The final chapter of the Fannie Mae Freddie Mac scandal has yet to be written. However it is becoming increasingly clear that the Democrats'
hand is all over this financial disaster.
The villains in the is debacle include:
Sen. Barack Obama (he received $190,000 in contributions from Fannie Mae)
Rep. Barney Frank, head of the House Finance Committee that oversaw the bad loans being given out by Freddie and Fannie
Sen. Chris Dodd, head of the Senate Finance Committee that oversaw the bad loans being given out by Freddie and Fannie and also took a sweetheart mortgage from Countrywide
Franklin Raines, Budget Director of the Clinton Administration, CEO of Fannie Mae (he made $90 million in six years before becoming Obama's economic advisor)
The "cliff notes" version of this scandal goes back to 1999 when the Clinton Administration pushed to loosen up the rules to allow poor families to buy homes
they could never afford.
“The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as “redlining.”
The purpose of the CRA was to provide credit, including home ownership opportunities to "underserved" [poor] populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.
During the Clinton Administration the CRA was used as a club to pressure banks into making these politically correct loans...a house of cards in the making.
The timing of this sub-prime mortgage scandal is suspect because we are so close to the election...an October surprise so to speak. Voters are
blaming Bush because he is the most visible person in government. McCain is suffering as well because he is a Republican.
By STEVEN A. HOLMES
Published in the New York Times on September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
By Kevin Hassett Sept. 22, 2008 http://www.bloomberg.com/apps/news?pid=email_en&refer=&sid=aSKSoiNbnQY0
The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.
Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.
But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.
Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.
In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.
The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.
Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.
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.
The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: 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 next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.
If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.
But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.
That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''
Mounds of Materials
Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.
But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.
Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.
There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.
Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
By Bill Sammon October 03, 2008 http://www.foxnews.com/printer_friendly_story/0,3566,432501,00.html
Unqualified home buyers were not the only ones who benefitted from Massachusetts Rep. Barney Frank's efforts to deregulate Fannie Mae throughout the 1990s.
So did Frank's partner, a Fannie Mae executive at the forefront of the agency's push to relax lending restrictions.
Now that Fannie Mae is at the epicenter of a financial meltdown that threatens the U.S. economy, some are raising new questions about Frank's relationship with Herb Moses, who was Fannie's assistant director for product initiatives. Moses worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie.
O'Reilly Blasts Barney Frank On Fannie Mae Mess!!
Both Frank and Moses assured the Wall Street Journal in 1992 that they took pains to avoid any conflicts of interest. Critics, however, remain skeptical.
"It's absolutely a conflict," said Dan Gainor, vice president of the Business & Media Institute. "He was voting on Fannie Mae at a time when he was involved with a Fannie Mae executive. How is that not germane?
"If this had been his ex-wife and he was Republican, I would bet every penny I have - or at least what's not in the stock market - that this would be considered germane," added Gainor, a T. Boone Pickens Fellow. "But everybody wants to avoid it because he's gay. It's the quintessential double standard."
A top GOP House aide agreed.
"C'mon, he writes housing and banking laws and his boyfriend is a top exec at a firm that stands to gain from those laws?" the aide told FOX News. "No media ever takes note? Imagine what would happen if Frank's political affiliation was R instead of D? Imagine what the media would say if [GOP former] Chairman [Mike] Oxley's wife or [GOP presidential nominee John] McCain's wife was a top exec at Fannie for a decade while they wrote the nation's housing and banking laws."
Frank's office did not immediately respond to requests for comment.
Frank met Moses in 1987, the same year he became the first openly gay member of Congress.
"I am the only member of the congressional gay spouse caucus," Moses wrote in the Washington Post in 1991. "On Capitol Hill, Barney always introduces me as his lover."
The two lived together in a Washington home until they broke up in 1998, a few months after Moses ended his seven-year tenure at Fannie Mae, where he was the assistant director of product initiatives. According to National Mortgage News, Moses "helped develop many of Fannie Mae's affordable housing and home improvement lending programs."
Critics say such programs led to the mortgage meltdown that prompted last month's government takeover of Fannie Mae and its financial cousin, Freddie Mac. The giant firms are blamed for spreading bad mortgages throughout the private financial sector.
Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants. In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.
Three years later, President Clinton's Department of Housing and Urban Development tried to impose a new regulation on Fannie, but was thwarted by Frank. Clinton now blames such Democrats for planting the seeds of today's economic crisis.
"I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac," Clinton said recently.
After a short perusal--you will quickly note the common thread that binds these three together. If anyone questions: Who is responsible for the US Taxpayer being crippled as the result of the 2008 Banking Catastrophe, look no further. It should be also noted that Rep. Barney Frank (DEMOCRAT-MA) House Financial Services Chair and Sen. Christopher Dodd (DEMOCRAT-CT) Chair of the Senate Banking Committee are also guilty of gross dereliction of duty in this matter. It remains to be seen what action the US Department of Justice will take. Keep in mind that Rep. Nancy Pelosi DEMOCRAT-CA) is the Speaker of the House and Sen. Harry Reid DEMOCRAT-NV) Senate President control all legislation. Let the chips fall where they may.
Mr. Franklin Raines:
Franklin Delano Raines (born January 14, 1949 in Seattle, Washington) is the former chairman and chief executive officer of Fannie Mae who served as White House budget director under President Bill Clinton. The son of a Seattle janitor, Raines graduated from Harvard University, Harvard Law School; and Magdalen College, Oxford University as a Rhodes Scholar. Raines was of age during the Vietnam War, but performed no military service. He served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979. Then he joined Lazard Freres and Co., where he worked for 11 years and became a general partner.
In 1991 he became Fannie's Mae's Vice Chairman, a post he left in 1996 in order to join the Clinton Administration as the Director of the U.S. Office of Management and Budget, where he served until 1998. In 1999, he returned to Fannie Mae as CEO, "the first black man to head a Fortune 500 company." On December 21, 2004 Raines accepted what he called "early retirement" from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses. In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $50 million in payments made to Raines based on the overstated earnings initially estimated to be $9 billion but have been announced as 6.3 billion. Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused.
On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie's former chief financial officer, and Leanne G. Spencer, Fannie's former controller. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie's insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of "other benefits" said to be related to his pension and forgone bonuses. An editorial in The Wall Street Journal called it a "paltry settlement" which allowed Raines and the other two executives to "keep the bulk of their riches." [In 2003 alone, Raines's compensation was over $20 million.
A statement issued by Raines said of the consent order, "is consistent with my acceptance of accountability as the leader of Fannie Mae and with my strong denial of the allegations made against me by OFHEO." In a settlement with OFHEO and the Securities and Exchange Commission, Fannie paid a record $400 million civil fine. Fannie, which is the largest American financier and guarantor of home mortgages, also agreed to make changes in its corporate culture and accounting procedures and ways of managing risk. In June 2008 The Wall Street Journal reported that Franklin Raines was one of several public officials who received below market rates loans at Countrywide Financial because the corporation considered the officeholders "FOA's"--"Friends of Angelo" (Countrywide Chief Executive Angelo Mozilo). He received loans for over $3 million while CEO of Fannie Mae.
James A. Johnson (born December 24, 1943) is a United States Democratic Party political figure. He was the campaign manager for Walter Mondale's failed 1984 presidential bid and chaired the vice presidential selection committee for the presidential campaign of John Kerry. He was involved in the vice-presidential selection process for the 2008 Democratic presidential nominee Senator Barack Obama. Johnson attended the University of Minnesota, and later received a Master of Public Policy degree from the Woodrow Wilson School at Princeton University. He has been awarded honorary degrees from Howard University, Skidmore College, Augsburg College and the University of Minnesota.
Johnson has long been one of Washington's most prominent leaders, holding leadership positions in business, the arts, and politics.
Johnson began his career as a faculty member at Princeton University, later moving on to the United States Senate as a staff member and to the Dayton-Hudson Corporation (now Target Corp.) as director of public affairs. He was executive assistant to Vice President Walter Mondale during the entire Carter Administration (1977-1981). Later, he founded and headed Public Strategies, a private consulting firm, from 1981 to 1985 before leaving for Lehman Brothers. From 1991 to 1998, he served as chairman and chief executive officer of the Federal National Mortgage Association (Fannie Mae), the quasi-public organization that guarantees mortgages for millions of American homeowners. Previously, he was vice chairman of Fannie Mae (1990-1991) and a managing director with Lehman Brothers (1985-1990).
An Office of Federal Housing Enterprise Oversight (OFHEO) report from September 2004 found that, during Johnson's tenure as CEO, Fannie Mae had improperly deferred $200 million in expenses. This enabled top executives, including Johnson and his successor, Franklin Raines, to receive substantial bonuses in 1998.A 2006 OFHEO reportfound that Fannie Mae had substantially under-reported Johnson's compensation. Originally reported as $6-7 million, Johnson actually received approximately $21 million. As of 2006, he is a vice chairman of the private banking firm Perseus LLC, a position he has held since 2001. He is also a board member at Goldman Sachs, Gannett Company, Inc., a media holding group, KB Home, a home construction firm, Target Corporation, Temple-Inland, and UnitedHealth Group. Johnson has also served as chairman of both the Kennedy Center for the Arts (1996-2004) and the Brookings Institution (1994-2003).
He is also a member of the American Academy of Arts and Sciences, the American Friends of Bilderberg, the Council on Foreign Relations, and the Trilateral Commission. On May 22, 2008, Democratic Party officials confidentially divulged that Obama had asked Johnson "to lead the process" for selecting Obama's running mate. On June 4, 2008, Obama announced the formation of a three person committee to vet vice presidential candidates, including Johnson. However, Johnson soon became a source of controversy when it was reported that he had received loans directly from Angelo Mozilo, the CEO of Countrywide Financial, a company implicated in the U.S. subprime mortgage crisis.
Jamie S. Gorelick (born May 6, 1950) is an American attorney and judicial officer who was Deputy Attorney General of the United States during the Clinton administration Gorelick (pronounced /g?'r?l?k/) grew up in Great Neck, New York where she attended South High School. She obtained her B.A. (magna cum laude) from Harvard University in 1972, where she was desigated Radcliffe Orator, and a J.D. (cum laude) from Harvard Law School in 1975. Gorelick joined the Washington, D.C. law firm Miller, Cassidy, Larroca and Lewin in 1975 and worked for them as a litigator until 1993, except for 1979 to 1980 when she was an assistant to the U.S. Secretary of Energy. Gorelick was president of the District of Columbia Bar from 1992 to 1993.
