“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Friday, October 03, 2008

Fannie Mae, Freddie Mac, Democrats and the Housing Debacle

The RNC sent me this link.

Dominic Lawson: Democrat fingerprints are all over the financial crisis
The least well off are going to face the most stringent terms for mortgages
Friday, 3 October 2008

Of all the characteristics of a successful politician, none is more essential than bare-faced cheek. Never has this been more evident than in the past fortnight, as senior Democrat members of the US legislature have sought to lay all the blame for the country's financial crisis on the executive arm of Government and Wall Street.

Neither of these two institutions is blameless – far from it. Yet when I see such senior Democrats as Barney Frank, Chairman of the House Financial Services Committee, and Christopher Dodd, Chairman of the Senate's Banking Committee, play the part of avenging angels – well, I can only stand in silent awe at the sheer tight-bottomed nerve of it. These are men with sphincters of steel.

What is the proximate cause of the collapse of confidence in the world's banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush – and other Republicans – to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.

In September 2003 the Bush administration launched a measure to bring Fannie Mae and Freddie Mac under stricter regulatory control, after a report by outside investigators established that they were not adequately hedging against risks and that Fannie Mae in particular had scandalously mis-stated its accounts. In 2006, it was revealed that Fannie Mae had overstated its earnings – to which its senior executives' bonuses were linked – by a stunning $9.3billion. Between 1998 and 2003, Fannie Mae's executive chairman, Franklin Raines, picked up over $90m in bonuses and stock options.

Yet Barney Frank and his chums blocked all Bush's attempts to put a rein on Raines. During the House Financial Services Committee hearing following Bush's initiative, Frank declared: "The more people exaggerate a threat of safety and soundness [at Freddie Mac and Fannie Mae], the more people conjure up the possibility of serious financial losses to the Treasury which I do not see. I think we see entities that are fundamentally sound financially." His colleague on the committee, the California Democrat Maxine Walters, said: "There were nearly a dozen hearings where we were trying to fix something that wasn't broke. Mr Chairman, we do not have a crisis at Freddie Mac and particularly at Fannie Mae under the outstanding leadership of Mr Franklin Raines."

When Mr Raines himself was challenged by the Republican Christopher Shays, to the effect that his ratio of capital to assets (that is, mortgages) of 3 per cent was dangerously low, the Fannie Mae boss retorted that "our assets are so riskless, we could have a capital ratio of under 2 per cent".

Maxine Walters' complaint about previous attempts to bring the great state-sponsored housing finance bodies under stricter control was partly a reference to Bill Clinton's efforts. Last week the former President acknowledged that "responsibility" for the absence of proper regulation rested "with Democrats who were resisting any efforts of Republicans in Congress, and earlier when I was President and tried to impose tighter standards on Fannie Mae and Freddie Mac". Then, as now, members of his own party saw all such initiatives as unwonted attacks on the chances for low-earners, and particularly African-Americans, to own their own homes.

From its inception in 1938 Fannie Mae (and later Freddie Mac) was designed to make housing finance available to "ordinary Americans". This was a noble aim. In the 1970s another Democrat President, Jimmy Carter, introduced legislation which demanded that such bodies enhance their lending to minorities. Again, this was based on a noble idea: to stamp out racism in the mortgage market. Thus by 1998 you had the Federal Reserve Bank of Boston producing a document entitled "Closing the Gap: a Guide to Equal Opportunities Lending", which instructed banks that an applicant's "lack of credit history should not be seen as a negative factor" in obtaining a mortgage. As Stephen Malanga of the Manhatta *Institute notes: "Of course the new federal standards couldn't just apply to minorities. If they could pay back loans under these terms, then so could the majority of loan applicants. Quickly, these became the new standards in the industry. As the housing market boomed, banks embraced these new standards with a vengeance. Between 2004 and 2007, Fannie Mae and Freddie Mac became the biggest purchasers of subprime mortgages from all kinds of applicants, white and minority, and most of these loans were based on lending standards promoted by the Government."

