Strengthening Constitutional Self-Government

No Left Turns

. . . Hits the Fan

Kevin Hassett explains the central role of Fannie Mae and Freddie Mac in causing the current financial meltdown, and especially the way Democrats blocked attempts starting four years ago for stricter regulation of Fannie and Freddie. Why?

About ten years ago I was invited to make a presentation to the board of directors of Fannie Mae, and I was startled to notice that the board was composed almost wholly of Democratic party luminaries such as then chairman Jim Johnston (who struck me as a complete dolt), Franklin Raines, Jamie Gorelick (she of FISA "firewall" fame). This was crony capitalism at its worst--a sinecure for Clintonistas to get rich without much heavy lifting.

It is pathetic to see McCain jump on the general "Wall Street corruption" bandwagon rather than use the opportunity to slam the Democrats for their economic ignorance and complicity in the disaster.

On the bright side, the cost of this bailout likely puts the Obama administration and the Democratic Congress out of business in terms of major new spending programs. You’d almost think it was a bankers’ conspiracy, like the Reagan deficits of the 1980s. Any takers?

UPDATE: I walked down the hall to give an "attaboy" to Kevin (since he’s on my floor here at Neocon World HQ at 1150 17th Street), and he tells me that since Drudge linked to his article his phone and e-mail are going crazy. mostly with rants and death threats from liberals. I watched his screen as e-mails rolled in about three a minute. Looks like he hit a raw nerve.

UPDATE #2: The Village Voice (!!!) argues that the seeds of the mortgage meltdown should be laid at the feet of Andrew Cuomo, HUD Secretary for Bill Clinton. Isn’t Cuomo the person McCain wants to appoint to the SEC to fix this mess? Now I’m really baffled.

Discussions - 31 Comments

Until a major politician or party asserts that bloated spending is bloated spending is bloated spending, the taxpayers' money will be wasted, as interests from left to right -- from AIG to AFSCME to ADM to KDR -- enjoy inflated coffers.

Whatever the policy goals, big government creates and then rewards a privileged few. More required reading for politicians, voters: Andrew Jackson's Bank Veto Message of 1832:

"It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society--the farmers, mechanics, and laborers--who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing..."

Hassett leaves out important parts of the story. As far as I can tell, and according to news reports at the time, the Senate bill (S.190) would have had a difficult time passing because the Republican-controlled House had approved (on a broad, bipartisan vote) a competing bill (H.R. 1461). Bush expressed his opposition to the House bill - but he did like the Senate bill that McCain eventually co-sponsored - and the only person who seems to have wanted to work out a compromise was the sponsor of the House bill.

Plus, McCain appears to have co-sponsored it over a year after it was introduced, after it was clear (I assume) that there wasn't going to be a deal, since the bill had languished in committee for ten months at that point.

To confirm JQA's comments above....this morning on NPR Rep. Barney Frank (D-BloatedSpending/FMae&FMacDefensePAC) opined that the Congress can't ignore or postpone "~other major spending needs" while attending to the financial markets' meltdown.

Erratum: It should read "KBR," above.

Deficits do not matter to republicans, as Cheney once said. You hate government so much that you cheerlead a death-spiral of trillions in debt, so as to prevent it from doing anything more. You condemn McCain for not blaming the democrats more for causing the debt. That's change we can believe in!

seems to pretty much wreck everything she touches.

This meltdown is hardly a partisan issue. Greenspan tried to beat the business cycle during his tenure, but we NEED a correction, and it needs to hurt. Instead, we reward royal screwups with trillions of dollars, and charge it to the middle class. Get prepared for your serious inflation tax, folks. We're going to wreck the international economy, it is only a matter of time. The day of reckoning cannot forever be postponed, and you can't simply print more money indefinitely.

I like this suggestion as to handle the two FMs.

Maybe Cuomo will have learned from his mistakes, and therefore be an ideal candidate on the SEC to clean up the mess.

This non-partisan protection (discounting update # 1) reminds of this from our local paper.