Under the Clinton administration, Gorelick served as general counsel of the Department of Defense from 1993 to 1994, when she was appointed Deputy Attorney General of the United States, the No. 2 position in the Department of Justice. Gorelick served as Vice Chairman of the Federal National Mortgage Association from 1997 to 2003. She is currently a law partner in the Washington office of WilmerHale and a non-executive director of the oilfield services provider Schlumberger Ltd. Even though she had no previous training nor experience in finance, Gorelick was appointed Vice Chairman of FNMA from 1997 to 2003. She served alongside former Clinton Administration official Franklin Raines, and earned over $26,000,000 during her six years there. During that period, FNMA developed a $10 billion accounting scandal. One example of falsified financial transactions that helped the company meet earnings targets for 1998, a "manipulation" that triggered multimillion-dollar bonuses for top executives. Gorelick received $779,625. On March 25, 2002, Business Week interviewed Gorelick about the health of "Fanny Mae".
Gorelick is quoted as saying, "We believe we are managed safely. We are very pleased that Moody's gave us an A-minus in the area of bank financial strength -- without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions." One year later, Government Regulators "accused Fannie Mae of improper accounting to the tune of $9 billion in unrecorded losses". Not long after that, the American taxpayer was forced to foot the bill of a failing Fannie Mae.
Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis
Burning Down The House: What Caused Our Economic Crisis?
The 800 Billion Dollar Week | Bill Maher | Oct 3 2008
Obama and Acorn Create Current Financial Meltdown
The Clinton Administration, Barack Obama and ACORN were completely responsible for the idea that you could take people who had little or no income and give them a loan on a house and expect them to make payments. Andrew Cuomo, who announced the plan, says in this video that we expect the "default rate on these mortgages will be higher than normal." The Democrats went into this program knowing full well that it was highly risky.
ACORN, represented by Barack Obama as its attorney, used strong-arm tactics to force banks to make irresponsible loans.
These people shown in this video, among others not shown, are the ones responsible for the financial collapse and the loss by millions of Americans of their financial security.
By James Simpson September 28, 2008 http://www.americanthinker.com/2008/09/ barack_obama_and_the_strategy.html
America waits with bated breath while Washington struggles to bring the U.S. economy back from the brink of disaster. But many of those same politicians caused the crisis, and if left to their own devices will do so again.
Despite the mass media news blackout, a series of books, talk radio and the blogosphere have managed to expose Barack Obama's connections to his radical mentors -- Weather Underground bombers William Ayers and Bernardine Dohrn, Communist Party member Frank Marshall Davis and others. David Horowitz and his Discover the Networks.org have also contributed a wealth of information and have noted Obama's radical connections since the beginning.
Yet, no one to my knowledge has yet connected all the dots between Barack Obama and the Radical Left. When seen together, the influences on Obama's life comprise a who's who of the radical leftist movement, and it becomes painfully apparent that not only is Obama a willing participant in that movement, he has spent most of his adult life deeply immersed in it.
But even this doesn't fully describe the extreme nature of this candidate. He can be tied directly to a malevolent overarching strategy that has motivated many, if not all, of the most destructive radical leftist organizations in the United States since the 1960s.
The Cloward-Piven Strategy of Orchestrated Crisis
In an earlier post, I noted the liberal record of unmitigated legislative disasters, the latest of which is now being played out in the financial markets before our eyes. Before the 1994 Republican takeover, Democrats had sixty years of virtually unbroken power in Congress - with substantial majorities most of the time. Can a group of smart people, studying issue after issue for years on end, with virtually unlimited resources at their command, not come up with a single policy that works? Why are they chronically incapable?
One of two things must be true. Either the Democrats are unfathomable idiots, who ignorantly pursue ever more destructive policies despite decades of contrary evidence, or they understand the consequences of their actions and relentlessly carry on anyway because they somehow benefit.
I submit to you they understand the consequences. For many it is simply a practical matter of eliciting votes from a targeted constituency at taxpayer expense; we lose a little, they gain a lot, and the politician keeps his job. But for others, the goal is more malevolent - the failure is deliberate. Don't laugh. This method not only has its proponents, it has a name: the Cloward-Piven Strategy. It describes their agenda, tactics, and long-term strategy.
The Strategy was first elucidated in the May 2, 1966 issue of The Nation magazine by a pair of radical socialist Columbia University professors, Richard Andrew Cloward and Frances Fox Piven. David Horowitz summarizes it as:
The strategy of forcing political change through orchestrated crisis. The "Cloward-Piven Strategy" seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.
Cloward and Piven were inspired by radical organizer [and Hillary Clinton mentor] Saul Alinsky:
"Make the enemy live up to their (sic) own book of rules," Alinsky wrote in his 1989 book Rules for Radicals. When pressed to honor every word of every law and statute, every Judeo-Christian moral tenet, and every implicit promise of the liberal social contract, human agencies inevitably fall short. The system's failure to "live up" to its rule book can then be used to discredit it altogether, and to replace the capitalist "rule book" with a socialist one. (Courtesy Discover the Networks.org)
Newsmax rounds out the picture:
Their strategy to create political, financial, and social chaos that would result in revolution blended Alinsky concepts with their more aggressive efforts at bringing about a change in U.S. government. To achieve their revolutionary change, Cloward and Piven sought to use a cadre of aggressive organizers assisted by friendly news media to force a re-distribution of the nation's wealth.
In their Nation article, Cloward and Piven were specific about the kind of "crisis" they were trying to create:
By crisis, we mean a publicly visible disruption in some institutional sphere. Crisis can occur spontaneously (e.g., riots) or as the intended result of tactics of demonstration and protest which either generate institutional disruption or bring unrecognized disruption to public attention.
No matter where the strategy is implemented, it shares the following features:
The offensive organizes previously unorganized groups eligible for government benefits but not currently receiving all they can.
The offensive seeks to identify new beneficiaries and/or create new benefits.
The overarching aim is always to impose new stresses on target systems, with the ultimate goal of forcing their collapse.
Capitalizing on the racial unrest of the 1960s, Cloward and Piven saw the welfare system as their first target. They enlisted radical black activist George Wiley, who created the National Welfare Reform Organization (NWRO) to implement the strategy. Wiley hired militant foot soldiers to storm welfare offices around the country, violently demanding their "rights." According to a City Journal article by Sol Stern, welfare rolls increased from 4.3 million to 10.8 million by the mid-1970s as a result, and in New York City, where the strategy had been particularly successful, "one person was on the welfare rolls... for every two working in the city's private economy."
According to another City Journal article titled "Compassion Gone Mad":
The movement's impact on New York City was jolting: welfare caseloads, already climbing 12 percent a year in the early sixties, rose by 50 percent during Lindsay's first two years; spending doubled... The city had 150,000 welfare cases in 1960; a decade later it had 1.5 million.
The vast expansion of welfare in New York City that came of the NWRO's Cloward-Piven tactics sent the city into bankruptcy in 1975. Rudy Giuliani cited Cloward and Piven by name as being responsible for "an effort at economic sabotage." He also credited Cloward-Piven with changing the cultural attitude toward welfare from that of a temporary expedient to a lifetime entitlement, an attitude which in-and-of-itself has caused perhaps the greatest damage of all.
Cloward and Piven looked at this strategy as a gold mine of opportunity. Within the newly organized groups, each offensive would find an ample pool of foot soldier recruits willing to advance its radical agenda at little or no pay, and expand its base of reliable voters, legal or otherwise. The radicals' threatening tactics also would accrue an intimidating reputation, providing a wealth of opportunities for extorting monetary and other concessions from the target organizations. In the meantime, successful offensives would create an ever increasing drag on society. As they gleefully observed:
Moreover, this kind of mass influence is cumulative because benefits are continuous. Once eligibility for basic food and rent grants is established, the drain on local resources persists indefinitely.
The next time you drive through one of the many blighted neighborhoods in our cities, or read of the astronomical crime, drug addiction, and out-of-wedlock birth rates, or consider the failed schools, strapped police and fire resources of every major city, remember Cloward and Piven's thrill that "...the drain on local resources persists indefinitely."
ACORN, the new tip of the Cloward-Piven spear
In 1970, one of George Wiley's protégés, Wade Rathke -- like Bill Ayers, a member of the radical Students for a Democratic Society (SDS) -- was sent to found the Arkansas Community Organizations for Reform Now. While NWRO had made a good start, it alone couldn't accomplish the Cloward-Piven goals. Rathke's group broadened the offensive to include a wide array of low income "rights." Shortly thereafter they changed "Arkansas" to "Association of" and ACORN went nationwide.
Today ACORN is involved in a wide array of activities, including housing, voting rights, illegal immigration and other issues. According to ACORN's website: "ACORN is the nation's largest grassroots community organization of low-and moderate-income people with over 400,000 member families organized into more than 1,200 neighborhood chapters in 110 cities across the country," It is perhaps the largest radical group in the U.S. and has been cited for widespread criminal activity on many fronts.
On voting rights, ACORN and its voter mobilization subsidiary, Project Vote, have been involved nationwide in efforts to grant felons the vote and lobbied heavily for the Motor Voter Act of 1993, a law allowing people to register at motor vehicle departments, schools, libraries and other public places. That law had been sought by Cloward and Piven since the early1980s and they were present, standing behind President Clinton at the signing ceremony.
ACORN's voter rights tactics follow the Cloward-Piven Strategy:
Register as many Democrat voters as possible, legal or otherwise and help them vote, multiple times if possible.
Overwhelm the system with fraudulent registrations using multiple entries of the same name, names of deceased, random names from the phone book, even contrived names.
Make the system difficult to police by lobbying for minimal identification standards.
In this effort, ACORN sets up registration sites all over the country and has been frequently cited for turning in fraudulent registrations, as well as destroying republican applications. In the 2004-2006 election cycles alone, ACORN was accused of widespread voter fraud in 12 states. It may have swung the election for one state governor.