One of the few journalists to see where this would lead was Jeff Jacoby, of the Boston Globe. Last week he reminded his readers what he had written in 1995: "Our banks are knowingly approving risky loans to get the feds and the activists off their backs... When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians and regulators plans to take the credit?". Jacoby adds now: "Barney Frank doesn't. But his fingerprints are all over this fiasco."

It's true that the improvident lending was not initiated by Fannie and Freddie: their role in this was to buy these loans and sell them on – but then the music stopped. Cynical students of the American political system will note that the biggest recipient of campaign contributions from the munificent duo of Fannie and Freddie over the past 20 years was one Christopher Dodd, Democrat Chairman of the Senate's Banking Committee.

Rather surprisingly, given that he has only been in the Senate for four of those years, the second biggest beneficiary was Barack Obama. In August the Washington Post reported that Obama's presidential campaign team had sought the advice of Franklin Raines "on mortgage and housing policy matters". Perhaps Mr Obama's team just wanted to know where all the bodies are buried – there are rather a lot of them.

The saddest outcome of all this within America – apart from the crippling cost to the nation's taxpayers – is that the very people the Democrats had intended to help will be the biggest victims: for many years to come banks will demand the most stringent terms for mortgages to the least well off.

In the meantime, let us praise Congressman Artur Davis of Alabama, who confessed this week: "Like a lot of my Democrat colleagues I was too slow to appreciate the recklessness of Fannie and Freddie when in retrospect I should have heeded the concerns raised. I wish my Democrat colleagues would admit that we were wrong." I fear Congressman Davis will not go far with this attitude – but at least he will be able to look at himself in the mirror.


  1. California's broke.


    Paradise of entitlements and libertinism. Paradise of sanctuary cities.

    Needs a loan.

    Unca Sam isn't flush.

    Answer: sell San Francisco to the Chinese.

    Bill O'Reilly

  2. 2164th said...
    "This is the information you need to vote in Pennsylvania.
    You do not have to show ID, but declare it.
    There are students wandering the streets, at bus and train stations, and on every campus with clip boards filling them out for people and then getting them to fill an absentee ballot.
    Most of the colleges have many out of state and foreign students.
    The absentee ballot law is clearly being abused. the fraud is blatant.
    They ask for no ID. You are not required to give a full SSN, just your last four."

    The Die for our inevitable destruction was cast when it became apparent to all after Ashcroft that W's Admin would never again prosecute ANY transgressions, except for friends here and there like Libby and Lay.
    That he would pick and choose which laws he would choose to enforce based on personal whim or belief.
    That no legislation was too shoddy or unconstitutional or expenditure too extreme for him to stoop to vetoing it.
    Much worse than worthless.

  3. A guy from California called Hewitt and said he was voting in Ohio.

    Hell, Barack may be flying planeloads of them back there as we write.

    My supposedly evil wishes for Flight 93 might well have been all that could have saved us from this fate.

  4. I was going to vote in Ohio, but legally. Didn't make it back there. 30 day residency, which is too little. Ought to be six months, maybe a year.

    My wife is casting her vote there, legally, where she is registered.

  5. The question arises as to how long one feels a sense of contract with the government.

  6. I swear I think something has rotted Barney Franks teeth.

  7. The other night I posted this as a comment that trish made:

    2164th said...

    On this one I have to come down on the side of Trish. Objectively, how much more of a political and leadership failure could their be than that of the past eight years?

    How do you measure that? Turn back the clock and imagine reading this on a blog:


    dated, September 2000

    Here is my prediction for 2008:

    1. The US will have a $10 trillion deficit.

    2. We will have 20 million illegal immigrants and hardly a federal response.

    3. Bin-Laden will kill three thousand in NYC, take down the WTC, successfully attack the Pentagon and will never be caught.

