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Fannie Mae / Freddie Mac Debacle Prove Democrat Hypocrisy

Posted by Steve Markowitz on May 25, 2012

On February 9, 2012 this Blog posted Housing Market Damaged by Ongoing Governmental Interventions concerning Fannie Mae and Freddie Mac and their roles in creating the housing market crash that led to 2008 global economic meltdown that is still ongoing.  The ongoing housing downturn is the worst in since the Great Depression.  United States government actions and interventions played a significant role in creating this mess.

In the 1934 the US government created the Federal Housing Authority.  The FHA was a backstop for mortgages that led to lower borrowing costs, governmental subsidy to promote homeownership.  The government’s actions were based the mistaken belief that home prices always increased making them a good investment for all Americans.  The meltdown of 2008 proved this to be ridiculous thesis.

Like all governmental agencies, the FHA’s reach and authority increased with time.  In 1977 Congress passed the Community Reinvestment Act promoting homeownership to lower income groups who could not afford mortgages.  Then, in the 1990’s Congress pressured Fannie Mae and Freddie Mac to offer loans to even higher risk buyers to further promote home ownership.  While the interventions were made for supposed noble reasons, their benefits mainly benefited the home building and real estate industries.  In addition, the policies led to inflated home prices making them bad investments especially for those that purchased homes in more recent years, the very group the governmental actions were suppose you help.

Finally, the government under the Bush and Obama Administrations pursued a dangerous low interest rate policy to further increase demand and consumption of all types of goods, including housing.  Like an addiction, this drug no longer offers a high and the economic downturn continues irrespective of additional interventions.

Those who believe in and promote(d) the government’s interventions are culpable for the mess we face today.  Progressives understand this and therefore deflect by creating the false narrative that the macroeconomic malady is merely the result of greedy capitalists.  The video submitted below by Blog reader John helps show the Left’s complicity in creating the housing bubble and subjecting taxpayers to huge losses at Freddie Mae and Fannie Mac.  It also shows that in opposite of the Left’s narrative, it was they who stop the Republicans from further regulating Freddie and Fannie.  Excerpts from our congressmen include:

  • Richard Baker, Rep. Louisiana – He predicted Fannie and Freddie failure in 2004 and called calls for more regulations on them.
  • Maxine Waters, Dem. California – She said that no problems existed at Fannie Mae and Freddie Mac under “outstanding leadership” of Mr. Franklin Raines and accused regulators of trying to fix something that wasn’t broke.  Waters then praised Raines for exceeding GSE Performance and further attacks regulator for impeding affordable housing mission.
  • Gregory Meeks, Dem. New York – Watch his irrational rant attacking a regulator trying to control Fannie and Freddie.
  • Ed Royce, Rep. California – He pleads for more regulations on Fannie and Freddie.
  • Lacy Clay, Dem. Missouri – “This hearing is about the political lynching of Franklin Raines”  No problem with Freddie and Fannie soundness.
  • Christopher Shays, Rep. Connecticut – Points out that that Fannie and Freddie were incredibly exempted from Sarbanes-Oxley act.
  • Artur Davis, Dem. Alabama – Beats up on a regulator who attempted to put controls on Fannie and Freddie.
  • Barney Frank, Dem. Mass. – Defended Freddie and Fannie incredibly stating that there were not issues with their “safety and soundness”.
  • Don Manzullo, Rep. IL – Attacks Fannie and Freddie for skirting the rules so that they could pay huge bonuses to their executives.

Perhaps the worst character this sordid matter is Franklin Raines who headed Fannie Mae until being forced to retire in late 2004 after the SEC began investigating accounting irregularities.  Raines, who received total salaries exceeding $90 million at Fannie is quoted: “These assets (houses) are so riskless, that their capital for holding them should be under 2%”.  This incredible example of stupidity did not stop Barack Obama from looking to Raines for advice on the housing market.

For those who would question the Left’s culpability in creating the mortgage meltdown, the video concludes with Bill Clinton clearly stating that both he and the Democrats in Congress must accept responsibility in that they resisted any Republican efforts to tighten up of on Freddie Mac and Fannie Mae.

This story is one of stupidity, greed, and the failure of government.  It has been buried by a mainstream media that no longer does any investigative journalism, especially if it may place Progressive policies at risk.  The Leftist politicians who manipulated the housing market are just as guilty as the mortgage brokers and bankers who took advantage of their ill-conceived policies.

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