It is pathetic to see McCain jump on the general "Wall Street corruption" bandwagon rather than use the opportunity to slam the Democrats for their economic ignorance and complicity in the disaster.

Pathetic, but also par for the course. Has McCain ever slammed Democrats with the same gusto as he has Republicans?

Nice to see "ren" offering it's weird off-topic rants. But that's all it was programmed to do.

This meltdown is hardly a partisan issue.

It is a partisan issue. The Democrats caused it, and are now eagerly trying to shift the blame elsewhere.

The Democrats caused it? We've had nothing but cronyism and incompetence from the White House for the last eight years, and last time I checked, G.W. Bush was the "decider;" the people trading on ephemeral money (derivatives) are overwhelmingly Republican. The fault does not simply lie with the regulators (although, let's face it, they were probably never sufficiently competent to unwind the obfuscations of the books put in place by Wall Streeters). And Bush is digging the grave of Republicans by insisting that executive pay shouldn't be limited when the taxpayers have been summoned to bail out the fat-cats. I have no sympathy for the arrogant and greedy bastards that caused this (though to be fair they are only mirror representations of the average citizen writ large). My share of the bail out is $40,000! but surely McCain will continue to promise tax cuts while inflation skyrockets. Privatize the wealth, socialize the debt--yup, those are the Republicrats for you anyway you slice it.

The Democrats caused it?

Yes. Did you bother to read the story before commenting?

We've had nothing but cronyism and incompetence from the White House for the last eight years

That may be, but the cronyism and incompetence that brought down the banks was Democratic cronyism and incompetence, and it occurred in places like Wall Street and Congress, not the White House.


last time I checked, G.W. Bush was the "decider;"

Last time I checked, he does not decide to lend money to people who are bad credit risks. That would be people like Jim Johnson.

the people trading on ephemeral money (derivatives) are overwhelmingly Republican.

No, they are overwhelmingly Democrats.


The fault does not simply lie with the regulators

True, it also lies with the Democrats who lobbied Congress to look the other way.


obfuscations of the books put in place by Wall Streeters

My, what a harsh thing to say about your fellow lefties.

It's also a little odd to blame Fannie and Freddie for the $30 trillion + secondary market in credit default swaps. Does anyone without partisan blinders on really think that if the issue were just that too many poor people bought houses, that would occasion this kind of a massive disruption all on its own? It's just not plausible.

I have no sympathy for the arrogant and greedy bastards that caused this

You mean, like Angelo Mozilo? Go ahead, look the name up.

Does anyone without partisan blinders on really think that if the issue were just that too many poor people bought houses, that would occasion this kind of a massive disruption all on its own? It's just not plausible.

By all means, use your vast store of knowledge on financial matters to explain why it is not plausible.

Let's assume that Freddy and Fannie are really a Rethuglican attempt at distraction, which seems to be the standard lefty talking point. If that's the case, what really happened?


(I notice that this line of argument implicitly accepts the fact that Freddie and Fannie are in fact the Democrats fault, and tries to change the subject.)

I'm hardly a leftist, John. My point is that it's naive and stupid to blame the Democratic party--as if there's any substantive difference between them and the Republicans--for financial meltdown. Have you even considered the larger picture? Have you paused to consider the Federal Reserve's utopian philosophy of untrammeled growth and artificial manipulation of markets, their printing money to promote shortsighted liquidity, and tweaking interest rates to encourage more people to buy mortgages they can't afford? Pray tell, doesn't the Fed share some responsibility in this debacle? Do you worry at all that the folks that run the Treasury used to run Goldman Sachs, and do everything in their power to buoy their buddies, before they head back to Wall Street? The free market can't work when it's not free, and all we keep doing is talking about ways to stave off the inevitable, and making it a political issue, when it's an Establishment issue. We have a Republic if we can keep it, but we're proving that we can't, and blaming Democrats for a vote in Congress is just hackery.

the people trading on ephemeral money (derivatives) are overwhelmingly Republican.