ACORN's website brags: "Since 2004, ACORN has helped more than 1.7 million low- and moderate-income and minority citizens apply to register to vote." Project vote boasts 4 million. I wonder how many of them are dead? For the 2008 cycle, ACORN and Project Vote have pulled out all the stops. Given their furious nationwide effort, it is not inconceivable that this presidential race could be decided by fraudulent votes alone.
Barack Obama ran ACORN's Project Vote in Chicago and his highly successful voter registration drive was credited with getting the disgraced former Senator Carol Moseley-Braun elected. Newsmax reiterates Cloward and Piven's aspirations for ACORN's voter registration efforts:
By advocating massive, no-holds-barred voter registration campaigns, they [Cloward & Piven] sought a Democratic administration in Washington, D.C. that would re-distribute the nation's wealth and lead to a totalitarian socialist state.
As I have written elsewhere, the Radical Left's offensive to promote illegal immigration is "Cloward-Piven on steroids." ACORN is at the forefront of this movement as well, and was a leading organization among a broad coalition of radical groups, including Soros' Open Society Institute, the Service Employees International Union (ACORN founder Wade Rathke also runs a SEIU chapter), and others, that became the Coalition for Comprehensive Immigration Reform. CCIR fortunately failed to gain passage for the 2007 illegal immigrant amnesty bill, but its goals have not changed.
The burden of illegal immigration on our already overstressed welfare system has been widely documented. Some towns in California have even been taken over by illegal immigrant drug cartels. The disease, crime and overcrowding brought by illegal immigrants places a heavy burden on every segment of society and every level of government, threatening to split this country apart at the seams. In the meantime, radical leftist efforts to grant illegal immigrants citizenship guarantee a huge pool of new democrat voters. With little border control, terrorists can also filter in.
Obama aided ACORN as their lead attorney in a successful suit he brought against the Illinois state government to implement the Motor Voter law there. The law had been resisted by Republican Governor Jim Edgars, who feared the law was an opening to widespread vote fraud.
His fears were warranted as the Motor Voter law has since been cited as a major opportunity for vote fraud, especially for illegal immigrants, even terrorists. According to the Wall Street Journal: "After 9/11, the Justice Department found that eight of the 19 hijackers were registered to vote..."
ACORN's dual offensives on voting and illegal immigration are handy complements. Both swell the voter rolls with reliable democrats while assaulting the country ACORN seeks to destroy with overwhelming new problems.
And now we have the mortgage crisis, which has sent a shock wave through Wall Street and panicked world financial markets like no other since the stock market crash of 1929. But this is a problem created in Washington long ago. It originated with the Community Reinvestment Act (CRA), signed into law in 1977 by President Jimmy Carter. The CRA was Carter's answer to a grassroots activist movement started in Chicago, and forced banks to make loans to low income, high risk customers. PhD economist and former Texas Senator Phil Gramm has called it: "a vast extortion scheme against the nation's banks."
ACORN aggressively sought to expand loans to low income groups using the CRA as a whip. Economist Stan Leibowitz wrote in the New York Post:
In the 1980s, groups such as the activists at ACORN began pushing charges of "redlining"-claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.
In fact, minority mortgage applications were rejected more frequently than other applications-but the overwhelming reason wasn't racial discrimination, but simply that minorities tend to have weaker finances.
ACORN showed its colors again in 1991, by taking over the House Banking Committee room for two days to protest efforts to scale back the CRA. Obama represented ACORN in the Buycks-Roberson v. Citibank Fed. Sav. Bank, 1994 suit against redlining. Most significant of all, ACORN was the driving force behind a 1995 regulatory revision pushed through by the Clinton Administration that greatly expanded the CRA and laid the groundwork for the Fannie Mae, Freddie Mac borne financial crisis we now confront. Barack Obama was the attorney representing ACORN in this effort. With this new authority, ACORN used its subsidiary, ACORN Housing, to promote subprime loans more aggressively.
As a New York Post article describes it:
A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.
Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department.
Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with "100 percent financing . . . no credit scores . . . undocumented income . . . even if you don't report it on your tax returns." Credit counseling is required, of course.
Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed "the most flexible underwriting criteria permitted." That lender's $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.
The lender they were speaking of was Countrywide, which specialized in subprime lending and had a working relationship with ACORN.
Investor's Business Daily added:
The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama. (Emphasis, mine.)
Since these loans were to be underwritten by the government sponsored Fannie Mae and Freddie Mac, the implicit government guarantee of those loans absolved lenders, mortgage bundlers and investors of any concern over the obvious risk. As Bloomberg reported: "It is a classic case of socializing the risk while privatizing the profit."
And if you think Washington policy makers cared about ACORN's negative influence, think again. Before this whole mess came down, a Democrat-sponsored bill on the table would have created an "Affordable Housing Trust Fund," granting ACORN access to approximately $500 million in Fannie Mae and Freddie Mac revenues with little or no oversight.
Even now, unbelievably -- on the brink of national disaster -- Democrats have insisted ACORN benefit from bailout negotiations! Senator Lindsay Graham reported last night (9/25/08) in an interview with Greta Van Susteren of On the Record that Democrats want 20 percent of the bailout money to go to ACORN!
This entire fiasco represents perhaps the pinnacle of ACORN's efforts to advance the Cloward-Piven Strategy and is a stark demonstration of the power they wield in Washington.
Enter Barack Obama
In attempting to capture the significance of Barack Obama's Radical Left connections and his relation to the Cloward Piven strategy, I constructed following flow chart. It is by no means complete. There are simply too many radical individuals and organizations to include them all here. But these are perhaps the most significant.
The chart puts Barack Obama at the epicenter of an incestuous stew of American radical leftism. Not only are his connections significant, they practically define who he is. Taken together, they constitute a who's who of the American radical left, and guiding all is the Cloward-Piven strategy.
Conspicuous in their absence are any connections at all with any other group, moderate, or even mildly leftist. They are all radicals, firmly bedded in the anti-American, communist, socialist, radical leftist mesh.
Most people are unaware that Barack Obama received his training in "community organizing" from Saul Alinsky's Industrial Areas Foundation. But he did. In and of itself that marks his heritage and training as that of a radical activist. One really needs go no further. But we have.
Obama objects to being associated with SDS bomber Bill Ayers, claiming he is being smeared with "guilt by association." But they worked together at the Woods Fund. The Wall Street Journal added substantially to our knowledge by describing in great detail Obama's work over five years with SDS bomber Bill Ayers on the board of a non-profit, the Chicago Annenberg Challenge, to push a radical agenda on public school children. As Stanley Kurtz states:
"...the issue here isn't guilt by association; it's guilt by participation. As CAC chairman, Mr. Obama was lending moral and financial support to Mr. Ayers and his radical circle. That is a story even if Mr. Ayers had never planted a single bomb 40 years ago."
Also included in the mix is Theresa Heinz Kerry's favorite charity, the Tides Foundation. A partial list of Tides grants tells you all you need to know: ACLU, ACORN, Center for American Progress, Center for Constitutional Rights (a communist front,) CAIR, Earth Justice, Institute for Policy Studies (KGB spy nest), National Lawyers Guild (oldest communist front in U.S.), People for the Ethical Treatment of Animals (PETA), and practically every other radical group there is. ACORN's Wade Rathke runs a Tides subsidiary, the Tides Center.
Carl Davidson and the New Party
We have heard about Bomber Bill, but we hear little about fellow SDS member Carl Davidson. According to Discover the Networks, Davidson was an early supporter of Barack Obama and a prominent member of Chicago's New Party, a synthesis of CPUSA members, Socialists, ACORN veterans and other radicals. Obama sought and received the New Party's endorsement, and they assisted with his campaign. The New Party also developed a strong relationship with ACORN. As an excellent article on the New Party observes: "Barack Obama knew what he was getting into and remains an ideal New Party candidate."
The chart also suggests the reason for George Soros' fervent support of Obama. The President of his Open Society Institute is Aryeh Neier, founder of the radical Students for a Democratic Society (SDS). As mentioned above, three other former SDS members had extensive contact with Obama: Bill Ayers, Carl Davidson and Wade Rathke. Surely Aryeh Neier would have heard from his former colleagues of the promising new politician. More to the point, Neier is firmly committed to supporting the hugely successful radical organization, ACORN, and would be certain back their favored candidate, Barack Obama.
Obama has spent a large portion of his professional life working for ACORN or its subsidiaries, representing ACORN as a lawyer on some of its most critical issues, and training ACORN leaders. Stanley Kurtz's excellent National Review article, "Inside Obama's Acorn." also describes Obama's ACORN connection in detail. But I can't improve on Obama's own words:
I've been fighting alongside ACORN on issues you care about my entire career (emphasis added). Even before I was an elected official, when I ran Project Vote voter registration drive in Illinois, ACORN was smack dab in the middle of it, and we appreciate your work. - Barack Obama, Speech to ACORN, November 2007 (Courtesy Newsmax.)
In another excellent article on Obama's ACORN connections, Newsmax asks a nagging question:
It would be telling to know if Obama, during his years at Columbia, had occasion to meet Cloward and study the Cloward-Piven Strategy.
I ask you, is it possible ACORN would train Obama to take leadership positions within ACORN without telling him what he was training for? Is it possible ACORN would put Obama in leadership positions without clueing him into what his purpose was?? Is it possible that this most radical of organizations would put someone in charge of training its trainers, without him knowing what it was he was training them for?
As a community activist for ACORN; as a leadership trainer for ACORN; as a lead organizer for ACORN's Project Vote; as an attorney representing ACORN's successful efforts to impose Motor Voter regulations in Illinois; as ACORN's representative in lobbying for the expansion of high risk housing loans through Fannie Mae and Freddie Mac that led to the current crisis; as a recipient of their assistance in his political campaigns -- both with money and campaign workers; it is doubtful that he was unaware of ACORN's true goals. It is doubtful he was unaware of the Cloward-Piven Strategy.
Fast-forward to 2005 when an obsequious, servile and scraping Daniel Mudd, CEO of Fannie Mae spoke at the Congressional Black Caucus swearing in ceremony for newly-elected Illinois Senator, Barack Obama. Mudd called, the Congressional Black Caucus "our family" and "the conscience of Fannie Mae."
