Written by Vincent Gioia
September 20, 2008
Read this only if you want to know the truth about who tried to prevent the collapse of Fannie Mae and Freddie Mac
By Vincent Gioia
When President Bill Clinton took office, Fannie and Freddie were viewed as "key" to Clinton's plans to expand home ownership. The Washington Post reports: "The result was a period of unrestrained growth for the companies. ... The companies increasingly were seen as the engine of the housing boom."
As Fannie and Freddie grew, conservatives repeatedly warned that their size posed a systemic risk to the financial system. As Sarah Palin put it, thanks to the implicit federal guarantee of their debt, Fannie and Freddie had become too big and too expensive to the taxpayers.
But Fannie and Freddie did not want to be exposed so they turned to Democrat friends for protection. James Johnson who was an advisor to Walter Mondale and is now a campaign advisor to Barack Obama, fought all efforts to reform of Freddie and Fannie. Clinton administration OMB director Franklin Raines joined the effort and tried to reassure critics that when he was Fannie Mae CEO in 1999: "We manage(d) our political risk with the same intensity that we manage our credit and interest rate risks."
To this day Fannie and Freddie's lobbying power over Democrats continues to be strong and it's no secret why that is the case. According to the Center for Responsive Politics, the top three recipients of campaign donations from Freddie and Fannie's PACs and employees are all Democrats. From 1989 through today, Sen. Chris Dodd received $165,400, Barack Obama $126,349, and John Kerry $111,000. The Washington Post in their article concluded: "Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them."
It is amazing to me how contagious is the Democrat penchant for lying among themselves; it spreads from Democrat to Democrat like the Bubonic Plague. Bill Clinton of course was the lying master; he not only infected his wife Hillary but all who supported him. Former Democratic Senator Bob Kerrey said of Bill Clinton he is an "unusually good liar; unusually good."
Barack Obama has followed in Bill Clinton's footsteps as an "unusually good liar" though realizing how little ability Obama has to think for himself, it is likely that his puppet string handler, David Axelrod, is the perpetrator of the lies Obama learns to speak behind his teleprompter. Now Obama says he warned about the problems with the two gigantic mortgage holders and buyers of still more mortgages and we would not be in this mess if he had been listened to (when, at what point in his 143 days in the senate?), and he says all this with the public certainty only someone skilled in misleading the public can do. Democrats speak their two minds through their forked tongues by once agreeing with the recommendations by our Treasury secretary and the Fed chief for prompt action to avert collapse of financial markets while also blaming the Bush administration for failure to avoid the problem. For good measure the Obama team places the blame on John McCain for doing nothing to correct the system in his 26 years in the senate; conveniently overlooking the still longer time in the senate occupied by their Vice Presidential candidate.
But the most unfortunate thing about all this is the failure of the news media, and even McCain's own campaign, to inform the public that John McCain was one the very few in government to actually forecast the current financial situation unless Fannie Mae and Freddie Mac were overhauled and corrected and the fact that McCain attempted to fix Fannie Mae and Freddie Mac in 2005 is ignored.
The question that should be asked at this time is: "Which candidate foresaw the credit crisis and tried to do something about it"? The answer is that John McCain did and along with three other Senate Republicans he tried to reform the government's involvement in mortgage lending three years ago, after an attempt by the Bush administration died in Congress two years earlier.
McCain addressed the subject on May 25, 2006, when speaking in support of the Federal Housing Enterprise Regulatory Reform Act of 2005 which was introduced to deal with the problems at Fannie Mae and Freddie Mac (via Beltway Snark):
"Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were illusions deliberately and systematically created by the company's senior management, which resulted in a $10.6 billion accounting scandal. The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac. The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform. For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac-known as Government-sponsored entities or GSEs-and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation."
In this statement, McCain predicted not only the entire collapse that has forced the government to assume obligations of Fannie Mae and Freddie Mac, but also Bear Stearns and AIG. He identifies the falsification of financial records to benefit executives, including Franklin Raines and Jim Johnson, both of whom have worked as advisers in varying degrees to Barack Obama this year. McCain also noted their successful lobbying efforts to forestall oversight over their business practices. John McCain concludes with the warning that proved prescient over the past few days and weeks.
The bill McCain supported and cosponsored would have done the following: "(1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac); and (2) the Federal Housing Enterprise Board. Sets forth operating, administrative, and regulatory provisions of the Agency, including provisions respecting: (1) assessment authority; (2) authority to limit nonmission-related assets; (3) minimum and critical capital levels; (4) risk-based capital test; (5) capital classifications and undercapitalized enterprises; (6) enforcement actions and penalties; (7) golden parachutes; and (8) reporting."