Then why do they give money mostly to Democrats?

I'm hardly a leftist

Great. Then you won't object if I correct your silly leftist talking points about how Wall Street is made up of Republicans. I can see you've never lived in New York.

My point is that it's naive and stupid to blame the Democratic party--

That is not a "point", it's an argument which you are making, and for which you fail to offer the slightest support. I think it's naive and stupid to let them off the hook in your frantic eagerness to blame the GOP.

Do you worry at all that the folks that run the Treasury used to run Goldman Sachs

Sure. Because Sachs is the breeding ground for Democrats. NJ governor Corzine is a former Sachs CEO.

blaming Democrats for a vote in Congress is just hackery.

Please explain to me how holding politicians responsible for their actions (or inactions) is "hackery". I really want to hear you lay that out for me.


Have you paused to consider the Federal Reserve's utopian etc etc etc

As I'm sure you know, the Fed is an independent institution. There's an argument to be made that it should not be, or that it should not exist. But none of that has much bearing on the current problems.

Bankers don't give to political candidates merely because they support them; they give to buy influence, of which they may need slightly more if the guy in charge is Democrat. The bank presidents I know give to Democrats and Republicans alike.

You haven't bothered to answer any of my charges, the greatest of which is that the parties aren't very economically dissimilar, so it doesn't matter if the Fed is "independent." If you don't see that the current crisis is of a piece with Cheney's deficit spending, and the all-out battle to prevent necessary market corrections, and let people feel the error of their ways, from Main Street to Wall Street, perhaps you should take some economics classes. It sure as hell has bearing on current problems.

Come together my American brothers, we all vote for council on foreign relations candidates anyhow. Who, by the way, are largely funded by the largest banking dynasty in this country. The wonderful CRF has created a crisis and the solution all the while consolidating power and control. Bravo.

No. I think we decided that home ownership was a social good. Then we did all that we could, politically and economically, to facilitate home ownership for as many people as possible. The assumptions were various; that home ownership made for a more responsible population, that giving more people a stake in property would stabilize them politically, and for some, that pursuit of property was a basic American right - the American Dream - and that John Locke really had something in the right to property.

I think conservatives bought into this idea as a way of getting people away from the lure of welfare. Liberals saw it as a matter of equalizing, leveling, property. Those who did not see this as realistic because of economics and human nature was - just wrong. Now, they might be said to be proved just right, but we will all be much happier focusing on evil bankers, who were actually quite happy with the volume of business.

No one likes to trash the American Dream. To do so was, is, and will be a disaster, politically. The free market can't work when it's not free, but when it is free, people get hurt and we can't have that, not when those people are voters.

Bankers don't give to political candidates merely because they support them; they give to buy influence, of which they may need slightly more if the guy in charge is Democrat.

The guy in charge is not a Democrat.

If you don't see that the current crisis is of a piece with Cheney's deficit spending

What, Cheney has taken out a home equity loan?

Deficit spending, and all spending, is a matter for Congress. I'd think that a right-wing Constitutional expert like you would be aware of that basic fact.

The VP has absolutely nothing to do with government spending, outside the fevered imaginations of the moonbat left. Ironically, you go on to say "perhaps you should take some economics classes"!


The bank presidents I know give to Democrats and Republicans alike.


(1)You don't know any bank presidents. (2) The data is what the data is, regardless of whatever anecdotes you want to make up. Get off you ass and go over to Open Secrets yourself. Take a good look at who gives what to who.

You haven't bothered to answer any of my charges, the greatest of which is that the parties aren't very economically dissimilar

Not only can you not read what I write, you can't read what you write either. Your "charge" was that "the Federal Reserve's utopian philosophy of untrammeled growth and artificial manipulation of markets, their printing money to promote shortsighted liquidity, and tweaking interest rates to encourage more people to buy mortgages they can't afford" is the root of the problem. Remember?

I think conservatives bought into this idea as a way of getting people away from the lure of welfare. Liberals saw it as a matter of equalizing, leveling, property.