In 2005, Republicans sought to rein in Fannie and Freddie. Senator John McCain was at the forefront of that effort. But it failed due to an intense lobbying effort put forward by Fannie and Freddie.
In his few years as a U.S. senator, Obama has received campaign contributions of $126,349, from Fannie and Freddie, second only to the $165,400 received by Senator Chris Dodd, who has been getting donations from them since 1988. What makes Obama so special?
His closest advisers are a dirty laundry list of individuals at the heart of the financial crisis: former Fannie Mae CEO Jim Johnson; Former Fannie Mae CEO and former Clinton Budget Director Frank Raines; and billionaire failed Superior Bank of Chicago Board Chair Penny Pritzker.
Johnson had to step down as adviser on Obama's V.P. search after this gem came out:
An Office of Federal Housing Enterprise Oversight (OFHEO) report from September 2004 found that, during Johnson's tenure as CEO, Fannie Mae had improperly deferred $200 million in expenses. This enabled top executives, including Johnson and his successor, Franklin Raines, to receive substantial bonuses in 1998. A 2006 OFHEO report found that Fannie Mae had substantially under-reported Johnson's compensation. Originally reported as $6-7 million, Johnson actually received approximately $21 million.
Obama denies ties to Raines but the Washington Post calls him a member of "Obama's political circle." Raines and Johnson were fined $3 million by the Office of Federal Housing Oversight for their manipulation of Fannie books. The fine is small change however, compared to the $50 million Raines was able to obtain in improper bonuses as a result of juggling the books.
Most significantly, Penny Pritzker, the current Finance Chairperson of Obama's presidential campaign helped develop the complicated investment bundling of subprime securities at the heart of the meltdown. She did so in her position as shareholder and board chair of Superior Bank. The Bank failed in 2001, one of the largest in recent history, wiping out $50 million in uninsured life savings of approximately 1,400 customers. She was named in a RICO class action law suit but doesn't seem to have come out of it too badly.
As a young attorney in the 1990s, Barack Obama represented ACORN in Washington in their successful efforts to expand Community Reinvestment Act (CRA) authority. In addition to making it easier for ACORN groups to force banks into making risky loans, this also paved the way for banks like Superior to package mortgages as investments, and for the Government Sponsored Enterprises Fannie Mae and Freddie Mac to underwrite them. These changes created the conditions that ultimately lead to the current financial crisis.
Did they not know this would occur? Were these smart people, led by a Harvard graduate, unaware of the Econ 101 concept of moral hazard that would result from the government making implicit guarantees to underwrite private sector financial risk? They should have known that freeing the high-risk mortgage market of risk, calamity was sure to ensue. I think they did.
Barack Obama, the Cloward-Piven candidate, no matter how he describes himself, has been a radical activist for most of his political career. That activism has been in support of organizations and initiatives that at their heart seek to tear the pillars of this nation asunder in order to replace them with their demented socialist vision. Their influence has spread so far and so wide that despite their blatant culpability in the current financial crisis, they are able to manipulate Capital Hill politicians to cut them into $140 billion of the bailout pie!
God grant those few responsible yet remaining in Washington, DC the strength to prevent this massive fraud from occurring. God grant them the courage to stand up in the face of this Marxist tidal wave.
Jim Simpson is a former White House staff economist and budget analyst. His writings have been published in American Thinker, Washington Times, FrontPage Magazine, DefenseWatch, Soldier of Fortune and others. His blog is Truth and Consequences..
By The Wall Street Journal October 10, 2008 http://online.wsj.com/article/SB122360116724221681.html
Former Lehman Brothers CEO Dick Fuld was under oath Monday when he was grilled on Capitol Hill about his role in the current financial meltdown. But if Members really want to understand the credit mania, they should also call Chris Dodd.
The Connecticut Senator has been out front denouncing the "companies that form the foundation of our financial markets," for "their insatiable appetite for risk." He has also decried "reckless, careless and sometimes unscrupulous actors in the mortgage lending industry" and he has proclaimed that "American taxpayers deserve to know how we arrived at this moment." To that end, we propose he take the stand -- under oath.
Former Countrywide Financial loan officer Robert Feinberg says Mr. Dodd knowingly saved thousands of dollars on his refinancing of two properties in 2003 as part of a special program the California mortgage company had for the influential. He also says he has internal company documents that prove Mr. Dodd knew he was getting preferential treatment as a friend of Angelo Mozilo, Countrywide's then-CEO.
That a "Friends of Angelo" program existed is not in dispute. It was crucial to the boom that Countrywide enjoyed before its fortunes turned. While most of the company was aggressively lending to risky borrowers and off-loading those mortgages in bulk to Fannie Mae and Freddie Mac, Mr. Feinberg's department was charged with making sure those who could influence Fannie and Freddie's appetite for risk were sufficiently buttered up. As a Banking Committee bigshot, Mr. Dodd was perfectly placed to be buttered.
A Friend Indeed
Mortgage VIPs 06/25/2008 – Sweetheart deals are just a phone call away.Angelo's Angel 06/19/2008 – The senate bailout for Countrywide needs more scrutiny.Congress and the Countrywide Scandal 06/18/2008 – Some senators want a bailout for big political donors. What a surprise.Beltwaywide Financial 06/16/2008 – The new ARMs: Angelo-rated mortgages for senators.In response to the charge that he knew he was getting favors, Mr. Dodd at first issued a strong denial: "This suggestion is outrageous and contrary to my entire career in public service. When my wife and I refinanced our loans in 2003, we did not seek or expect any favorable treatment. Just like millions of other Americans, we shopped around and received competitive rates." Less than a week later he acknowledged he was part of Countrywide's VIP program but claimed he thought it was "more of a courtesy."
Mr. Feinberg, who oversaw "Friends of Angelo" from 2000 to 2004, begs to differ. He told us that as the loan officer in charge he was supposed to make sure that the "VIP" clients knew at every step of the process that they were getting a special deal because they were "Friends of Angelo."
"People are referred into that department as 'very important people.' You're told that your loan is priced from Angelo. As the 'Friends of Angelo department,' [the department] has to give them a sense of importance and explain the reduction of fees and the rate as a result of being a 'Friend of Angelo,'" he says. According to a report by Dan Golden in Condé Nast Portfolio in August, other VIPs included Senator Kent Conrad. Mr. Golden reported that "Countrywide also offered special discounts to congressional staffers involved in housing issues."
As to Mr. Dodd, Mr. Feinberg says he spoke to the Senator once or twice and mostly to his wife and that like other FOAs Mr. Dodd got "a float down," which means that even after he had a preferred rate, when the prevailing rate dropped just before the closing, his rate was reduced again. Regular borrowers would pay extra for a last-minute adjustment, but not FOAs. "They were aware of it because they were notified and when they went to the closing they would see it," Mr. Feinberg says, adding that he "always let people in the program know that they were getting a very good deal because they were 'Friends of Angelo.'" All of this matters because Mr. Dodd was one of those encouraging Fan and Fred to plunge into "affordable housing" loans made by companies like Countrywide.
One indicator of his influence is the $165,400 in campaign contributions -- more than to any other politician -- that Fan and Fred have given him since 1989, according to the Center for Responsive Politics. These contributions are legal. But favors like those Mr. Dodd is alleged to have received may not be. Mr. Feinberg says he went public with his story because when he heard Senator Dodd on TV talking about predatory lending, he felt it was "hypocritical" and he says, "I just thought, 'This is wrong.'"
Mr. Dodd hasn't yet released his copies of the mortgage documents, though he promised to do so more than two months ago. His office told us this week they'd get back to us on that. Meanwhile, presumably the Justice Department can have Mr. Feinberg's Countrywide documents, if it's interested.
By Jeffrey Epstein and Harvey Kushner Nov 1, 2008 http://www.worldnetdaily.com/?pageId=79733
With the nomination of the "anointed" one, it was clear to Democrats that the economy would be a better center piece for the upcoming campaign than Iraq. Their candidate had no real national security qualifications and the surge was working.
Enter Sen. Charles Schumer, D-N.Y. Always, a hound for publicity, Sen. Schumer made public a letter he wrote to the Office of Thrift Supervision in June questioning the solvency of the California based IndyMac Bank. In his missive, Schumer asserted that the deterioration of IndyMac's financial position posed a risk to its investors and customer base.
Publicity about the exchange resulted in an eleven-day run on the bank during which time $1.3 billion were withdrawn. IndyMac's failure along with Schumer's actions undoubtedly contributed to the $16 billion run on Washington Mutual in early September. In turn, WaMu's catastrophic failure contributed to the quick demise of Lehman Brothers and Merrill Lynch.
Merrill Lynch's demise was helped along by the threat of a lawsuit from Attorney General, Andrew Cuomo, D-N.Y. Merrill's executives were surprised by Cuomo's bluster since they already agreed to repurchase over $12 billion in debt. The damage done, the Bank of America took over the threatened brokerage house.
Without question, the banks and investment houses referenced above were weakened substantially by their participation in the sub-prime mortgage market. However, it appears that their immediate failures weren't attributable to those losses alone. In fact, diminished consumer confidence set in motion by Schumer, Cuomo and other operatives played a far more significant role.
Did they intend to set into motion a series of events that would culminate in a "perfect storm" of diversion? It is impossible to know. This we do know. Their actions no doubt laid ruin to a number of financial institutions and impacted the retirement plans of millions of hard-working Americans, especially those near retirement age.
More importantly, however, their actions made it possible for Obama to avoid answering questions on his ability to protect America from the gathering storm of Islamic terrorism. The latter is clearly the most pressing threat to the security of this country. The president's first duty is to protect the homeland from those that would do us harm. Obama or his handlers haven't discussed in any great detail his plans for homeland security.
Cuomo's actions come as no surprise. He is the consummate politician and opportunist. His surprise dropout from New York's gubernatorial race in 2002 demonstrated his loyalty to himself rather than to his supporters.
Schumer is another story. The so-called hawk on national security, with his penchant for publicity, set into motion a chain of events that would place the discussion of national security on the back burner.
Misters Cuomo and Schumer, you and others have helped Mr. Obama skirt the issue of national security by giving Americans palpitations when reading their third-quarter 401K statements. The latter might prove inconsequential the moment Islamic terrorists decide to strike.
