Sep 27 2008
Rep Franks Rejected Bush Admin Attempt in 2003 to regulate Fannie Mae and Freddie Mac
From NY Times - September 11, 2003
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.
…..
”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.
So, instead, they weakened EVERYONE’s buying power. I guess that’s what makes it fair. I’m sure glad they’re looking out for all of us.
Here are 17 other times the administration made warnings: www.glennbeck.com/content/articles/article/198/15484/
Last 5 posts by
- Bill's Business vs Hillary's Politics - November 15th, 2008
- "Sergeant, uh, uh, from the mother of, uh" - September 27th, 2008
- Racism and the Race - September 23rd, 2008
- Dude, Keep the Change - September 18th, 2008
- Exxon's 2Q revenue leads to record taxes paid, again - August 1st, 2008
Jason-
How could Frank regulate anything including his own deviant behavior?
Unfortunately, the Republicans were in the majority in congress during the time that the Fannie and Freddie reforms were suggested, so they are responsible for not passing them.
I got the joke. If Franks were frank about anything, he would admit the 2003 and the 2005 attempts by Bush Admin including Secretary Snow testifying in 2005 to convince Dems on banking committees that Fan and Fred were too big, had too much leverage and were poorly regulated. The Bush Admin tried to sweeten the deal for better regulation of these out of control entities by agreeing to give up the Admin right to appoint some Board Members, but the Dems did not want to give up their right to do so when they put a Dem in the White House. That record and related records are clear but non existent in the news or commentary except on only one of a dozen or so MSM outlets.
This bill was a shell game, not changing anything that famously changed none of the problems that got FM and FM into crisis — specifically, regulating the derivatives the entities sold based on their mortgage holdings. A stunt, in other words. Read on into the story you can see how the Administration was hardly anti-big government:
“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.”
Michael: Your simple bias is consistent with most media reports. While both Republicans and Democrats are complicit in different parts of this debacle, this bill, supported by most Republicans and opposed by almost all Democrats, was aimed directly at taking control away from congress (any congress) and it’s shell regulator OFEO, and putting it in Treasury (any Treasury) which along with the Federal Reserve and the Commerce Department had at that time expressed real unmistakable and now proven correct, accurate concern about Fannie and Freddie leveraging way beyond reasonableness, while it bought fog a mirror loans and put them in their highly rated securities, and mistated their financial results under Democratic CEOs.
While the implicit guarantee would probably have survived due to their current extraordinary size and long political history, the Republicans complicity and that of all states insurance banking commissioners, the only regulators for insurance companies, fell mainly to one active pursuit (legislation by Republican Phil Graham with a lot of Democratic support) and passive avoidance (insurance commissioners who allowed new non insurance products quietly) to help Wall Street compete with the F/F implicit guarantee by arranging the sale and trading of insurance products, all with attorney written disclosures using a lot of words except the word insurance, calling them instead, Collateralized Default Swaps (CDS which are an over the counter traded customized type of derivative) which were actually cheap insurance products which served as guarantees, cheap enough to compete with Fannie and Freddie and their cheap money due to their implicit guarantee no other competitors enjoyed. Banks have complained about unfair competition by Fannie and Freddie for decades.
Wall Street was cleaver and through “Regulatory Arbitrage” devised a way to compete with that implied guarantee for those two agencies, also called GSEs, Government Sponsored Enterprises (but shareholder owned), for a decade or so until the financing shell game crashed on all of it’s participants, imprudent borrowers as well as greedy executives competing for those outlandish executive bonuses, including the management of Fannie and Freddie, Lehman Brothers and other banks and Wall Street firms here as well as by overseas domiciled financial institutions playing on our turf with products they wanted.
The bill might well have stopped that real shell game. We will never know. Nothing else was even tried by any of the many other ostriches despite documented warnings from many sources.