Tuesday, September 30, 2008

What Caused Our Economic Crisis?

Blame to spread around, but nobody taking the blame.

In 2004, at a hearing to investigate illegal bookkeeping of Fannie Mae and Freddie Mac, Democrats heatedly and emphatically denied that there were any problems brewing with the two enterprises. Rep. Richard Baker (R) outlined the potential risks of not instituting regulations.

But what were the events leading up to this investigation? In September 2003, Pres. Bush proposed a new agency to oversee Fannie Mae and Freddie Mac, recognizing potential risk. The New York Times quoted Rep. Barney Frank (D), on Sept. 11, 2003: "These two entities--Fannie Mae and Freddie Mac--are not facing any kind of financial crisis," said Frank, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

In 2005, John McCain co-sponsored a bill for regulatory reform.

In 2006, John McCain addressed the floor, urging Congress to act on regulatory reform.

Want to verify the facts presented in this video:
- Federal Housing Enterprise Regulatory Reform Act of 2005
- Washington Post: 'Always for Less Regulation'?

McCain Letter to Frist and Shelby Regarding Fannie Mae and Freddie Mac, May 2006

Incidentally, in 2006, McCain wrote a letter to Sen. Obama expressing disappointment with his failure to participate in bipartisan discussions.

Read more about this:
-Hotair.com: McCain's Attempt to Fix Fannie Mae and Freddie Mac
-New York Times: New Agency Proposed to Oversee Freddie Mac and Fannie Mae
-Forbes: The Government Did It
-WISGOP.com: Covering Their Fannies


Partial transcript of the regulatory meeting:
Rep. Maxine Waters (D-California) states: "Through nearly a dozen hearings, where frankly we were trying to fix something that wasn't broke, Mr. Chairman, we do not have a crisis at Freddie Mac and, in particular, at Fannie Mae under the outstanding leadership of Mr. Frank Raines."

Rep. Gregory Meeks (D-New York): "... I'm just pissed off at OFHEO, becuase if it wasn't for you I don't think we'd be here in the first place and now is the problem we have and that we're faced with is maybe some idividuals who wanted to do away with GSEs in the first place you've given them an excuse to try have this forum so that we can talk about it and maybe change the direction and the mission of what the GSEs had which they've done a tremendous job there's been nothng that was indicated that was wrong with Fannie Mae Freddie Mac has come up on it's own and the question that then presents is the competence that your agency has with reference deciding and regulating the GSEs. I wish I could sit here and say that I'm not upset with you, but I am very upset because what you do is maybe giving a reason ... as Mr. Gonzalez said is to give someone a heart surgery when they really don't need it."

Rep. Ed Royce (R-California): "In addition to our important oversight role in this committee, I hope that we will move swiftly to create a new regulatory structure for Fannie Mae, Freddie Mac and the federal home loan banks."

Rep. Lacy Clay (D-Missouri): "This hearing is about the political lynching of Franklin Raines ..."

Rep. Ed Royce (R-California): "There is a very simple solution: Congress must create a new regulator with powers at least equal to those of other financial regulators such as the OCC or the Federal Reserve."

Armando Falcon (Federal Housing Enterprise Oversight [FHEO] Director): "Congressman, OFHEO did not improperly apply accounting rules, Freddie Mac did. OFHEO did not try to manage earnings improperly, Freddie Mac did. So this isn't about the agency engages in improper conduct, it's about Freddie Mac.

Rep. Christopher Shays (R-Connecticut):"... And we passed Sarbanes Oxley which was a very tough response to that, and then I realized that Fannie Mae and Freddie Mac wouldn't even come under it. They weren't under the 34 Act, they weren't under the 33 Act, they play by their own rules, and I'm tempted to ask how many people in this room are on the payroll of Fannie Mae, because what they do is basically hire every lobbyist they can possibly hire. They hire some people to lobby, and they hire some people not to lobby so that the opposition can't hire them."

Rep. Barney Frank (D-Massachusetts): "I don’t see anything in this report that raises safety and soundness problems."

Rep. Barney Frank (D-Massachusetts): "I think it serves us badly to raise safety and soundness ... when it does not seem to be an issue."

Frank Raines: "These assets are so riskless that their capital for holding them should be under 2 percent."

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