By The Wall Street Journal Dec. 11, 2008 http://online.wsj.com/article/SB122895461803096429.html
The two government-sponsored mortgage giants have long maintained they were merely unwitting victims of a financial act of God. That is, while the rest of the market went crazy over subprime and "liar" loans, Fan and Fred claimed to be the grownups of the mortgage market. There they were, the fable goes, quietly underwriting their 80% fixed-rate 30-year mortgages when -- Ka-Pow! -- they were blindsided by the greedy excesses of the subprime lenders who lacked their scruples.
But previously undisclosed internal documents that are now in Mr. Waxman's possession and that we've seen tell a different story. Memos and emails at the highest levels of Fannie and Freddie management in 2004 and 2005 paint a picture of two companies that saw their market share eroded by such products as option-ARMs and interest-only mortgages. The two companies were prepared to walk ever further out on the risk curve to maintain their market position.
The companies understood the risks they were running. But squeezed between the need to meet affordable-housing goals set by HUD and the desire to sustain their growth and profits, they took the leap anyway. As a result, by the middle of this year, the two companies were responsible for some $1.6 trillion worth of subprime credit of one form or another. The answer to Mr. Waxman's question about their role in the crisis, in other words, is that they were central players, if not the central players, in the creation of the housing boom and the credit bust. Mr. Waxman released some of these documents Tuesday but kept others under wraps.
In early 2004, Freddie's executive team was engaged in a heated debate over whether to start acquiring "stated income, stated assets" mortgages. And in April of that year, David Andrukonis, the head of risk management, wrote to his colleagues, "This is not an affordable product, as I understand it, but a product necessary to recapture [market] share. . . . In 1990 we called this product 'dangerous' and eliminated it from the marketplace." Freddie went ahead anyway.
At Tuesday's hearing, both Mr. Waxman and former Fannie CEO Franklin Raines argued that Fan and Fred were following the market, not leading it, as if this was exculpatory. The documents plainly show that people at both Fan and Fred clearly understood that these mortgages were risky, thought many homeowners didn't understand them and that they were putting their business at risk by buying up Alt-A and subprime mortgage-backed securities.
One Fannie Mae document from March 2005 notes dryly, "Although we invest almost exclusively in AAA-rated securities, there is a concern that the rating agencies may not be properly assessing the risk in these securities." But they bought them anyway, both to maintain their market share and to show people like Democrat Barney Frank that they were promoting affordable housing.
By April 2008, according to a document prepared for then-Fannie Mae CEO Daniel Mudd and marked "Confidential -- Highly Restricted," Fannie's $312 billion in Alt-A mortgages represented "12% of single-family credit exposure." This book of business, the document notes, "was originated to maintain relevance in market with customers -- main originators were Countrywide, Lehman, Indymac, Washington Mutual, Amtrust." The first four need no introduction; regulators ordered Ohio-based Amtrust to stop lending two weeks ago.
Remember that one of Fannie's roles was supposed to be to buy up mortgage-backed securities in the secondary market and keep that market "liquid." This was, they always argued, the rationale for their $1 trillion-plus MBS portfolios. By becoming buyers of private-label subprime and Alt-A-backed MBS, they did just that -- they liquified and helped legitimize products that they now claim others irresponsibly sold.
Mr. Raines even suggested that Fan and Fred's regulator was to blame for allowing them to get into trouble. "It is remarkable," he told the committee, "that during the period that Fannie Mae substantially increased its exposure to credit risk its regulator made no visible effort to enforce any limits."
What Mr. Raines failed to mention was that, all along, Fannie and Freddie were spending millions on lobbying to ensure that regulators did not get in their way. As the AP reported Sunday night, Freddie spent $11.7 million in lobbying in 2006 alone, with Newt Gingrich, for example, getting $300,000 that year for talking up the benefits of Freddie's business model. (Apologies welcome, Newt.)
Other Republicans on Freddie's payroll included former Senator Al D'Amato and Congressman Vin Weber, and then House Majority Leader Tom DeLay's former chief of staff, Susan Hirschmann. As we know by now, Fan and Fred tried to buy everybody in town from both political parties, and the companies did it well enough to make themselves immune from regulatory scrutiny.
Mr. Waxman calls it a "myth" that Fannie and Freddie were the originators of the crisis. That's a red herring. Mr. Waxman's documents prove beyond doubt that Fan and Fred turbocharged the housing mania with a taxpayer-backed, Congressionally protected business model that has cost America dearly.
By Investors Business Daily March 6, 2009 http://www.ibdeditorials.com/IBDArticles.aspx?id=321237362312361
Oversight: Congressman Barney Frank says he wants some of those responsible for our current financial meltdown to be prosecuted. And we couldn't agree more. First up in the court dock: Rep. Barney Frank, D-Mass.
Even by the extraordinarily loose standards of Congress, it takes some chutzpah for someone such as Frank to suggest that he'll seek prosecutions for those behind the housing and financial crunch and for what he called "a strongly empowered systemic risk regulator."
For Frank, perhaps more than any single individual in private or public life, is responsible for both the housing market mess and subsequent bank disaster. And no, this isn't partisan hyperbole or historical exaggeration.
But first, a little trip down memory lane.
It was Fannie Mae and Freddie Mac, the two so-called Government Sponsored Enterprises (GSEs), that lay behind the crisis. After regulatory changes made to the Community Reinvestment Act by President Clinton in 1995, Fannie and Freddie went into hyper-drive, channeling literally trillions of dollars into the housing markets, using leverage and implicit taxpayers' guarantees.
In November 2000, President Clinton's Housing and Urban Development Department would trumpet "new regulations to provide $2.4 trillion in mortgages for affordable housing for 28.1 million families." The vehicles for this were Fannie and Freddie. It was the largest expansion in housing aid ever.
Still, from the early 1990s on, many people both inside and outside Washington were alarmed by what they saw at Fannie and Freddie.
Not Barney Frank: Starting in the early 1990s, he (and other Democrats) stood athwart efforts by regulators, Congress and the White House to get the runaway housing market under control.
He opposed reform as early as 1992. And, in response to another attempt bring Fannie-Freddie to heel in 2000, Frank responded it wasn't needed because there was "no federal liability there whatsoever."
In 2002, Frank nixed reforms again. See a pattern here?
Even after federal regulators discovered in 2003 that Fannie and Freddie executives had overstated earnings by as much as $10.6 billion in order to boost bonuses, Frank didn't miss a beat.
President Bush pushed for what the New York Times then called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."
If it had passed, the housing crisis likely would have never boiled over, at least not the extent it did, taking the economy with it. Instead, led by Frank, Democrats stood as a bloc against any changes.
"Fannie Mae and Freddie Mac are not facing any kind of financial crisis," Frank, then the ranking Democrat on the Financial Services Committee, said. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
It's hard to say why Frank did all this. It could be his close ties to the Neighborhood Assistance Corp., a powerful housing activist group based in Boston, which controls billions in loans. Or that he received some $40,100 in campaign donations from Fannie and Freddie from 1989 to 2008. Or that he has been romantically linked to a one-time executive at Fannie during the 1990s.
Whatever the case, his conflicts are obvious and outrageous, and his refusal to countenance reforms of Fannie and Freddie contributed mightily to today's meltdown. If you're looking for a culprit in the meltdown to prosecute, no one fits the bill better than Frank.
By Gary Starr for the Neville Awards March 18, 2009
No one read the $787 Billion crap-sandwich stimulus package and now there is "outrage" that the AIG execs are getting $170M in bonuses.
It turns out that Sen. Chris "Countrywide Sweetheart Deal" wrote an amendment authorizing payment of any bonuses contractually agreed to prior to Feb. 11, 2009 into the Stimulus package.
Dodd Amendment Rules:
Crack down on bonuses, retention awards and incentive compensation: Bonuses can only be paid in the form of long-term restricted stock, equal to no greater than 1/3 of total annual compensation, and will vest only when taxpayer funds are repaid. There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009.
After the story broke Dodd claimed he didn't write the amendment. Then he had to backtrack and say he did write it when he was exposed on CNN.
Per CNN March 18, 2009:
Senate Banking committee Chairman Christopher Dodd told CNN Wednesday that he was responsible for language added to the federal stimulus bill to make sure that already-existing contracts for bonuses at companies receiving federal bailout money were honored.
Dodd acknowledged his role in the change after a Treasury Department official told CNN the administration pushed for the language.
Both Dodd and the official, who asked not to be named, said it was because administration officials were afraid the government would face numerous lawsuits without the new language.
Dodd, a Democrat, told CNN's Dana Bash and Wolf Blitzer that Obama administration officials pushed for the language to an amendment designed to limit bonuses and "golden parachutes" at those companies.
Nobody read the bill but all the Democrats on the hill, save for eleven Representatives, voted for it. Obama signed it. THE DEMOCRATS OWN IT!!
And now they are outraged? Spare us the hypocrisy.
Sens. Dodd and Schumer and Rep. Barney Frank have also promised legislation to tax AIG bonus recipients up to 95% of the total so the government could recoup some or all of the $700 million paid out.
Separately, Sen. Dodd was AIG's largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org. Also, one of AIG Financial Products' largest offices is based in Connecticut. Obama was also a recipient of AIG camapign donations totaling over $100,000.
It is obvious theat Dodd has a vested interest in keeping all of this quiet. He and Frank are as corrupt as they come
Another one, Sen. Charles Schumer of New York, threatened to increase taxes on the AIG bonuses if they aren't returned. Mr. Schumer has accepted $112,000 in donations from AIG's employees and its political action committee, making him the second-largest recipient among active lawmakers since 1990.
Through the 1990s and the early part of this decade, AIG's donations were evenly split between Republicans and Democrats. But starting during the 2004 election, AIG employees and its PAC started favoring Democrats. Since then, Democrats have received 60% of the $2.6 million in political donations from the company and its employees.
On March 18, AIG CEO Ed Liddy was hauled before the House and, in true Kabuki Theater style, was asked by Barney Frank to name the names of the execs who received the bonuses. The last Congressman who asked for names was Joe McCarthy.
