.”

So the Treasury can buy up these toxic assets; what do they do with them?

2. I believe the plan (which has not yet been formalized in legislation) is to create a Treasury owned and managed resolution corporation that will take ownership of these toxic assets. Analysts will then pore through each MBS, determining the status of all the underlying mortgages and making a report publicly available. This will make the opaque assets completely transparent. All the financial fundamentals will be visible, so analysts at private companies can examine all of the securities and decide how much they would pay for each.

3. The resolution corporation will then auction off each of the the now-transparent MBSs, selling it to the highest bidder; that very action allows the market to reset the value of the security.

That is why I characterize this rescue operation as “pressing the reset button.”

Once some corporation has examined the fundamentals of the security and offered the winning bid for it, the MBS becomes (by definition) liquid; it is no longer a toxic asset. Its value has been reset… and it can go up or down after that point based upon subsequent, well-understood events (defaults, repayments, prepayments) in the underlying mortgages and reevaluations based upon other, market-based criteria. In other words, it becomes just like a mutual fund.

The crisis was the inability to value MBSs; the solution is to reset their values. The beauty of the Paulson-Bernanke plan is that this resetting is done by the free market, not by government decree.

Finally, note this point:

4. When the Treasury-owned resolution corporation auctions off the now-transparent MBSs, it can use that money as income. Since the asset is now much more valuable than before (having been scrubbed into transparency), if it becomes saleable, then it will certainly sell for more than the discounted rate at which the corporation bought it. In other words, the resolution corporation will make a profit on every security it resells — so the program will not actually cost $700 billion… it may even end up completely in the black.

That’s why the Paulson-Bernanke plan is neither a bailout — the so-called beneficiaries in fact must pay dearly for their folly — nor massively expensive, since it resells most of the securities it bought, and at a profit. It could still end up costing money, depending on how many of the MBSs end up still toxic even after the complete report (if too many of the underlying mortgages are in default, for example); but the losses won’t be anywhere near $700 billion, and they may be less than the profits.
Democrats: fingers in the pie, finger in your eye

But the loyal opposition is not content to use the Paulson-Bernanke emergency mortgage-market rescue plan to rescue the mortgage market from the current emergency; how dull that would be, especially in an election year. Rather, they see America’s crisis as their opportunity to enact or re-enact by extortion every awful, failed, thoroughly discredited, socialist-populist scheme they have tried, or always wanted to try, over the past century

Terrye on September 22, 2008 at 8:16 PM

Here’s an article that Rush talked about today from the Village Voice of all places about Andrew Cuomo’s role in this disaster as HUD maestro.

Great… McCain named Andrew Cuomo in a 60 Minutes interview from Sunday as a replacement for SEC chairman.

electric-rascal on September 22, 2008 at 8:46 PM

This would work better if the media would do its job, educate itself, and do honest reporting, rather than simply repeat Obama’s daily talking points memo and throw in some quotes from Secy. Paulsen regarding doom and gloom and the great depression.

Outlander on September 22, 2008 at 3:48 PM

Sounds good to me… now how long do we wait for this one-in-a-lifetime-of-the-universe event to occur?

electric-rascal on September 22, 2008 at 8:47 PM

I know more people who would have jumped ship over a Romney pick (or anyone else for that matter – Huck, Rudy, Lieb, etc.) and were overjoyed with the Palin selection than vice versa. Far more.

Might just be my experience though, you might know different folk.

*eats*

I guess it is just different experience. Despite what the Salt Lake Tribune reports, Mormons aren’t excited about McCain or Palin. I and my friends aren’t, at least. I and many others are itching to jump parties altogether, if there were one to jump to. McCain’s a hop skip and a jump away from radical liberal Obama and Palin is a showcase picked newbie.
Don’t get me wrong, I think Palin is brilliant; she’s capable and female, but I think a strong and experienced hero of the economy would have been wiser. Much wiser. The flip-flop criers just hate Romney because of his religion, we all know this.

Dr B on September 22, 2008 at 8:55 PM

Democrats (i.e. Bill Clinto): “We want to have a big party, and the sound system might draw too many amps, so we’ll put a penny in the fusebox to ensure maximum uninterrupted fiesta fun!”

Republicans (later): “Hey, that’s dangerous… there should be smoke detectors in case of a fire!”

Democrats: “You are a bunch of killjoys. We’ll agree to smoke detectors as long as they have no batteries in them.”

