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How the Democrats Created the Financial Crisis

aplusmnt

Well-known member
How the Democrats Created the Financial Crisis

Commentary by Kevin Hassett


Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.


Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.
 

aplusmnt

Well-known member
It is so simple to see who tried to fix a future problem and who let it esculate! I believe every Democrat voted against it and every republican voted to do something about it. It was a party line vote situation.

Which side was right Republicans and Democrats?

A mess that is called the biggest since the Depression and the Democrats hands are all over it! But somehow they want to try to blame Republicans and especially Bush.

Any informed person can see Clinton changed the laws, McCain tried to reel in the problem by consponsering the changes to Freddie and Fannie and the Democrats blocked it including Obama!

Pretty cut and dry if you ask me!


Ps. here is link to above story http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=aSKSoiNbnQY0
 

kolanuraven

Well-known member
Would you PLEASE seek treatment for your Clinton crush???? :roll: :roll:


This mess with the markets started about 20 yrs ago and it's been slowing rotting ever since.

I believe it was Reagan that began the first de-regulation and it's gotten worse ever since.

In fact, there are too many who are guilty to even make a blame list....the list would be shorter to name who IS NOT to blame.
 

TexasBred

Well-known member
kolanuraven said:
Would you PLEASE seek treatment for your Clinton crush???? :roll: :roll:


This mess with the markets started about 20 yrs ago and it's been slowing rotting ever since.

I believe it was Reagan that began the first de-regulation and it's gotten worse ever since.

In fact, there are too many who are guilty to even make a blame list....the list would be shorter to name who IS NOT to blame.

Kola that was a different de-regulation. Had nothing to do with this. Allowed S&Ls to offer checking accounts and set their own rates on CD's.

This stuff started when Clinton signed the law rescinding the Glass-Stegall Bill in 1999....Strutted like a peacock and took full credit for this wonderful freeing up of capital etc.....go read about it...don't take my word.
 

aplusmnt

Well-known member
kolanuraven said:
Would you PLEASE seek treatment for your Clinton crush???? :roll: :roll:


This mess with the markets started about 20 yrs ago and it's been slowing rotting ever since.

I believe it was Reagan that began the first de-regulation and it's gotten worse ever since.

In fact, there are too many who are guilty to even make a blame list....the list would be shorter to name who IS NOT to blame.

Generically you can say all are to blame, but specifically you can look at who signed the bills that allowed it to happen.

But the main point of this post is who tried to correct the problem? The Republicans realized a problem and tried to correct it back in 2005 but the Democrats blocked anything being done about it. Them are facts!

So you can pull all this can we not get along crap now, but the reality is 3 years ago some republicans realized the road we were heading down and the Democrats blocked them from doing anything about it.

Democrats will bankrupt this country as long as they can help the minorities and poor, basically they wish to expand their base and to do so they have to bring down everyone else to their level.
 

TSR

Well-known member
aplusmnt said:
How the Democrats Created the Financial Crisis

Commentary by Kevin Hassett


Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.


Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.
"Republicans tied in knots by the tight Dem. opposition couldn't even get the Senate to vote on the matter???" :???: :???: At a time when in the years 2005-2007 the Republicans held a majority in the Senate 55 to 44?? Something wrong here.
Of the $125,000 received by Obama only $6000 was from PAC's the rest was from employees. To really analyze one would need to know how much from each employee and who they were. I mean he has raised millions via the internet from $100 donations. Is something wrong with that too?
 

Sandhusker

Well-known member
We've already seen that posted, yet we still keep hearing that it's the Republican's fault for this whole mess. Vote for Obama because the Republicans and their deregulation are what got us where we are. Well, that's crap. Was Gramm a ramrod in the start of the deal? Yes, but he was no deeper than was William Jefferson Perjury Clinton. Both parties have to take equal responsibility for Glass-Steagal.

The differences are when a group of Republicans, backed up by the Fed. Chairman, tried to make changes when they saw that a wreck was coming, but got headed off. It can't be denied that McCain was one of those Senators, it's documented, he's a cosponsor of the bill. Yet, the liberals ignore those facts and continue to chirp to vote for McCain's opponent.

I'm confused here, who tried to stop this before the implosion and who didn't say a damn word? Who should be getting election points for this?
 

backhoeboogie

Well-known member
I'm going to say this again.

A Democrat once said:

"Ask not what your country can do for you. Ask what you can do for your country."

If the Democrats still had that mindset, I'd be hanging on their side of the fence.
 

TSR

Well-known member
Sandhusker said:
We've already seen that posted, yet we still keep hearing that it's the Republican's fault for this whole mess. Vote for Obama because the Republicans and their deregulation are what got us where we are. Well, that's crap. Was Gramm a ramrod in the start of the deal? Yes, but he was no deeper than was William Jefferson Perjury Clinton. Both parties have to take equal responsibility for Glass-Steagal.

The differences are when a group of Republicans, backed up by the Fed. Chairman, tried to make changes when they saw that a wreck was coming, but got headed off. It can't be denied that McCain was one of those Senators, it's documented, he's a cosponsor of the bill. Yet, the liberals ignore those facts and continue to chirp to vote for McCain's opponent.