This is mob rule and a deliberate attempt by members of Congress, who are up to their eyeballs in scandal, to try to pin the blame on the AIG. Congressional fervor for the 95% tax seems to be dissipating now that Obama has said the bills in front of the House and Senate may be unconstituional.
It also turns out that Dodd's wife has a peculiar relationship with AIG. From 2001-2004, Jackie Clegg Dodd served as an "outside" director of IPC Holdings, Ltd., a Bermuda-based company controlled by AIG. Clegg was compensated for her duties to the company, which was managed by a subsidiary of AIG. In 2003, according to a proxy statement, Clegg received $12,000 per year and an additional $1,000 for each Directors' and committee meeting she attended. Clegg served on the Audit and Investment committees during her final year on the board.
IPC paid millions each year to other AIG-related companies for administrative and other services. Clegg was good at her job. In 2003, the proxy statement report, she attended more than 75% of board and committee meetings. This while she served as the managing partner of Clegg International Consultants, LLC, which she created in 2001, the year she joined the board of IPC.
Can we say conflict of interest here?
By the way, regardless of Barney Frank's demands and the populist furor over AIG's bonus payouts, Fannie Mae and Freddie Mac are due to pay retention bonuses of between $470,000 and $611,000 this year to some executives, despite enormous losses at the government-backed mortgage companies. Fannie's main rival. Who was in charge of oversight of these two quasi-government entities. Who
consistently blocked reform of the way toxic mortgage loans were being run through Fannie and Freddie?
Chris Dodd and Barney Frank...
If any bonus recipients are hauled before Barney Frank's goon squad of a committee they should say they will not return the money and they should tell these congressional crooks to go to hell.
By Vasko Kohlmayer March 5, 2009
"As Congress grapples with solutions for a faltering economy, Barney Frank sits at the center of power."
Thus wrote John Gallagher in The Advocate as our government officials desperately struggled to limit the fallout from the unfolding financial crisis.
Gallagher is right. As Chairman of the Financial Service Committee in the US House of Representatives, Barney Frank plays a crucial role in determining in what ways much of the bailout and stimulus money is spent. This is because the committee over which he presides oversees the housing and banking sectors, two industries that are at the center of the current economic crisis. But Frank's power and influence extend beyond his chairmanship of the important Financial Services Committee. Outspoken, smart and forceful, Frank has emerged as one of the heavyweights in the Democrat-led House and as such instrumental in shaping its course and agenda. There are some who think that his behind-the-scenes influence exceeds even that of Nancy Pelosi. Whether or not this is so, there can be no doubt that Barney Frank is currently one of the most powerful politicians in the country.
Given his present position of influence, taxpayers may want to learn more about the background of the man who directs how hundreds of billions of dollars of their money is spent.
Barnett "Barney" Frank was first elected to Congress in 1981 at the age of forty-one from Massachusetts' 4th district. Six years later he made national news when he publicly declared his homosexuality. By that admission he became the first openly gay member of the House of Representatives.
In 1991, Barney Frank received an official reprimand for reflecting "discredit upon the House." The reprimand came as a result of his relationship with a man named Steve Gobi, a male prostitute whom Frank initially paid $80 for sex. Frank later took Gobi to live with him in his home, making him a personal aide. He paid him $20,000 in compensation (unreported to the IRS) and let him use his car. Subsequent investigation revealed that in the course of their relationship, Frank used his congressional office and stationary to fix Gobi's 33 parking fines. Frank also used his congressional letterhead to write a reference letter to Gobi's probation officer -- Gobi was under court supervision as a convicted felon with a prison record -- in which he gave false information. Most damningly, the investigation found that Gobi ran a prostitution ring from Frank's home. In his defense, Frank asserted he knew nothing of Gobi's illicit enterprise.
The Democrat -controlled House voted 408-18 to reprimand Frank after a heated debate during which some Republicans demanded expulsion. They pointed out that the claim that Frank did not know of Gobi's criminal activities was incredible to say the least.
Jeff Jacoby of The Boston Globe summed up their sentiments when he wrote: "Most pathetic of all was Frank's claim that he'd been 'victimized' -- that he was a just a 'good liberal' who was 'trying to help' Gobie, but got 'suckered.'"
Frank's Democrat colleagues, however, insisted that this was precisely what happened. During the debate, his friend Thomas Foglietta (D-PA) said, "Barney Frank is accused of being stupid and, my friend, if being stupid were grounds for expulsion, there'd be very few of us left here."
Although the latter part of Foglietta's statement may well be true, the first part is decidedly not. Whatever else he may be, Barney Frank is certainly not stupid. A former Harvard instructor, Barney Frank twice won the title "brainiest", "funniest," and "most eloquent" member of the House in a survey of Capitol Hill staffers. It truly strains the bounds of credulity that Frank, an accomplished congressman and a former Ivy League lecturer, could be deceived under his own roof by a street hustler.
After Gobi, Barney Frank become involved in another questionable -- and possibly criminally tainted -- relationship with a man called Herb Moses. Moses, whom Frank called his "spouse," was a high-level executive at Fannie Mae from 1991 until 1998. Dubbed a "mortgage guru" by the National Mortgage News, Moses boasted that he helped develop "many of Fannie Mae's affordable housing and home improvement lending programs." It was, of course, these kinds of programs that ultimately led to the collapse of the subprime mortgage market that wiped out trillions dollars from the economy and produced the economic turmoil that we now face. Even though there were those warning against the precarious nature of the enterprise, Barney Frank -- whose committee oversees Fannie Mae and Freddie Mac -- kept resisting reforms and besmirching those voicing concerns.
When the Bush administration proposed that oversight of Fannie and Freddie be transferred to the Treasury Department, Frank strongly opposed the plan, claiming:
"These two entities... 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."
Frank continued to claim almost until the day of the collapse that the two mortgage giants were financially sound. If we lived in a sane world, Barney Frank would be compelled to testify about his culpability in the current crisis and what role his romantic involvement with Herb Moses -- as well as the campaign contributions he received from Fannie and Freddie -- played in his shilling for these two moribund institutions.
Commenting on his shenanigans, Jeff Jacoby observed that under normal circumstances Frank's questionable relationships could have well landed him in prison. Voters in his very liberal congressional district, however, have awarded him with a string of easy re-elections.
In his public life Barney Frank is known as a civil rights hawk. A feisty progressive activist, Frank has poured much of his energies into the area of lesbian, gay, bisexual, and transgender (LGBT) issues. One of his great achievements was the founding of the National Stonewall Democrats, a gay activist arm of the Democrat Party that brought under one umbrella previously unaffiliated LGBT clubs across America. Describing itself as "a grassroots force for social change," the organization is headquartered in Washington, D.C. and currently oversees more than 90 local chapters. The organization's website states that its activities focus primarily on "mobilizing the LGBT [Lesbian, Gay, Bisexual and Transgender] community to get out to vote on Election Day for fair-minded Democrats; and standing up when Republicans attack our families..."
As could be expected from the founder of the National Stonewall Democrats, Barney Frank voted 'no' on constitutionally defining marriage as one-man-one-woman. During the debate he praised the progressive leaning of his own state's body politic: "I believe the political community of Massachusetts is prepared to say, if two men love each other and are prepared to be committed to each other legally as well as emotionally, that is rather a good thing and we will say it's okay." In 1999 Frank voted 'no' on a bill which would ban gay adoptions in Washington, D.C. Needless to say, Frank's voting record has earned him a 97% lifetime rating from the ACLU.
Throughout his career Frank has pushed for the decriminalization of medical marijuana. He recently extended the scope of his efforts to the public at large. Last year he introduced a bill called the Personal Use of Marijuana by Responsible Adults Act of 2008, which would have removed federal penalties for the possession of up to 100 grams (3.5 oz) of the drug. Although Frank often talks about the "silliness" of jailing people for possessing small quantities of the substance, 100 grams is actually a large amount, which, by most accounts, makes for more than 200 doses. According to a recent analysis by High Times magazine, 100 grams of most marijuana strands goes for more than $1000 at street prices. Defending his bill, Frank said that it was "time for the politicians to catch up with the public on this." Frank words almost make it look like it is a common thing for Americans to walk around with $1000 worth of cannabis in their pockets.
In 2006, Frank voted against the Respect for America's Fallen Heroes Act, a bill aimed at restricting protests and demonstrations at soldiers' funerals. The measure passed unanimously in the Senate with Frank being one of only three legislators in the House who voted against the Act.
In 2003 Barney Frank voted against the Partial-Birth Abortion Ban Act, a brutal procedure during which a baby -- often viable -- is killed in the birth canal by having its skull pierced and its brain sucked out. In addition, Frank also voted against the Unborn Victims of Violence Act and against the criminalization of taking of minors across state lines by non-family members to circumvent abortion laws. Not surprisingly, Frank's voting record earned him a 100% rating from NARAL.
In the area of national defense, Barney Frank has for years advocated a 25 percent reduction in the overall military budget of the United States. Earlier this month, he wrote in a piece that ran in the Nation,
"[I]f we do not make reductions approximating 25 percent of the military budget starting fairly soon, it will be impossible to continue to fund an adequate level of domestic activity even with a repeal of Bush's tax cuts for the very wealthy."
He then challenged those who call for fiscal responsibility to first look "where our spending has been the most irresponsible and has produced the least good for the dollars expended - our military budget."
All those who care about the future of this country should be greatly concerned that Barney Frank, a leftist radical who publicly flaunts his homosexuality, is presently one of the most powerful politicians in America. His recent actions and statements make it amply clear that he will seek to use his present influence to implement as much of his extreme agenda as he possibly can. Given his party's hold on the White House and Congress his efforts may meet with much success.
With all of the faux outrage over the AIG bonuses almost no one has noticed that Fannie Mae and Freddie Mac expect to pay about $210 million in retention bonuses to 7,600 employees over 18 months, according to a letter from the mortgage companies' regulator.
Freddie's retention-bonus program involves 4,057 employees, or about 80% of the total head count, while Fannie is making the payments to 3,545 employees, or 61%.
Fannie Mae executives will receive retention bonuses of between $470,000 and $611,000 this year, despite enormous losses at the government-backed mortgage company. Fannie's main rival, Freddie Mac, also plans to pay such bonuses but hasn't yet provided details.