Democrats: “Oh look, the house is on fire… why didn’t the lazy Bush fire department prevent this? Elect us to fix the house and host another big party!”

electric-rascal on September 22, 2008 at 8:56 PM

Clinto=Clinton

electric-rascal on September 22, 2008 at 8:57 PM

Now let me understand this. Fail out wants $700 Billion to $1 Trillion dollars.

That’s one thousand Billion dollars. A Billion dollars one thousand times.

Where’s it going to come from? Don’t you dare let this happen. The minute the money printing presses start cranking out one thousand billion dollars, the dollar in your wallet is going to be worth, maybe, 5 cents.

The more money that gets cranked out into circulation, the less each dollar will be worth. Got $10.00. You’ll have maybe 50 cents. It will be inflation on STEROIDS! Let’s NOT let it happen!

It will be a very cold day in hell when the federal government decides to help Mr. John Smith with his failing family business.

Why should the government help Morgan Stanley,Goldman Sachs, Bear Sterns, Lehman Brothers, AIG or any other failing businesses? The government is NOT in the business of doing business or owning businesses — unless, of course, you agree to a bit of fascism.

Perhaps a little socialism? I say NO.

And, the failed businesses are scaring the public with the threat of no more loan money if they don’t get their way. Sounds like a Mexican kidnapping and hostage taking with ransom demand — muscle-style. Just say NO!

Let those who have made miscalculations and bad judgments face the music. The guys who handle the oil are NOT giving us any breaks at all. Why should we give them anything?

After all they’re just a few, right? And, how did they all happen to fail at the same time? — along with Freddie and Fannie. Talk about choreographing and orchestrating the Ponzi scheme.

Let them fail. Remember AMC motor cars? Remember Gulf+Western oil? Remember CompUSA?

When businesses run out of money and ideas; it’s time for someone else to take the place of those failing businesses.

It’s called Capitalism.

Fight the bail-out. Let them fail-out!

AdrianS on September 22, 2008 at 9:22 PM

That letter was written in 2001

So.

before any of these problems manifested themselves.

They have been in the works for a long time. They didn’t happen overnight. They happened because of people like Rick Davis with things like his “Still others have and will try to make the argument to OFHEO that Fannie Mae and Freddie Mac create systemic risk [And they were obviously right, oh boy were they ever!]. Those that say that do so either because they are hostile to homeownership or because they have competitive needs to try to hamper the two most efficient private sector engines for homeownership. The Homeownership Alliance hopes that OFHEO will scrutinize the motives [Here he is clearly trying to smear opposition.] of those who make such claims.
Any objective analysis of the roles played by Fannie Mae and Freddie Mac would show that they in fact reduce systemic risk [How did that claim work out?]
“.

your taking out of context distorts the letters intention

right2bright on September 22, 2008 at 6:49 PM

He said what he said. I didn’t say what he said. He said what he said and I quoted him accurately. I’m not going to flood this website with a comment a mile long.

There is little doubt that if he were Obama’s campaign head, instead of McCain’s, you and most here would be all over him. Funny how that works. In fact I will lay dollars-to-donuts there would be a whole thread, maybe more than one, on it with hundreds of comments bashing him. Again, funny how that works.

KentAllard on September 22, 2008 at 9:59 PM

….and Obama…how about his ecomonic advisors…get a clue, Mallard.

HornetSting on September 22, 2008 at 6:13 PM

I’ve got a clue. Now you get a brain, Horn Toad, if the best you can do is, “But what about Obama, but what about Obama?”.

KentAllard on September 22, 2008 at 10:04 PM

Well I have already showed your true colors, and now you continue.

You sound like some Al Gore type trying to silence other opinions. What are you going to do next, call me a “denier”?

The foundation of our economy is strong.

Hello. Even McCain is not saying that anymore. He soon got his foot out of his mouth and replaced that by saying that American workers are strong. In fact he did that some time ago. Try to keep up.

You liberals are all alike, can’t take the facts.

I am not a liberal. Whining “are all alike” is so pathetically weak anyway.

The foundation of our economy is strong

right2bright on September 22, 2008 at 7:01 PM

You are repeating yoruself. See above.

KentAllard on September 22, 2008 at 10:15 PM

Since when does the fed come in and rescue? It never works out in the end. Remember how we bailed out the auto industry decades ago? They’re baaaaack! It would have been better to bite the bullet the 1st time. Who knows how great the new auto manufacturers WOULD have become had we let them go through a rebirth.