    4. We will be in two land wars in Asia and the Middle East. We will spend $700B bringing Ddemocracy to Iraq.

    5. The US will be importing $700B per year for imported oil.

    6. Venezuela will be conducting war games in American waters with Russian war ships.

    7. Venezuela will enter into $4 Billion in weapons deals with Russia.

    8. We will have a $200 billion trade deficit with China.

    9. China will steal US technology at will and have men doing space walks.

    10. North Korea will have a nuclear weapon.

    11. Iran will be building a nuclear weapon, and the Iranian president will be making deals with Nicaragua and Venezuela.

    12. Chinese influence will spread through Latin America and there will be Chinese industrial parks at both ends of the Panama Canal.

    13. All major Wall Street Investment Banks will collapse or be taken over or merged with other banks.

    14. A street hustler from Chicago, born in Kenya, to a black Muslim father and some radical American hippy, and who sat in a black liberation church for twenty years, whose claim to fame was a community organizer would get the nomination to be POTUS because a Republican President demoralized his party and 70% of the American people.

    15. At the end of his term, this Republican president will have to go hat in hand to a Democratic House and Senate to ask for a $ 700 billion authority to recapitalize the American financial system.

    I could go to 100. Trust Trish, it is far far worse.

    Wed Oct 01, 12:15:00 AM EDT

  8. Any sensible voter registration procedure should require proof of citizenship, residency and appearing before the voter registration office.

  9. LaBob:
    La La Land is in worse shape than the State as a Hole.

    "ex" Gang member Tony Vilar has made Obama look like an amature with the amount of money he has collected from "Special Interests" around the country, and he damned sure isn't gonna let bankruptcy get in the way of paying them back.

    One project he has on the drawing board is 4 Billion Dollars worth of low income housing that he plans to give away to illegals.

    And, of course, he and some city council members gotta keep the protection money flowing to their favorite Gang Leaders.

    This land was your land,
    This land was my land...

  10. bobal said...

    "I swear I think something has rotted Barney Frank's teeth.
    The Wages of Sin.

  11. Good point Doug, why did all the Arab fuck-ups have to be on flight 93?

  12. Maybe if you posted that list at BC, Deuce, the resulting Nuclear Reaction would be loud enough to wake the country up!

  13. Just not enough Atta's to go around.

  14. I realize it is the political silly season but this whole argument that it is the 'affirmative action' of Fannie and Freddie that brought the whole system down is silly.

    Look at it this way. You go out and buy a house. It is valued at, say, 400k. You get a mortgage for 400k (assuming no down payment). You've then leveraged you asset (the house) 1:1 with your debt (mortgage).

    Now look at what happens at the lender end: The take that 400k loan they made and merge it with other loans and create a security which has a face value (400k loan + others) and a yield (interest paid on those loans - minus servicing fees). They take these things, now called assets, and use them as collateral for a loan leveraging up to, and beyond, 30:1. Note: the dumbass homeowner is only leverage 1:1 but to fool banks are leveraged way way more. Who gets the fault for the ensuing collapse when house prices, the underlying asset, declines? Pretty aburd to pin the whole blame on the enabler of that first loan but rather it should reside on the 30x multiplier.

  15. Needed top-notch Egyptian Brainpower, not run of the mill Arab Sandmonkey Mush.

  16. Bobal, are you saying homeless Americans are not entitled to vote?

  17. Both, Ash:

    Even Dumb old Doug was figuring years ago that the "wealth" of the Real Estate Bubble far exceeded the ability of the Government to Rescue.

    CDO's just made it that much worse.

  18. Naw, he thinks as long as aborted Fetuses are given a vote, all others are welcome, Ash.

  19. by the way, I came across some Flor de Cana 5 year old rum in my local liquor store and because of my pals recommendations here I bought it. Smooth and good though it hasn't helped my typing tonight.

  20. That makes some sense to me Ash, but if the loan hadn't been made in the first place to someone obviously unable to pay the problem wouldn't have cascaded.