Fannie's bonuses are smaller than ones paid by American International Group Inc. that have caused a political firestorm for that company. Seventy-three AIG executives received retention payments of $1 million or more recently, according to New York Attorney General Andrew Cuomo.
But the Fannie bonuses are still considerable and come at a time when Fannie and Freddie are receiving increasing amounts of funding from the Treasury. For 2008, Fannie and Freddie reported combined losses of about $108 billion, largely stemming from a surge in home-mortgage defaults. The Treasury has agreed to provide as much as $200 billion of capital apiece to Fannie and Freddie in exchange for preferred stock. The two companies have said they will need a combined $60 billion of that money to cover their losses so far.
Democrats are thumping their chests...they are outraged!!
Bonuses for executives at companies that have received federal backing are "definitely wrong," said Rep. Edolphus Towns, a New York Democrat. "They are rewarding folks who have not done a good job." Rep. Towns also questioned whether executives would bolt if they didn't get retention bonuses. "Where are these people going?" he asked. "Everybody's laying off."
On Tuesday, Sen. Robert Menendez (D., N.J.) wrote to Treasury Secretary Timothy Geithner, asking him to "use every legal means available" to stop $3 billion in previously disclosed retention payments to brokers at the new joint venture being formed by Morgan Stanley and Citigroup Inc.'s Smith Barney unit.
"These payouts constitute misuse of taxpayer money and are an insult to hardworking families who are saving every penny," wrote Sen. Menendez.
Even Barney Frank, the architect of the sub-prime mortgage scandal, has called for Fannie/Freddie to rescind the bonuses. He called on the regulator for Fannie/Freddie to "rescind the retention bonus programs" at the two companies, which were seized by the federal government in early September over fears that their possible failure would reverberate throughout the global economy.
Of course it's all for the cameras. The AIG bonuses eventually went through as will these bonuses.
By PETER J. WALLISON
DECEMBER 29, 2009
On Christmas Eve, when most Americans' minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent. This action confirms that the decade-long congressional failure to more closely regulate these two government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one of the worst policy disasters in our history.
Fannie and Freddie's congressional sponsors—some of whom are now leading the administration's effort to "reform" the financial system—have a lot to answer for. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, sponsored legislation adopted in 2008 that established a new regulatory structure for the GSEs. But by then it was far too late. The GSEs had begun buying risky loans in 1993 to meet the "affordable housing" requirements established under congressional direction by the Department of Housing and Urban Development (HUD).
Most of the damage was done from 2005 through 2007, when Fannie and Freddie were binging on risky mortgages. Back then, Mr. Frank was the bartender, denying that there was any cause for concern, and claiming that he wanted to "roll the dice" on subsidized housing support.
In 2005, the Senate Banking Committee, then controlled by Republicans, adopted tough regulatory legislation that would have established more auditing and oversight of the two agencies. But it was passed out of committee on a partisan vote, and with no Democratic support it never came to a vote.
By the end of 2008, Fannie and Freddie held or guaranteed approximately 10 million subprime and Alt-A mortgages and mortgage-backed securities (MBS)—risky loans with a total principal balance of $1.6 trillion. These are now defaulting at unprecedented rates, accounting for both their 2008 insolvency and their growing losses today. Since 2008, under government control, the two agencies have continued to buy dicey mortgages in order to stabilize housing prices.
There is more to this ugly situation. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.
In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.
An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default. Fannie and Freddie were also reporting these mortgages as prime, according to Mr. Pinto.
It is easy to see how this misrepresentation was a principal cause of the financial crisis.
Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.
In addition, about 7.7 million subprime and Alt-A housing loans were in mortgage pools supporting MBS issued by Wall Street banks—which had long before been driven out of the prime market by Fannie and Freddie's government-backed, low-cost funding. The vast majority of these MBS were rated AAA, because the rating agencies' models assumed that the losses that are incurred by subprime and Alt-A loans would be within the historical range for the number of high-risk loans known to be outstanding.
But because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience. When these rates began to show up early in 2007, it was apparent something was seriously wrong with assumptions on which AAA ratings had been based.
Losses, it was now certain, would invade the AAA tranches of the mortgage-backed securities outstanding. Investors, having lost confidence in the ratings, fled the MBS market and ultimately the market for all asset-backed securities. They have not yet returned.
By the end of 2007, the MBS market collapsed entirely. Assets once carried at par on financial institutions' balance sheets could not be sold except at distress prices. This raised questions about the stability and even the solvency of most of the world's largest financial institutions.
The first major victim was Bear Stearns, the smallest of the five major Wall Street investment banks but one invested heavily in risky MBS. The government rescue of Bear Stearns in March 2008 signaled that the U.S. government, and perhaps others, would stand behind other large financial institutions. The moral hazard this engendered was deadly when Lehman Brothers' solvency came under challenge. Spreads in the credit default swap market for Lehman, despite massive short-selling, showed very little alarm by investors until just before the fateful weekend of Sept. 13 and 14, when they blew out on fears that the firm might not be rescued.
By that time it was too late for Lehman's counterparties to take the protective action that might have cushioned the shock. As it turned out, however, none of Lehman's largest counterparties failed—so much for the idea that the financial market is "interconnected"—but all market participants now realized they had to know the true financial condition of their counterparties. The result was a freeze-up in interbank lending.
For most people, that freeze-up is the beginning of the financial crisis. But its roots go back to 1993, when Fannie and Freddie began stocking up on subprime and other risky loans while reporting them as prime.
Why Fannie and Freddie did this is still to be determined. But the leading candidate is certainly HUD's affordable housing regulations, which by 2007 required that 55% of all the loans the agencies acquired had to be made to borrowers at or below the median income, with almost half of these required to be low-income borrowers.
Another likely reason for Fannie and Freddie's mislabeling of mortgages was their desire to retain congressional support by "rolling the dice" while making believe they weren't betting. With the Federal Housing Administration, Wall Street investment banks, and Fannie and Freddie all competing for these loans, the bottom of the barrel had long before been scraped and the financial system set up for a crisis.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
By PETER J. WALLISON
APRIL 20, 2010
Now that nearly all the TARP funds used to bail out Wall Street banks have been repaid, the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac stand out as the source of the greatest taxpayer losses.
The Congressional Budget Office has estimated that, in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie and Freddie will eventually reach $381 billion. That estimate may be too optimistic.
Last Christmas Eve, Treasury removed the $400 billion cap on what the government might be required to invest in these two GSEs in the future, and this may tell the real story about the cost to taxpayers. In typical Washington fashion, everyone has amnesia about how this disaster occurred.
The story is all too familiar. Politicians in positions of authority today had an opportunity to prevent this fiasco but did nothing. Now-in the name of the taxpayers-they want more power, but they have never been called to account for their earlier failings.
One chapter in this story took place in July 2005, when the Senate Banking Committee, then controlled by the Republicans, adopted tough regulatory legislation for the GSEs on a party-line vote-all Republicans in favor, all Democrats opposed. The bill would have established a new regulator for Fannie and Freddie and given it authority to ensure that they maintained adequate capital, properly managed their interest rate risk, had adequate liquidity and reserves, and controlled their asset and investment portfolio growth.
These authorities were necessary to control the GSEs' risk-taking, but opposition by Fannie and Freddie-then the most politically powerful firms in the country-had consistently prevented reform.
The date of the Senate Banking Committee's action is important. It was in 2005 that the GSEs-which had been acquiring increasing numbers of subprime and Alt-A loans for many years in order to meet their HUD-imposed affordable housing requirements-accelerated the purchases that led to their 2008 insolvency. If legislation along the lines of the Senate committee's bill had been enacted in that year, many if not all the losses that Fannie and Freddie have suffered, and will suffer in the future, might have been avoided.
Why was there no action in the full Senate? As most Americans know today, it takes 60 votes to cut off debate in the Senate, and the Republicans had only 55. To close debate and proceed to the enactment of the committee-passed bill, the Republicans needed five Democrats to vote with them. But in a 45 member Democratic caucus that included Barack Obama and the current Senate Banking Chairman Christopher Dodd (D., Conn.), these votes could not be found.
Recently, President Obama has taken to accusing others of representing "special interests." In an April radio address he stated that his financial regulatory proposals were struggling in the Senate because "the financial industry and its powerful lobby have opposed modest safeguards against the kinds of reckless risks and bad practices that led to this very crisis."
He should know. As a senator, he was the third largest recipient of campaign contributions from Fannie Mae and Freddie Mac, behind only Sens. Chris Dodd and John Kerry.
With hypocrisy like this at the top, is it any wonder that nearly 80% of Americans, according to new Pew polling, don't trust the federal government or its ability to solve the country's problems?
Mr. Wallison is a senior fellow at the American Enterprise Institute.
By The Wall St. Journal
May 11, 2010
Fannie Mae yesterday announced its 11th consecutive quarterly loss-$11.5 billion-and asked for another $8.4 billion in taxpayer assistance. When it comes to losing money, nobody does it better than this government-created mortgage investor.
Fannie Mae is the Cal Ripken of bad real-estate deals, reliably pouring taxpayer money into the housing market. Granted, Fannie faces tough competition from its toxic twin, Freddie Mac, which last week announced its own request for another $10.6 billion from taxpayers.
Once the checks from Treasury clear, Fan and Fred will have consumed a combined $145 billion in taxpayer cash, and the end is nowhere in sight. Both companies warned of further losses triggering more government assistance, which is now unlimited after a 2009 Treasury decision.
The losses are unlimited because the companies are now run by the government not to make money, by deliberately subsidizing housing. In yesterday's press release, CEO Mike Williams didn't even pretend that he's running a profit-making business. "In the first quarter we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes," he said. These efforts to support the Obama anti-foreclosure program resulted in a doubling of loan modifications compared to the previous quarter.
Ramping up modifications makes perfect sense in the upside-down world of Fannie Mae. The company also announced that most of the loans it modified in the first three quarters of 2009 had gone delinquent again within six months. Talk about an exciting business opportunity! In case anyone still hasn't gotten the joke, the company also clarified yesterday that its directors "are not obligated to consider the interests of the company" unless the government tells them to do so.
The real joke is that the Obama Administration and Senator Chris Dodd have collaborated on a financial regulatory-reform bill that includes no reform of Fan or Fred. Senators should rectify this embarrassment as early as today by voting for John McCain's amendment to end this most costly of all bailouts.