Let it sink so it may rise again stronger.

Mojave Mark on September 22, 2008 at 10:34 PM

Since when does the fed come in and rescue? It never works out in the end. Remember how we bailed out the auto industry decades ago? They’re baaaaack!

Mojave Mark on September 22, 2008 at 10:34 PM

Misbehaving CEOs have clearing been conditioned to believe that bad behavior is rewarded, if it is bad enough. They are getting a boat load of that conditioning now.

KentAllard on September 22, 2008 at 10:43 PM

Why is everyone beating around the bush?

The point of this piece is that one party’s candidates for President and Vice President have demonstrated that their positions on legislation can be bought!!!

Hint: It’s not the Republican candidates!

Democrats’ new slogan:

“When hundreds of millions in graft and corruption is simply not enough!”

landlines on September 23, 2008 at 1:10 AM

No matter how great Palin is, there’s no doubt McCain was stupid picking her instead of Romney. It would have been all wrapped up long ago.

Dr B on September 22, 2008 at 5:25 PM

I would have been OK with Romney, despite my misgivings about aspects of Mormonism, but I’m positively thrilled (not up my leg) with Palin.

SKYFOX on September 23, 2008 at 5:58 AM

I linked to this in the other thread, but I thought it was worth a second mension, via Instapundit:

MORE: How you respond is up to you, but the folks at International A.N.S.W.E.R. email me that they’ve set up a site called VoteNoBailout.org to oppose the bailout plan. That doesn’t guarantee that the bailout is a good idea, of course . . . .

Terrye on September 23, 2008 at 6:49 AM

electric-rascal on September 22, 2008 at 8:46 PM

Praising Cuomo is Maddening infuriating, isn’t it? What the hell is the matter with McCain?

Buy Danish on September 23, 2008 at 7:06 AM

Praising Cuomo is Maddening infuriating, isn’t it? What the hell is the matter with McCain?

Buy Danish on September 23, 2008 at 7:06 AM

George Will didn’t like it either.

JiangxiDad on September 23, 2008 at 7:31 AM

Isn’t Cuomo a dem and a big deal in New York? Reaching across the isle (so to speak) to him might help him with folks that are on the cusp. It wont give him the state, but it might put some pressure on Oslime-a.

csdeven on September 23, 2008 at 7:52 AM

I’m not going to flood this website with a comment a mile long.

KentAllard on September 22, 2008 at 9:59 PM

In other words, you are not going to be accurate. Read the whole thing, he is agreeing with your two democrats.
In 2001 it was a program that could have worked with proper over site.
Are you saying that whatever exists in 2001 as a government program, is the same 8 years later?
There is never a metamorphism?
Like many liberal ideas it starts off as being “good”, making sure that minorities are not discriminated in the loan process…then it became, under the liberal oversight in just a few years a “giveaway” program.
You see my little naive liberal friend, often “good” things turn “bad” when the government gets involved. Not overnight, but over years.
Now you tell me with your little liberal mind, when did Dodd or Franks give us notice that what they were overseeing was in dire trouble???
McCain said it several years ago…and your little liberal friends sat on bad news, news that could bankrupt a country, just to win a few votes…despicable.
Please, tell me when Dodd and Franks (the ones responsible now, right now for the oversight) sounded the alarm that what they were overseeing was failing?
I will wait for your answer…

right2bright on September 23, 2008 at 9:51 AM

What McCain is trying to do is get away from the mindset that is now prevalent. You have to hate and destroy the enemy. He is trying to move us from what Bill Clinton said the other day (and I agree with him on this) that you don’t have to hate and personally destroy the person you are not voting for.

We have to move away from the thought that every person on the others side of the aisle is evil.
Generally the liberal mindset is just evil, especially of late. But it doesn’t mean that every individual liberal has that evil “scorched earth” mentality.
McCain doesn’t want that, perhaps more then any of us, he understands how to forgive those that are evil. He understands that ideas are transient. That the dKos are fools but they are not “forever”, the the Dems and the Republicans are bigger then that. And the continuous path down that rat hole of personal destruction is not healthy for the nation.
Pick your enemies and attack them, but not everyone you don’t support is an enemy, they can just be wrong.

right2bright on September 23, 2008 at 9:59 AM

In other words, you are not going to be accurate.