Kate: that's an interesting insight. I don't think that the problem was in believing that homeownership was a good thing - that's been a policy of the government for a long time. That's why, for example, I can deduct the cost of my mortgage from my income taxes.

The problem was overleveraging, fueled by obscure and unregulated financial instruments. Privatizing the GSEs (as Republicans wanted to do in the early part of this decade) would not have made it better, since private institutions created the bulk of the overleveraging in the first place.

The problem was overleveraging ... since private institutions created the bulk of the overleveraging in the first place.

What exactly do you mean by "overleveraging"? I suspect you mean " people should not have been lent so much money"". No doubt that's true, but you have yet to tie that into any political cause.

Perhaps the true "root" of the problem is...

Consumers who entered into contracts (loan obligations,) they should not have made.

If the consumer had merely "kept his word," made "good" on the debts he issued, we'd not have this problem, now would we?

Americans have, for far too many years, been hell bent to spend more than they earn. The "bill" for that behavior is now due and payable as well.

Brett, You are right, this was not a new attitude towards home ownership, just a logical next step in the promotion of it. At least, it is logical if you accept the idea that government has a place in home financing for positive social purposes.

As to leveraging, it is much easier to buy a home if you do not have to save for years to acquire a sizable down payment on your home. My children and their friends were buying houses with very little down payment. In some cases, through a local program, with NO money down on the house. The county and community provided the down payment. Making loans so easy to obtain enables just about anyone to own a home.

Keeping the home is another matter.

# 27, Grumpier, yes, but who is supposed to keep people from entering into loan obligations they ought not make? If no one is going to have to discriminate between a good risk and a good risk, because even a poor risk is backed by some government entity, then the market for loans is wide open and vastly distorted. As far as I can tell, regulations were in place to prevent various kinds of discrimination by loan officers and bankers. This was a political decision, subversive of sound business practice and basic economic principles and we are all going to pay for it. Well, those of us who pay taxes will have to pay for it.

#28, Kate, I do not disagree with your observations. I believe in time those who care to invest the energy with an open mind will come to understand that FNM and FRE were generally acting in a fashion that followed the lead and direction of the federal government. The "push" to make questionable loans was certainly "on," and has been on for years and years.


Let's not forget the birth of either of these institutions, government sponsored entities designed to "help" Americans go deeper into debt that might not be reasonable - to help folks "afford" that which was otherwise out of reach. A true case of "I'm from the government, and I'm here to help!"


What concerns me most about all this is that somewhere along the line we've decided that the government must protect us from ourselves! Where is the idea of "personal responsbility" for one's actions? If the precepts of contracts are thrown out with the bath water, then how can anything in our economy function?


There are still hundreds, perhaps thousands, of folks who contractually obligated themselves, and who have been so unreliable as to have failed in their obligation. They should bear this burden, not those of us who make that mortgage payment month end and month out, those of us who saved for years for the downpayment.


And, I believe research would show that a substantial number of these folks, if not the majority of these folks have simply opted to quit paying their mortgages because their property values dropped. In most cases, the failures on the mortgages were not job loss related - people of low moral character simply decided they weren't going to pay their bills - after all, they're the "victims" of these lending policies!


I don't need the government to protect me from myself, from my own actions - no, I need to be protected FROM the actions of my government!


In short, Kate, we're viewing those who really failed in their obligations as the "victims" here. As if someone held a gun to their head and made them borrow more money than they could afford to repay or was fiscally responsible.


Perhaps until our citizenry learns personal fiscal responsibility our nation as an entity will not be fiscally responsbile.

Kate:

My children and their friends were buying houses with very little down payment. In some cases, through a local program, with NO money down on the house. The county and community provided the down payment.

An honest question: how many of those people have defaulted?

Brett, not a one. One couple is looking at falling housing prices in the area and thinking about buying another home to live in while renting their current house. There are a bumper crop of houses for sale in the area. Some of those might be from defaults, I suppose, but I do not know.


Grumpier, no argument. No sir, no argument at all.

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