'We all should have done a better job." So said Senator Chris Dodd in discussing Fannie Mae and Freddie Mac, in what ought to go down as the understatement of the young 21st century. Yet such general and less-than-abject remorse wasn't enough for Mr. Dodd and his fellow Democrats to vote to reform the money-losing government-owned companies and clean up the mess they made in the mortgage market.
As Banking Chairman, Mr. Dodd was declaiming on the Senate floor that the toxic twins absolutely, positively, no doubt about it, need to be reformed-just not yet. He thus opposed Arizona Senator John McCain's amendment to his financial regulatory-reform bill to shrink the mortgage giants, raise their underwriting and capital standards, cap the taxpayer losses (now $145 billion and counting) and eventually shut down the failed enterprises.
Mr. Dodd countered with a bold plan to authorize Treasury Secretary Timothy Geithner to . . . conduct a study. What has Treasury been doing for the last 17 months? Mr. Geithner is the fellow who lifted the $400 billion bailout limit on Fannie and Freddie last Christmas Eve. Now Mr. Dodd promises that Mr. Geithner will conduct "a tough study." Tough on taxpayers most of all, as Fan and Fred continue to bleed red ink by Treasury design so they can subsidize mortgage borrowers to avoid foreclosure.
For much of yesterday's debate, Mr. Dodd was visibly angry. Perhaps that is because he was left alone on the floor to defend the most expensive of all federal bailouts. Thanks to his own sweetheart mortgage from Countrywide Financial-a leading Fannie business partner-Mr. Dodd isn't running for re-election. But other Democrats chose to spend yesterday's debate in undisclosed locations. They were no doubt thrilled to enjoy federal witness protection from C-SPAN's cameras as Fan and Fred's longtime opponent, Alabama Senator Richard Shelby, described the various reform efforts they had blocked over the years.
The end of an excruciating two hours on the floor finally brought a smile to Mr. Dodd's face. The Connecticut Senator closed his remarks by saying, "All time has expired, I believe . . . I hope."
What taxpayers are hoping for is the expiration of federal charters for these destructive too-big-to-fail institutions. Those hopes were ignored again as the Senate voted down the McCain amendment, 56-43. Only two Democrats, Evan Bayh (Indiana) and Russ Feingold (Wisconsin), voted with every Republican to reform the companies.
Senators can call their pending bill many things, but as Mr. McCain said yesterday, they should not dare call it reform of the financial system.
By BRIAN M. CARNEY for the The Wall St. Journal
July 26, 2010
Fannie Mae yesterday announced its 11th consecutive quarterly loss-$11.5 billion-and asked for another $8.4 billion in taxpayer assistance. When it comes to losing money, nobody does it better than this government-created mortgage investor.
To watch President Obama sign the financial reform bill last week was to be reminded of the greatest financial scandal that never was: the collapse of Fannie Mae and Freddie Mac in September 2008, and their subsequent continued existence as money-losing zombie financial companies in the bosom of the federal government.
Fannie and Freddie have liabilities in excess of $5 trillion. They have already directly cost taxpayers nearly $150 billion, with no end in sight. Most of the banks bailed out in the fall of 2008 have gotten back on their feet and many have paid back, or started to pay back, the money provided to recapitalize them at the height of the panic. Not so Fan and Fred. They continue to bleed money, and each quarter brings new losses and new demands on their unlimited line of credit with the federal government, which is to say the American taxpayer. And yet these facts are ignored—not just by Congress or the administration, but by the press and much of the public.
Meanwhile, Fannie and Freddie, failures that they are, have become more central than ever to America's mortgage industry. They underwrite the vast majority of all new home loans, and they own or guarantee about half of all the mortgages outstanding. Our banking system never was nationalized in the crisis, as some urged at the time. But mortgage finance has been, or nearly so, with nary a whisper of debate or protest.
Fannie and Freddie have what you might call a problem with their narrative. The official version of the housing boom and bust, and subsequent panic and recession, tells us that greedy bankers took unacceptable risks, assumed too much leverage, made irresponsible loans, and left the government to clean up the mess. The causes of the crisis, in this version, include banker bonuses, deregulation ideology and predatory lending.
Most of this is nonsense, but regardless: There's simply no room in this story for two giant government-sponsored enterprises that distorted the housing and credit markets, took advantage of implicit government guarantees to operate at leverage ratios that would have made Lehman Brothers executives blush, and finally, and predictably, collapsed under the weight of that leverage and their bad bets on the housing market.
Fannie and Freddie's continuing collapse, moreover, calls into question the very premise of the 2,000-plus page law the president signed last week: That the federal government can shape credit markets to its own purposes and the benefit of consumers without incurring any of the attendant costs.
Lawmakers like Barney Frank and Chris Dodd, who defended Fannie and Freddie to the end and beyond, say that they'll get around to fixing them, eventually. But they and their colleagues, who delivered to the president a bill longer than all the previous financial legislation in history put together, tell us that Fan and Fred are "too complicated" to fix right now.
The real reason, I suspect, is that they still don't have any idea what went wrong with Fan and Fred. They were supposed to be doing good. They were chartered by the government and did its bidding. That they failed so spectacularly, and have already cost so much money to prop up, is not something for which they have any adequate explanation.
They were also, in the imaginations of their backers on Capitol Hill, the opposite of the greedy bankers that the Dodd-Frank financial bill is designed to punish and restrain. It would be unjust to their memories, according to this view, to deal with them in the same legislation as those bad bankers. Fannie Mae and Freddie Mac are seen as victims, rather than perpetrators, of the financial crash of 2008.
But this inability to account for Fan and Fred's demise and rescue betrays the poverty and incompleteness of the standard account of the crisis. And until they are wound down, the work of cleaning up after the financial crisis won't be nearly done.
Mr. Carney is editorial page editor of The Wall Street Journal Europe.
By The Wall St. Journal
Aug. 3, 2010
If you want proof that the Washington establishment has learned nothing from the 2008 financial panic, look no further than the nearby letter from former Fannie Mae CEO Franklin Raines. Our old antagonist is signaling where the debate is heading as Congress finally begins to consider what to do about Fannie and its failed sibling, Freddie Mac.
Mr. Raines writes that "the facts about the financial collapse of Fannie and Freddie are pretty clear." So let's review those facts. In Mr. Raines's telling, Fannie Mae was undone by a decision—made after he left in 2004—to purchase loans "with lower credit standards" just before the bust. But even this managerial decision wasn't entirely the companies' fault. Rather, according to the man who presided over one of the largest accounting scandals in history while at the helm of Fannie Mae in 2003, Fan and Fred's big mistake was chasing Wall Street's credit standards downward at the end of the boom.
What he doesn't say is that Fan and Fred had a political and legal mandate to support low-income housing. At the end of 2004, the U.S. Department of Housing and Urban Development released its "housing goals" for Fannie Mae and Freddie Mac for 2005-2008.
The new rule required the two government-sponsored mortgage giants to increase each year the share of their business that went to low- and moderate-income borrowers, with subgoals for "underserved areas" and "special affordable" housing. The purpose, according to HUD, was to ensure that Fannie's and Freddie's mortgage purchases would "promote the national priority of increasing homeownership."
The mandate had two effects. First, it meant that in order to keep growing, Fan and Fred had to grow their affordable-housing business even faster to meet the targets. But not every borrower is a prime borrower, and that goes triple for low-income borrowers. Fannie and Freddie could only meet their politically mandated lending goals by looking for new ways to extend credit to subprime borrowers.
So when Mr. Raines says that "the cause of the financial problems for Fannie and Freddie was bad decisions, not their government sponsored status," well, let's just say he's not telling the whole story.
Mr. Raines also says that neither "leverage" nor mortgage-backed securities portfolios were a problem. Hmmm. In fact, the wonder twins were put into federal conservatorship in September 2008 because their losses in the first eight months of that year had very quickly overwhelmed their capital cushion, which under law needed to be the irresponsible level of less than 2% of their assets. Only some of those losses came from their portfolios directly; most of the rest came on MBS they'd guaranteed. But if the companies had been required to hold more capital (and less leverage) in the first place, they, and taxpayers, would have had a much larger margin for error.
Former Treasury Secretary Hank Paulson has also said explicitly that he rescued Fan and Fred in part to reassure foreigners that the U.S. government stood behind their debt. With some $5 trillion in liabilities at the time, they were too indebted to fail. So their leverage was a problem.
Of the many private companies that got into trouble in the fall of 2008, most have since rebuilt their balance sheets and repaid their TARP money. But not Fannie and Freddie. Their direct cost to taxpayers so far, $145 billion, is only the beginning as Congress and the Obama Administration continue to use them to rescue homeowners from foreclosure.
Mr. Raines is signaling the coming political debate when he says "that Wall Street and the commercial banks have virtually abandoned the mortgage market." But this is like murdering your parents and demanding clemency because you're an orphan. No private bank can compete with the federal government's borrowing costs, so no one can afford to compete with Fannie and Freddie. It was hard enough to compete when the two companies had to maintain a (subsidized) profit margin for their shareholders. Now that they're being run at an intentional loss, it's impossible.
Before Fan and Fred collapsed, in July 2008, NYU professor Lawrence White estimated that the two had saved homebuyers $100 billion, total, in interest over the companies' lifetimes. If that number is remotely accurate, Fan and Fred have already cost far more than they ever saved borrowers. Taxpayers would have been better off handing out checks to everyone who bought a house.
On second thought, forget we said that. Fan and Fred, having distorted the housing market for decades, have now all but nationalized it, and their losses continue to mount. And yet Mr. Raines is speaking for the Beltway chorus in insisting that this only makes them more indispensable than ever. They want to go back to the status quo pre-panic, resurrecting Fannie and Freddie as mortgage oligopolists, using them to subsidize the housing industry and leverage campaign contributions. And they'll get away with it unless the American public says no.
Other countries have a buoyant home mortgage market without a Fannie or Freddie, and Canada has higher rates of home ownership than the U.S. without having either Fannie or Freddie or a home-mortgage interest tax deduction. American capitalists could also figure out a way to lend to homeowners, if the political class would let them.