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Obama’s Financial Reform Failure

Written by Floyd and Mary Beth Brown - FrontPageMag.com

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On July 2, President Obama declared, "And finally, because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes. (Applause.) There will be no more tax-funded bailouts - period. (Applause.) If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy. "

aaatp-frank-dodd-obama-6316717The occasion of his bold statement was the signing of the Dodd-Frank Wall Street Reform Act.

So imagine our surprise when less than two weeks later Fannie Mae requested $1.5 billion more from the U.S. Treasury. This request came after the 12th quarterly loss by Fannie, and with this money Fannie's take from the taxpayers' wallet will grow to a whopping $86.1 billion for one company. Together with its twin Freddie Mac the bailout package is over $200 billion.

Fannie Mae, aka the Federal National Mortgage Association, was created in 1938 as a government sponsored enterprise (GSE) to bolster the housing market by increasing Americans' access to cheap home loans during the last Great Depression. Freddie Mac, aka the Federal Home Loan Mortgage Corp., was created in 1970 to end Fannie's monopoly in the secondary mortgage market. Both are mandated by Congress to help increase home ownership

The problem we have with this housing mandate is that not all Americans deserve, nor are they responsible enough, to go deep into debt to purchase a home.

Everyone understands that mortgage debt stands at the center of the ongoing financial crisis. Responsible analysis concludes that too much credit was extended to too many un-credit-worthy buyers of homes. At the center of this debacle stand these government-sponsored private financial firms named Freddie Mac and Fannie Mae. Neither of these firms were "reformed" by the so-called Reform Act.

Fannie has long been a favorite tool of America's political left. A revolving door has allowed politically connected White House and Congressional aides to spend time at Fannie becoming fabulously wealthy.

The examples of this revolving door are many, but the most famous and wealthiest is Obama campaign adviser Franklin Raines. Raines served on both the Carter and Clinton White House staffs before becoming Chairman and CEO of Fannie Mae. In the Fannie job this former bureaucrat earned over $100 million.

Raines was eventually pushed out of Fannie in an accounting scandal. He was accused by the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie Mae, of manipulating the firm's accounting so that he and other senior executives could pocket ever-larger bonuses.

While at Fannie, Raines began a program in 1999 to encourage bank loans to individuals with low incomes. He also downgraded credit requirements on loans that Fannie Mae purchased from banks. Raines claimed the program would allow borrowers who were "a notch below what our current underwriting has required" to get home loans. The move was praised by liberals because they believed it would increase the number of minority and low-income home owners. We now know the program is central to the ongoing mortgage defaults still unfolding at Fannie.

So the foreclosure crisis limps on with no end in sight.

To understand Obama's failure at financial reform, you only have to analyze his rhetoric. At the same July 21 ceremony he boldly proclaimed about the bill, "It demands accountability and responsibility from everyone." Problem is, on its face this statement is a bold faced lie. Fannie and Freddie have been neither fixed nor reformed and both are bleeding the taxpayers daily.

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