Tom Wood's book "Meltdown" is great on this and the Federal Reserve and how the government caused this crisis
On Tue, Jun 9, 2009 at 12:33 AM, Herman R. Willett <[email protected] > wrote: > <http://www.nytimes.com/> > ------------------------------ > September 11, 2003 > New Agency Proposed to Oversee Freddie Mac and Fannie Mae By STEPHEN > LABATON > > The Bush administration today recommended the most significant regulatory > overhaul in the housing finance industry since the savings and loan crisis a > decade ago. > > Under the plan, disclosed at a Congressional hearing today, a new agency > would be created within the Treasury Department to assume supervision of > Fannie Mae and Freddie Mac, the government-sponsored companies that are the > two largest players in the mortgage lending industry. > > The new agency would have the authority, which now rests with Congress, to > set one of the two capital-reserve requirements for the companies. It would > exercise authority over any new lines of business. And it would determine > whether the two are adequately managing the risks of their ballooning > portfolios. > > The plan is an acknowledgment by the administration that oversight of > Fannie Mae and Freddie Mac -- which together have issued more than $1.5 > trillion in outstanding debt -- is broken. A report by outside investigators > in July concluded that Freddie Mac manipulated its accounting to mislead > investors, and critics have said Fannie Mae does not adequately hedge > against rising interest rates. > > ''There is a general recognition that the supervisory system for > housing-related government-sponsored enterprises neither has the tools, nor > the stature, to deal effectively with the current size, complexity and > importance of these enterprises,'' Treasury Secretary John W. Snow told the > House Financial Services Committee in an appearance with Housing Secretary > Mel Martinez, who also backed the plan. > > Mr. Snow said that Congress should eliminate the power of the president to > appoint directors to the companies, a sign that the administration is less > concerned about the perks of patronage than it is about the potential > political problems associated with any new difficulties arising at the > companies. > > The administration's proposal, which was endorsed in large part today by > Fannie Mae and Freddie Mac, would not repeal the significant government > subsidies granted to the two companies. And it does not alter the implicit > guarantee that Washington will bail the companies out if they run into > financial difficulty; that perception enables them to issue debt at > significantly lower rates than their competitors. Nor would it remove the > companies' exemptions from taxes and antifraud provisions of federal > securities laws. > > The proposal is the opening act in one of the biggest and most significant > lobbying battles of the Congressional session. > > After the hearing, Representative Michael G. Oxley, chairman of the > Financial Services Committee, and Senator Richard Shelby, chairman of the > Senate Banking Committee, announced their intention to draft legislation > based on the administration's proposal. Industry executives said Congress > could complete action on legislation before leaving for recess in the fall. > > ''The current regulator does not have the tools, or the mandate, to > adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We > have seen in recent months that mismanagement and questionable accounting > practices went largely unnoticed by the Office of Federal Housing Enterprise > Oversight,'' the independent agency that now regulates the companies. > > ''These irregularities, which have been going on for several years, should > have been detected earlier by the regulator,'' he added. > > The Office of Federal Housing Enterprise Oversight, which is part of the > Department of Housing and Urban Development, was created by Congress in 1992 > after the bailout of the savings and loan industry and concerns about > regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders > and repackage them as securities or hold them in their own portfolios. > > At the time, the companies and their allies beat back efforts for tougher > oversight by the Treasury Department, the Federal Deposit Insurance > Corporation or the Federal Reserve. Supporters of the companies said efforts > to regulate the lenders tightly under those agencies might diminish their > ability to finance loans for lower-income families. This year, however, the > chances of passing legislation to tighten the oversight are better than in > the past. > > Reflecting the changing political climate, both Fannie Mae and its leading > rivals applauded the administration's package. The support from Fannie Mae > came after a round of discussions between it and the administration and > assurances from the Treasury that it would not seek to change the company's > mission. > > After those assurances, Franklin D. Raines, Fannie Mae's chief executive, > endorsed the shift of regulatory oversight to the Treasury Department, as > well as other elements of the plan. > > ''We welcome the administration's approach outlined today,'' Mr. Raines > said. The company opposes some smaller elements of the package, like one > that eliminates the authority of the president to appoint 5 of the company's > 18 board members. > > Company executives said that the company preferred having the president > select some directors. The company is also likely to lobby against the > efforts that give regulators too much authority to approve its products. > > Freddie Mac, whose accounting is under investigation by the Securities and > Exchange Commission and a United States attorney in Virginia, issued a > statement calling the administration plan a ''responsible proposal.'' > > The stocks of Freddie Mac and Fannie Mae fell while the prices of their > bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to > $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The > price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its > yield fell to 4.726 percent from 4.835 percent on Tuesday. > > Fannie Mae, which was previously known as the Federal National Mortgage > Association, and Freddie Mac, which was the Federal Home Loan Mortgage > Corporation, have been criticized by rivals for exerting too much influence > over their regulators. > > ''The regulator has not only been outmanned, it has been outlobbied,'' said > Representative Richard H. Baker, the Louisiana Republican who has proposed > legislation similar to the administration proposal and who leads a > subcommittee that oversees the companies. ''Being underfunded does not > explain how a glowing report of Freddie's operations was released only hours > before the managerial upheaval that followed. This is not world-class > regulatory work.'' > > Significant details must still be worked out before Congress can approve a > bill. Among the groups denouncing the proposal today were the National > Association of Home Builders and Congressional Democrats who fear that > tighter regulation of the companies could sharply reduce their commitment to > financing low-income and affordable housing. > > *''These two entities -- Fannie Mae and Freddie Mac -- are not facing any > kind of financial crisis,'' said Representative Barney Frank of > Massachusetts, 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.''* > > Representative Melvin L. Watt, Democrat of North Carolina, agreed. > > ''I don't see much other than a shell game going on here, moving something > from one agency to another and in the process weakening the bargaining power > of poorer families and their ability to get affordable housing,'' Mr. Watt > said. > > Photos: Treasury Secretary John W. Snow, left, and Housing Secretary Mel > Martinez, appeared before the House Financial Services Committee yesterday. > (Photo by Doug Mills/The New York Times)(pg. C1); Franklin D. Raines, Fannie > Mae's chief executive, endorsed the proposed transfer of regulatory > oversight to the Treasury Department. (Photo by Associated Press)(pg. C6) > ------------------------------ > > *Senate Banking Committee *Chairman *Christopher Dodd *(D., Conn.) > defended his plan to create legislation that would expand the *Federal > Housing Administration *and insure up to $400 billion in refinanced > mortgages, during an interview taped for *C-SPAN’s Newsmakers *program. He > also blasted the White House and questioned *President Bush*’s leadership > for threatening to veto similar legislation in the House of Representatives. > [image: [Sen. Christopher Dodd]] Dodd > > *On potential costs and benefits of the Democrats’ plan:* > > “The actual exposure here, potential exposure, is very, very limited… > Remember this, for every 7,000 to 8,000 foreclosures that are filed every > day, there are 15,000 homes that live next door to that foreclosed property. > And what we’re getting here is a spiraling down effect…This is not only > designed to deal with the homeowner who could lose their home, its also the > properties adjacent in the neighborhood of that home as well to make sure > that they don’t end up losing value as many are today.” > > *On complaints that the Democrats’ plan would be a bailout:* > > “I’m not interested in bailing anyone out. I’m not interested in > sanctioning irresponsibility. But the fact is, if you end up with foreclosed > properties, there is a domino effect. That neighbor next door who says, you > know what, I got the kind of loan I could afford. Why didn’t my neighbor do > the same? I just remind that person next door - I understand your feelings, > but if your neighbor next door has the property foreclosed and the property > of their home begins to decline, then have you really gained, haven’t you > lost something as well?” > > *On his reaction to the White House veto threat:* > > “I get a kick out of this White House. This is a White House that was > willing to put $29 billion of American taxpayer [money] on the table to make > the deal sweet enough for J.P. Morgan Chase with Bear Stearns. That never > came for a vote up here at all, and they are relying on Bear Stearns > evaluation of their assets that they help to sell over the next few years. > So with all due respect to the administration, they’ve already put taxpayer > at great risk…Candidly, to find the administration saying we shouldn’t put > taxpayer money at risk here – taxpayer money is at risk every single day > with continuing foreclosures. With all due respect this morning to the > president, what was the point of that statement? Here, we are beginning a > process to deal with housing. And the president says I’m going to veto this > bill, even before we’ve had a chance to work on it. Why not say, ‘listen, I > want to see what you are going to do. We’d like to cooperate.’… At least > sound as though you are trying to work on this. This idea ‘I’m going to veto > this bill no matter what you do,’ that’s just infuriating to people who are > struggling every day to keep their families together. 280,000 people have > lost their jobs. Consumer confidence is at a 25-year low. The fiscal > condition of the country is a mess. The dollar sinks every day. Oil is $120 > a barrel, and the president is going to veto a bill where you are trying to > keep someone in their homes. Now what kind of leadership is that?” > > *On the Bush Administration’s efforts to administratively solve housing > market problems: * > > “It hasn’t worked. It’s been a failure at this point… I’m not suggesting > that the idea that Barney Frank and I are suggesting at this point is > necessarily going to be magical and work. I can’t tell you that. It’s a > voluntary program. I don’t know if it’s going to work or not. But you’ve got > to try something like this or you are going to have the problem get far > worse, and it’s going to cost people a lot more, and be far more damaging to > the economy.” > > *On his effort to get a bipartisan bill rather than a party-line vote:* > > “I can get a party line vote and get a bill out of committee. That’s not my > preference because I’ve been around long enough to know that that could be > the end of what you are trying to do. The Senate is very different from the > House…the rules of the senate are designed specifically to protect minority > interests, unlike the house where they are designed of course to protect > majority interests. So I’ve got to try to get some consensus here, and I’m > working very hard trying to do that. And I believe that Sen. Shelby, and > other members – the republicans of the committee – while they listen to the > White house- certainly I understand that, but they are going to make up > their own minds. They are going home too, back to their states, and they are > hearing from their constituents, from their businesses and others about how > much damage this problem is costing the economy.” > > *On how economic issues could play out politically:* > > “This problem is not confined to housing. It’s spreading to commercial > activities, municipal finance, student loans, and its growing deeper and > worse. The administration has got to get out of its seat and understand this > problem is not going to go away. And I believe my colleagues here, senators > – democrats and republicans, — want to be a part of a solution. Inaction is > not an option….I think being away from home for the last few weeks also > makes people forget maybe how serious this is. They are going to go home at > the end of this month. If we don’t have something on the table, again, I > think people are going to hear [about it] ….These senators are going to face > an onslaught in their states of economic devastation if we don’t do > something. So I’m confident by next week we might get some bipartisan > support.” > > *–Damian Paletta* > > ------------------------------ > Bush Administration Tried to Reform Freddie and Fannie Five Years Ago > Thursday, February 19, 2009 > > *(CNSNews.com)* – Why didn’t the Bush administration sound the alarm on > the unstable housing market that began to unravel on his watch? > > Fox News’s Bill O’Reilly asked former White House adviser Karl Rove that > question on Wednesday’s “O’Reilly Factor.” > > “You left the Bush administration 15 months before the president did,” > O’Reilly said to Rove. “While you were there at the end, was there any > inkling, did you have any idea that the underpinnings of the economy were > eroding so seriously?” > > Rove responded, “Well, there was concern about it, particularly in the > housing area, we were briefed as far back as 2001 about the problems with > Fannie and Freddie; in fact, we moved aggressively in 2004 to regulate > Fannie and Freddie, actually got a bill through the Senate Banking and > Finance Committee only to have it filibustered by [Sen.] Chris Dodd.” > > Rove said Fannie Mae and Freddie Mac “accelerated their imprudent behavior > after we attempted to regulate them. They bought almost as much mortgage > debt from 2005 through 2008” as they bought in their first 30 years of their > existence. > > A Google search brings up the following Sept. 11, 2003 *New York > Times*article<http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print>, > which shows the Bush administration was aware of potential lending problems > and did try to do something about it: > * * > *The Bush administration today recommended the most significant regulatory > overhaul in the housing finance industry since the savings and loan crisis a > decade ago. * > * * > *Under the plan, disclosed at a Congressional hearing today, a new agency > would be created within the Treasury Department to assume supervision of > Fannie Mae and Freddie Mac, the government-sponsored companies that are the > two largest players in the mortgage lending industry. * > * * > *The new agency would have the authority, which now rests with Congress, > to set one of the two capital-reserve requirements for the companies. It > would exercise authority over any new lines of business. And it would > determine whether the two are adequately managing the risks of their > ballooning portfolios. * > * * > *The plan is an acknowledgment by the administration that oversight of > Fannie Mae and Freddie Mac -- which together have issued more than $1.5 > trillion in outstanding debt -- is broken. A report by outside investigators > in July concluded that Freddie Mac manipulated its accounting to mislead > investors, and critics have said Fannie Mae does not adequately hedge > against rising interest rates.* > > Rove told O’Reilly on Thursday that Rep. Barney Frank (D-Mass.) was among > those in Congress who attacked the proposed reform of Fannie Mae and Freddie > Mac. > > “In fact, in 2003, when we sent our first members of the Cabinet up to talk > about this on Capitol Hill, Barney Frank had a hearing in which they > basically beat up everybody we sent up there in pretty vociferous language. > This is the famous hearing where one of the Democratic members literally > says that he is ‘pissed off’ that the administration is even raising this > issue,” Rove said. > > Rep. Gregory Meeks, a New York Democrat, said at that Sept. 25, 2003 House > Financial Services Committee hearing that he was “pissed off at OFHEO > (Office of Federal Housing Enterprise Oversight),” because of the agency’s > suggestion that Fannie Mae and Freddie Mac should be regulated more closely. > A number of other Democrats agreed there was no need for reform. > > Nevertheless, O’Reilly on Thursday said that President Bush could have done > a better job of getting the word out to the public: “I think that if the > president had made it a central issue, had sounded the alarm, called some of > us, gone on the “Factor” on radio and television – it might have been better > than working as they did, not behind the scenes, but under the radar.” > > The Bush administration was above the radar, Rove replied. “But at a time > when housing prices were going up and when we have two of the biggest, most > positively treated companies in America, particularly Fannie Mae...it was > hard to get people to focus on the underlying problem,” Rove replied. > > ------------------------------ > > ------------------------------ > > Herman > > "The tyrant will always find a pretext for his tyranny." > > "Blessed are the Meek: For they shall inherit the earth" > > And to make my Christian friends question my sanity, I can honestly say > that there is no such thing as a rapture that is going to take place. There > is never going to be this great blasting of humans into the sky. People have > misunderstood all the ancient writings from all religions that talk about > the cleansing of the earth." > > --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
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