The Financial Mess

I am completely in shock that despite the financial crisis in this country, there are actually people who think it’s a good idea to vote for Barak Obama. I realize that the media is singing his praises. Americans are scared, so they are blindly listening. People…please remember that the media is controlled by a bunch of liberals. Extreme liberals. You must use your own brain to make your decisions; don’t let them make your decisions for you.

I want to start at the very beginning of the “mortgage crisis”. What happened?

Fannie Mae and Freddie Mac. This whole mess can be traced back to them. Fannie Mae gave mortgage loans to millions of Americans who couldn't afford them. Fannie Mae and Freddie Mac were the worst offenders in this housing loan crisis, which in turn caused many banking institutions to go down with it. The crisis has had a domino effect throughout our financial institutions. In fact, AIG was in part brought down because it held $600 million in Fannie Mae and Freddie Mac.

But why? Why would they make all of these risky subprime loans?

Fannie Mae is heavily involved with the Congressional Black Caucus. Interim CEO Daniel Mudd described the relationship Fannie Mae and the Congressional Black Caucus shared as a "family" relationship. The Caucus pressured Fannie Mae to make these loans. I am not saying that all of these bad loans belong to minorities. I am also not saying that banks are blameless. I AM saying that race played a big part in this mess.

Congress was pushing their "noble goal" of increasing home ownership for poor and minority Americans. There were lots of new rules that made it possible for otherwise unqualified people to buy homes. This really got going in the 90’s under President Clinton and included eliminating verification of income or assets, little assurance of the ability to pay the mortgage, and virtually eliminating down payments. That sounds great, but what they really did was create a time bomb that was set off as soon as property values began to decline.

Increase in demand (more "qualified" buyers) led to an increase in home prices. As long as housing prices rose, the problems of lowering lending standards were hidden. While prices rose, no one had to default. Instead, if someone was unable to pay the mortgage, the obvious option was to sell the house at a profit. As long as prices continued to rise...it was amazing...the new standards didn’t cause higher default rates than the old standards! Enter time bomb.

Government backing let Fannie and Freddie dominate the mortgage-underwriting. The politicians created the mortgage giants, which then returned some of the profits to the politicians. So it is probably important to know who Fannie and Freddie are giving their money to right?

Recipients of Fannie Mae and Freddie Mac Campaign contributions 1989-2008
1. Chris Dodd
2. Barak Obama
3. John Kerry

And Obama has only been in the Senate a few years! I wonder why all of the “unbiased” media ignores this little fact?

The media has been successful in making this mess look like it is the fault of “Republicans”. Let’s take a quick look at other Obama/Democrat ties to the Freddie Fannie mess.

1. Former Fannie Mae Chairman and CEO Franklin Raines was the White House budget director under Bill Clinton. He was also cited by the Washington Post as an economic advisor to...Barack Obama. He left Fannie Mae $90 million dollars richer.

2. Jamie Gorelick served as Bill Clinton's Deputy Attorney General. She installed the Intelligence "Wall of Separation" that helped lead to 9/11. Then she served as Vice Chairman at Fannie Mae. In 2002, she told "Business Week" that Fannie Mae was "very, very strong" and was "managed safely". For her efforts, driving the company to the brink, she received $26 million plus bonuses.

3. Jim Johnson is a former Vice-Chairman at Fannie Mae, AND Former managing director of Lehman Bros. It seems BOTH those companies have come into question recently. Barack Obama appointed him to his 3 member Vice Presidential search committee.

4. Penny Pritzker currently serves as Obama’s national finance chairwoman. Pritzker was chairwoman of the board for her family’s bank, Superior Bank FSB, and later director of its holding company. She made the fateful decision to adopt a new business strategy of aggressive subprime lending. The bank went under in 2001; a year after federal bank regulators were alerted of Superior’s subprime lending practices. The bank was accused of poor risk management and of targeting minorities for subprime loans at a rate that far exceeded other financial institutions. The FDIC covered most of the losses, but there are over 1,000 people who didn’t get back all of the money they had deposited in the bank.

Aggressive subprime lending is an important component of the economic crisis we currently face. So when you hear Barack Obama discuss the current problems, don’t forget that his campaign’s top money-woman was one of the actors in this drama, who gambled in the subprime mortgage market, and lost millions for her bank customers.

How many times have you heard Obama say “four-more-years-of-the-same-failed-policies-of-the-Bush-administration”? Drives me nuts.

A little Poli Sci 101: The president can’t make law. Only the Congress can do that. President Bush has been asking Congress to pass laws reforming Freddie and Fannie during his entire presidency...17 times this year alone! Please indulge me here...I have included a few examples of the times that “the evil Bush administration” tried to prevent the mess we are in now. He was ignored. I have to include some examples, or you would think I’m making it up!

April 2001: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE (Government-sponsored-enterprise) could cause strong repercussions in financial markets, affecting federally insured entities and economic activity."

May 2002: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

September 2003: The Bush administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago. Under the plan, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac. The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

If this had been passed, it could possibly have prevented the current financial crisis. The strongest opponents were the National Association of Home Builders and Congressional Democrats who feared that tighter regulation of the companies would sharply reduce their commitment to financing low-income and affordable housing. (NY Times article- September 11, 2003)

February 2004: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

April 2005: Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony before the U.S. House Financial Services Committee," 4/13/05)

April 2008: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

August 2007: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying "first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options." (President George W. Bush, Press Conference, The White House, 8/9/07)

Why didn't Congress do anything?

In 2005, the Senate Banking Committee, then under Republican control, proposed a strong reform bill introduced by Republican Sen. Elizabeth Dole (I love her!), and others. The bill prohibited Fannie and Freddie from holding portfolios, and gave their regulator more authority (such as setting capital requirements. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. John. McCain endorsed the legislation in a speech on the Senate floor. Barack Obama, like all other Democrats, remained silent (he did that a lot). Republicans were unable to get enough Democratic votes for a filibuster-proof majority, and therefore failed in their effort to get the bill out of the Senate. “The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it”. (Wall Street Journal, September 2008)