NORMA CAPPELLETTI: Fannie Mae and Freddie Mac Are Democrats' Fault
Ever since Nancy Pelosi was on TV informing the nation that the financial crisis our country faces was caused by the failed financial policies of the Bush administration, I have wondered -- where is the outrage at this distortion of the truth?
The following is a condensation of a series taken from the Investor's Business Daily explaining "What Caused the Loan Crisis."
1977: President Carter signed the Community Reinvestment Act into law. The law pressured financial institutions to extend loans to those who would not otherwise qualify. The premise was that home ownership would improve poor and crime-ridden communities and neighborhoods in terms of crime, investments and jobs. Statistics bear out that it did not help.
1992: Republican Rep. Jim Leach warned of the danger that Fannie Mae and Freddie Mac were changing from being agencies of the public to money machines for the principals and few stockholders.
1993 to 1999: Clinton rewrote Fannie and Freddie, turning the quasi-private mortgage-funding firms into semi-nationalized monopolies dispensing cash and loans to large Democratic voting blocs and handing favors, jobs and contributions to political allies.
Clinton unveiled his National Home-Ownership Strategy which broadened the CRA in ways Congress never intended. Rules were rewritten, which forced banks to satisfy quotas for sub-prime and minority loans to get a satisfactory CRA rating. Bypassing Republicans, Andrew Cuomo, secretary of Housing and Urban Development under Clinton, allowed Freddie and Fannie to get into the sub-prime market in a big way. Led by Rep. Barney Frank and Sen. Chris Dodd, Congress eased capital limits for Fannie and Freddie.
Banks poured billions in loans to poor communities, often requiring no money down and no verification of income. Worse still was the cronyism. Fannie and Freddie became home to mostly Clinton Democrats. A total of 384 politicians got big campaign donations from Fannie and Freddie. During the 1990s, Fannie and Freddie enjoyed a subsidy of $182 billion, most of it going to principals and shareholders, not poor borrowers as claimed
1999 and 2000: Treasury Secretary Laurence Summers and Undersecretary Gary Gensler went to Congress and sought to remove Fannie and Freddie's special status to no avail.
"We manage our political risk with the same intensity that we manage our credit and interest rate risks," Fannie CEO Franklin Raines, a former Clinton official and current Obama adviser, bragged to investors. Raines resigned but walked away with $90 million.
"We think that the statements evidence contempt for the nation's housing market," Freddie spokesperson Sharon McHale said. It was the last chance during the Clinton administration for reform.
2001: Republicans tried repeatedly to bring fiscal sanity to Fannie and Freddie, but Democrats blocked any attempt at reform, especially Frank and Dodd, who now run the key banking committees and were huge beneficiaries of campaign contributions from the mortgage giants.
2003: Bush proposed what The New York Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." Even after discovering a scheme by Fannie and Freddie to overstate earnings by $10.6 billion to boost their bonuses, the Democrats killed reform.
2005: Fed Chairman Alan Greenspan warned Congress, "We are placing the total financial system at substantial risk." Sen. McCain and two others sponsored a Fannie/Freddie reform bill and said, "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." Sen. Reid accused the GOP of trying to "cripple the ability of Fannie and Freddie to carry out their mission of expanding home ownership." The bill went nowhere.
McCain has repeatedly called for reforming Fannie and Freddie. Bush urged reform 17 times. Still the media have repeated Democratic talking points about this being a "Republican" disaster. A few Republicans are complicit, but Fannie and Freddie were created by Democrats, regulated by Democrats, largely run by Democrats and protected by Democrats. That's why taxpayers were asked for $700 billion.
Norma Cappelletti lives in Pinehurst.
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