I'm confused here, who tried to stop this before the implosion and who didn't say a damn word? Who should be getting election points for this?
The part I have trouble with is that the Rep's had the majority 55-44 and those Rep's on the committee couldn't get a vote from their fellow Republicans?? And you're right we've probably hashed this enough,each is going to believe what he wants.
 

Texan

Well-known member
TSR said:
The part I have trouble with is that the Rep's had the majority 55-44 and those Rep's on the committee couldn't get a vote from their fellow Republicans??
Refer to Jody's post - you effectively need sixty votes in the Senate to do anything.
 

Sandhusker

Well-known member
Texan said:
TSR said:
The part I have trouble with is that the Rep's had the majority 55-44 and those Rep's on the committee couldn't get a vote from their fellow Republicans??
Refer to Jody's post - you effectively need sixty votes in the Senate to do anything.

The bill didn't make it to the Senate to get a vote, so it doesn't matter how many Republicans there were.
 

backhoeboogie

Well-known member
That was in May of 2006. If it would have passed, we wouldn't be here.

If Clinton hadn't relaxed provisions, we wouldn't be here either. "Change?"

There have been other opportunities. The Dems foiled them every time. You can pull it up and see for yourself. Or you can listen to the same old rhetoric.

Welfare recipients aren't going to be able to pay their $2K per person price tag to fix this.
 

Texan

Well-known member
Sandhusker said:
Texan said:
TSR said:
The part I have trouble with is that the Rep's had the majority 55-44 and those Rep's on the committee couldn't get a vote from their fellow Republicans??
Refer to Jody's post - you effectively need sixty votes in the Senate to do anything.

The bill didn't make it to the Senate to get a vote, so it doesn't matter how many Republicans there were.

Yep, unless the Republicans had sixty votes, it didn't matter who had the simple majority. It passed the committee, but never came up for a floor vote because none of the Dems supported it in committee. That just showed that they would be partisan on the floor vote, too. There wasn't any point in bringing it for a vote of the full Senate since the Dems had it blocked.
 

aplusmnt

Well-known member
Crazy how the Libs can not own something! This is the most simple political problem to see where the blame lies.

Republicans warned of the problem and tried to offer legislation to stop it from happening.

Democrats insisted on poor people being able to buy homes, then when it was obvious it was getting out of hand they blocked any legislation that would have reeled it back in.

If the average American new how much to blame for something that the handwriting was on the wall, not only would McCain be President but many, many democrats would lose their Congressional elections!

This is one of the greatest errors the Democrats ever had, and the main stream media is being so quiet about it!
 

backhoeboogie

Well-known member
aplusmnt said:
Democrats insisted on poor people being able to buy homes,

I don't have a problem with affordable housing for the poor. What I have a problem with is the certain economical failure of a poor person. The democrats insisted on them getting loans for houses that were more expensive than they could afford.

Basic economics involve dedicating a percentage of your salary for housing. It cannot be 50% and upwards. People need to be limited to their means. These are not business loans. These are loans you studied in basic family economics.
 

aplusmnt

Well-known member
I wonder where these people got all these loans. Every time I have applied for a loan in past few years I have had to jump through hoops with all kinds of documentation that was a pain being self employed. They wanted business plans, projections etc.

It was easier to get a loan when I was 20 and could call the bank and get an ok to write a check and come in within the week to sign the papers. 20 years ago I signed to buy a rent house and then went and asked the banker.

I guess the upside is my local bank will probably not fail because the past 8 years or so they were very strict on all the paper work and qualifications.
 

TexasBred

Well-known member
aplusmnt said:
I wonder where these people got all these loans. Every time I have applied for a loan in past few years I have had to jump through hoops with all kinds of documentation that was a pain being self employed. They wanted business plans, projections etc.

It was easier to get a loan when I was 20 and could call the bank and get an ok to write a check and come in within the week to sign the papers. 20 years ago I signed to buy a rent house and then went and asked the banker.

I guess the upside is my local bank will probably not fail because the past 8 years or so they were very strict on all the paper work and qualifications.

Ap...your bank sounds like it's run profesionally and ethically... be glad they pre-qualified you before lending. It's not that they didn't trust you. They just wanted documentation. You and I have probably never been into one of those places that was making subprime, negative amortization loans and lending $2 for every $1 of collateral. ONly those looking for something free or unbelievable would even listen to their commericals.
 

TSR

Well-known member
jodywy said:
At a time when in the years 2005-2007 the Republicans held a majority in the Senate 55 to 44??
takes 60 votes in the Senate to break a Filibuster.

Was there a filibuster??
Also, You guys are forgetting about the Financial Services Modernization Act of 1999 passed by a Republican Congress and signed by Clinton. It was the 1999 Gramm-Leach-Biley Act that repealed the 1933 Glass Steagall Act which had erected walls between bamking, insurance, and investment management so that one could not spill over into the other. Its primary author-Phil Gramm. All the Rep's voted for it and all the Dem.'s against it except for one. We have already discussed this once. You see, it depends on who/what you believe as to what caused this crisis. But it appears as if the American public believes the ones in power for the last 7 and a half years bear the brunt of the blame and I agree after looking at how ceo pay has increased compared to working people.
 
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