    Check out California, home of all you must think just. The Austrian says they need help, and fast. Bill O'Reilly says, just sell San Francisco to the Chinese, it ought to bring about the amount needed. Throw in Berkeley and Santa Cruz too.

    As California goes, so goes the nation, they say.

  21. doug, you are right, these problems have been brewing for along time and even schlepps like you and I saw some of it long ago.

  22. I think I am banned form the BC. It would not post.

  23. yep, bobal, once the lender and the lendee no longer had a direct relationship trouble was bound to happen but, still, if all it was simply those dumbass indviduals the problem would be easily solved. The 30:1 shit ain't!

  24. Somebody better tell Tiger to take down any smears he might have posted.

    After this thread, he'll lose all credibility if he leaves them up!

  25. Habu has rehabilitated himself over there and has taken over.

  26. How can you establish residency if you're homeless? You might have just drifted into Lawrence County, Ohio, from Huntington, W. Virginia last night? Can vote the same day.
    And even after the 5 or 7 day period that's on now, with a 'provisional ballot' you can still vote, a vote that will never be checked. Then drift on over to Cleveland and vote there, too.

  27. and, bobal, it's not just houses, but car loans, CREDIT card loans, student loans, leveraged buyouts...that leveraged buyout thing is something I read about today - could be a nasty unwinding there.

  28. How good or bad is Captain Morgan's Ash?
    That's what the kid is rotting his liver with, when he indulges.

  29. I think I will put up a post of a pole dancer.

  30. Watch for busloads of homeless people getting shipped state to state if you want to establish voter fraud.

  31. ...or they might have drifted in from Lawrence County Kansas, my old stomping grounds, LaBob.

  32. What good would wasting your time establishing it be?

    This has long since become Outlaw Territory.

  33. It's all bad doug, if'n youze worried about the alcohol and its downside, otherwise it's just a matter of taste. I like my beers/ales a and my rum dark. Wine, well, it's expensive to gain an appreciation for the finer ones. I'd say it's much easier on the pocketbook to never get educated in the details of fine wines. Once you learn, though, there's no turning back.

  34. The banks were under political pressure to make the loans.

    Sounds like some good rum you have there. Give the car keys to the wife;)

    Which reminds me, we have a road here that ends in 'suicide rock'. Road goes over a bridge to a T where there's an absolute solid wall of rock, which is occasionally used for suicide, or by drunken drivers. Old 90 yr old did himself in the other night, engine of the car pushed back to the trunk. Still under investigation.

  35. They caught some Canadian political party doing just that - busing voters. It didn't go down well. Heck, you can go to jail for organizing that kind of stuff in addition to nuking your candidates campaign.

  36. Gentleman pick up your drinks and move them to the next post in the public saloon. we have some entertainment for you.

  37. Maybe we all ought to get drunk as skunks for a change, watch pole dancing.

  38. During the Olympics, the NY Times was posting pictures and articles about Chi-Com Poledancers.

    ...all for physical fitness in the land w/o sin, of course.

  39. You didn't rate Captain Morgan's Rum for me yet, Ash.

  40. I'm trying to remember Doug. I picked up a bottle of spiced dark rum a year ago and it's sitting unfinished on my shelf. I think the regular dark Captain Morgans was reasonable but I've generally preferred Gosling's black rum and I'm pretty partial to this Flor du Cana I just picked up. I'm a big fan of beer but I moved to rum and water and rum straight trying to ward off beer gut and the cost of Cognac (straight rum suffices). Yeah, Yeah I like my wine too, but, as the snobs say, 'wine ain't liquor, it's food'.

  41. I ain't never heard nobody say wine's food, not liker.

  42. It's those foodies bobal - hoidy toidy metrosexuals who luv their food and think drinking liquor is bad but wine, well that doesn't cout, it's like food. Ok, so I overstate it - I think I first overheard it as my wife was watching the Food Network.

  43. good rum is an excellent substitute for cognac.

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