Lindy’s Blog: Where Mom is Always Right

September 29, 2008

Ticking time bomb

Thomas Sowell (my emphasis):

“Much of that mess [in the financial markets] is due to the very people we are now turning to for solutions—members of Congress. Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions. Such institutions—exempt from laws that apply to other financial institutions and backed by the implicit promise of government support with the taxpayers’ money—are an open invitation to risky behavior. When these risks blew up in their faces, Fannie Mae and Freddie Mac were taken over by the government, costing the taxpayers billions of dollars. For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers. Back in 2002, the Wall Street Journal said: ‘The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.’ The hybrid public-and-private nature of these financial giants amounts to ‘privatizing profit and socializing risk,’ since taxpayers get stuck with the tab when high-risk finances don’t work out… Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians’ political campaigns, so it is perhaps not surprising that politicians have been generous to them. This is certainly part of ‘the mess in Washington’ that Barack Obama talks about. But don’t expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama’s advisers.”

It is amazing to behold the verbal maneuvering that politicians (Democrats) are employing in order not to admit to the faulty reasoning behind Fannie Mae and Freddie Mac, i.e., the Community Reinvestment Act.  It is simply affirmative action for the housing/mortgage industry.  Signed into law in 1977 by Jimmy Carter, in 1993 Clinton “ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[7] The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to target to groups to collect a fee from the banks.”  Affirmative action for the housing industry.

In 2005, President Bush sought stricter oversight for the F.M.s.: In related 2003 proposals, the Bush Administration recommended that a new Department of the Treasury agency should supervise the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac. Congressional support was approximately split along Party lines and the proposal eventually failed.[11] The New York Times, calling Barney Frank “the ranking Democrat on the House Financial Services Committee,” quoted his opposition to the changes: “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable   housing.” [Are you sure you don’t want to revise that statement, Mr. Frank?]  The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency put new regulations into effect September of 2005. [13] The regulations were opposed by a contingent of Democrats[14].”   

Bush called for reform of Fannie Mae and Freddie Mac seventeen times in 2008 alone, which Democrats ignored every time.

The apparent culpability of Democrats in this mess is staggering, only to be surpassed by the complete silence on the part of the MSM in revealing it.  And it’s true:  If in fact, there was some Republican who was responsible in any way, there would have been hearings galore.  It is all we would be hearing about.  Why McCain doesn’t just nail the Democrats with this is beyond me.   

I’m beginning to agree more and more with dsgawrsh:  I don’t like this bailout at all, and I’d almost rather be destitute than not free, as she said in her earlier comment.  It all smacks of socialism.  All it is is a temporary fix, that really won’t “fix” anything because the market isn’t being allowed to work.  It’s more a short-term psychological fix.  If we are facing the second Great Depression, why didn’t this bailout plan pass last Monday?  The Democrats had the votes for it.  Why the delay?  Could it be that they want the Republicans to sign on with it, so that if it fails, then both parties go down with the ship?     

I don’t like Obama’s or McCain’s solution to this problem.  But, McCain did sponsor bill S.190, which would have put into check the F.M.s.  And Obama’s socialist bent on nearly everything scares me more.  After all, a big part of his role as “community organizer” was in securing these high-risk loans for people who were unable to pay for them, and in pressuring banks into supplying them.  Not exactly what one would call “letting the market work.”               

 

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