However the bill never made it out of committee. Chris Dodd, then the ranking member of the Banking Committee and now its chair, was in the middle of receiving preferential loan treatment from Countrywide Mortgage, as reported at the time, "one of the companies gaming the system in the credit crisis." Meanwhile, Barack Obama took hundreds of thousands of dollars from the lobbyists McCain mentions in this speech, making Obama the #2 recipient of Fannie/Freddie money as reported in the following exchange on Fox News in a video shown on You Tube:
HEATHER NAUERT: Barack Obama attacking John McCain once again on the economy and the market turmoil today. Our John Gibson has new information on the Democratic presidential nominee and the mortgage mess for us now. What have you got John?
JOHN GIBSON: Alright Heather. Lehman Brothers' collapse is traced back to Fannie Mae and Freddie Mac, the two big mortgage banks that got a federal bailout a few weeks ago. Freddie and Fannie used huge lobbying budgets and political contributions to keep regulators off their backs. A group called the center for responsive politics keeps track of which politicians get Fannie and Freddie political contributions.
The top three U.S. Senators getting big Fannie and Freddie political bucks were democrats and number two is Senator Barack Obama. Now, remember, he has only been in the Senate four years but still managed to grab the number two spot ahead of John Kerry, decades in the senate, and Chris Dodd who is chairman of the senate banking committee. Fannie and Freddie have been creations of the congressional democrats and the Clinton white house, designed to make mortgages available to more people, and as it turned out, some people who couldn't afford them.
Fannie and Freddie have also been places for big Washington Democrats to go to work in the semi-private sector and pocket millions. The Clinton administration's white house budget director Franklin Raines ran Fannie and collected 50 million dollars. Jamie Gurilli, Clinton Justice Apartment Official, worked for Fannie and took home 26 million dollars. Big Democrat Jim Johnson, recently on Obama's VP search committee has hauled in millions from his Fannie Mae C.E.O. job.
Now remember Obama's ads and stump speeches attack McCain and republican policies for the current financial turmoil. It is demonstrably not Republican policy and worse, it appears the man attacking McCain, Senator Obama, was at the head of the line when the piggy lined up at the Fannie and Freddie trough for campaign bucks. Senator Barack Obama, number two on the Fannie/Freddie list of favored politicians after just four short years in the senate. Next time you see that ad, you might notice he fails to mention that part of the Fannie and Freddie problem. Heather.
HEATHER NAUERT: Wow, that's quite a report, begs the question - where is John McCain on this?
JOHN GIBSON: John McCain is a measly $20,000 after over 20 years so he really doesn't even come close in the political contribution department. Open Secrets has the list of Congressmen who have benefited from Fannie Mae/Freddie Mac largesse since 1989 (inclusive). Remarkably, after only serving less than four of those 20 years, Barack Obama has vaulted to the #2 position on Capitol Hill. Only Dodd outstripped him. He took more than six times the amount that McCain received in a 20-year period. The record shows that McCain saw the problem coming and tried to get Congress to act. In 2005, both McCain and Obama served together in the Senate. Did Obama attempt to pass this reform, sign on as a co-sponsor, or even speak out in its favor? The record is tellingly blank. Update: Below is a screen shot of Barack Obama's statement on the American International Group (AIG) bailout:
(Quoting) BARACK OBAMA: "The fact that we have reached a point where the Federal Reserve felt it had to take this unprecedented step with the American Insurance Group is the final verdict on the failed economic philosophy of the last eight years. While we do not know all the details of this arrangement, the Fed must ensure that the plan protects the families that count on insurance. It should bolster our economy's ability to create good-paying jobs and help working Americans pay their bills and save their money. It must not bail out the shareholders or management of AIG."
"This crisis serves as a stark reminder of the failures of crony capitalism and an economic philosophy that sees any regulation at all as unwise and unnecessary. It's a philosophy that lets Washington lobbyists shred consumer protections and distort our economy so it works for the special interests instead of working people; a philosophy that says we should give more and more to those with the most and hope that prosperity trickles down to the rest. Instead, the pain has trickled up - from the struggles of Main Street all the way up to the crises on Wall Street."
"Despite his eleventh hour conversion to the language of reform, Senator McCain has subscribed to this philosophy for twenty-six years in Washington and the events of this week have rendered it a colossal failure. It is time for a new economic strategy, guided by the principle that America prospers when all Americans prosper, where common-sense rules of the road ensure that competition is fair, open, and honest. That is the strategy I will pursue as President, and I will bring the change we need to restore confidence in our financial markets and strength to our economy."
GIBSON: As we have seen, McCain has been talking reform for three years, with no assist from Barack Obama. And McCain at least knows the correct name of the company that got its bailout last night from the federal government. Is Team Obama so incompetent that they couldn't check the name before issuing the statement?"
For those interested in the truth about who understands and tried to do something about the financial mess caused by the Democrat piggy banks, Fannie Mae and Freddie Mac, the foregoing should be enlightening. For all others, continue to drink the cool-aid and press the lever for messiah Barack Obama on November 4th.