One does not have to quote everything someone ever said to be accurate in what they do quote. In this very comment of yours that I am responding to, you, in fact, only quoted a small part of what I had said and I am not going to quote everything that you have said.

something Read the whole thing, he is agreeing with your two democrats.

They are not mine.

In 2001 it was a program that could have worked with proper over site.

Hello. Rick Davis obviously didn’t want that and was questing the motives of those who did.

Are you saying that whatever exists in 2001 as a government program, is the same 8 years later?

Where did I say that? Nowhere. Incidentally this is 7 years later as this is 2008 and not 2009.

You see my little naive liberal friend, often “good” things turn “bad” when the government gets involved. Not overnight, but over years.
Now you tell me with your little liberal mind, when did Dodd or Franks give us notice that what they were overseeing was in dire trouble???
McCain said it several years ago…and your little liberal friends sat on bad news, news that could bankrupt a country, just to win a few votes…despicable.
Please, tell me when Dodd and Franks (the ones responsible now, right now for the oversight) sounded the alarm that what they were overseeing was failing?
I will wait for your answer…

right2bright on September 23, 2008 at 9:51 AM

I am not little, I am not naive, I am not your friend, I don’t give a rat’s ass about “Dodd and Franks” and I have already repeatedly explained McCain to you.

KentAllard on September 23, 2008 at 10:45 AM

Here’s the answer:
http://www.ibdeditorials.com/IBDArticles.aspx?id=306978378974502

The money quote:

It all started, innocently enough, in 1994 with President Clinton’s rewrite of the Carter-era Community Reinvestment Act.

Ostensibly intended to help deserving minority families afford homes — a noble idea — it instead led to a reckless surge in mortgage lending that has pushed our financial system to the brink of chaos.

Fannie and Freddie, the main vehicle for Clinton’s multicultural housing policy, drove the explosion of the subprime housing market by buying up literally hundreds of billions of dollars in substandard loans — funding loans that ordinarily wouldn’t have been made based on such time-honored notions as putting money down, having sufficient income, and maintaining a payment record indicating creditworthiness.

With all the old rules out the window, Fannie and Freddie gobbled up the market. Using extraordinary leverage, they eventually controlled 90% of the secondary market mortgages. Their total portfolio of loans topped $5.4 trillion — half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with — wink, wink — an “implicit” government guarantee of the debts.

This created the problem we are having today.

As we noted a week ago, subprime lending surged from around $35 billion in 1994 to nearly $1 trillion last year — for total growth of 2,757% as of last year.

No real market grows that fast for that long without being fixed.

And that’s just what Fannie and Freddie were — fixed. They became a government-run, privately owned home finance monopoly.

Vashta.Nerada on September 23, 2008 at 11:18 AM

Where did I say that? Nowhere. Incidentally this is 7 years later as this is 2008 and not 2009.
KentAllard on September 23, 2008 at 10:45 AM

This is the mentality that one has to deal with…how about this…It was written in January of 2001, so how about 7 years 8 months…idiot.
You blame someone from 2001 when the program was working, and ignoring someone in 2008 who was in charge and did nothing.
How embarrassing for you to take that position.
Comparing an “unbroken” program of 8 years ago to a bankrupt program now…hello you can support something that worked 8 years ago when it worked, not everything is static.
Don’t you get that? In 8 years programs change, the overseers change, the people running the program change.
Oh Yeah, you don’t care that liberals were in charge during the failure, just that a conservative wrote a letter 8 years ago when the program was solvent…that helps.
Many solvent companies fail 8 years later, it is called mis-management. Davis wasn’t running the show, or hasn’t been involved in the mis-managament the past 8 years.
Get it now?…I didn’t think so, the concept of something going bad in 8 years is beyond your little troll mind.
BTW, this started when you parsed his quote from a complete letter (and not honestly stating it was from 8 years ago), and you never did give out the liberal website you got it off of.
You don’t care who Dodd or Franks are because they are your little liberal friends who sat and fiddled…

right2bright on September 23, 2008 at 11:41 AM

A piece of pie in your regard.

*eats*

Grue in the Attic on September 22, 2008 at 7:11 PM

Oh, good. After reading your link, I was afraid it was adventurers that you were eating all this time…

Count to 10 on September 23, 2008 at 3:04 PM

Comment pages: 1 2