Wall Street melt-downs?\u00a0 Banking industry bailouts? \u00a0Hedge fund hanky-panky?\u00a0 Multi-million dollar Wall Street bonuses?\u00a0 Collapse of the dollar?\u00a0 National debt default?\u00a0 Economic collapse?\u00a0 Who can possibly make sense of it all?\u00a0 How did it happen, and who\u2019s to blame?\u00a0 Did George W. Bush create the mess and leave it for Obama to clean up, or were Democrats to blame all along and Obama was just too incompetent to know what to do about it? \u00a0What is the truth of all this?<\/p>\n
Now that the Securities & Exchange Commission is finally pursuing wrongdoing at Fannie Mae and Freddie Mac, it\u2019s time the American people knew the root causes of our current economic difficulties.\u00a0 We all need to have a basic understanding of the mess\u2026 one that will allow us to explain it to our Democrat friends in terms that even they can understand.<\/p>\n
First, it must be said that the Community Reinvestment Act (CRA), a Carter administration initiative, was not a totally bad idea.\u00a0 It encouraged lenders to make loans to qualified borrowers who had previously been denied solely on the basis of the color of their skin. \u00a0\u00a0The CRA was intended to reduce or eliminate a practice known as \u201credlining<\/a>,\u201d in which realtors and lenders discriminated against potential buyers in low-income and depressed neighborhoods, approving home loans for lower-income whites but not for middle or upper-income blacks.<\/p>\n Throughout the Reagan and Bush (41) years, between 1981 and 1993, the CRA was enforced in a straightforward manner.\u00a0 Lenders were encouraged to abandon the \u201credlining\u201d practice and to meet the credit needs of all members of the community, consistent with sound lending practices.\u00a0 However, when Democrats regained control of the White House in 1993, in the person of Bill Clinton, Democrats began to act like Democrats.\u00a0 They decided that the CRA, if strategically enforced with a political end in mind, provided a unique opportunity to purchase the votes of those at the lower end of the economic ladder.<\/p>\n Under the Clinton administration, regulators paid particularly close attention to the lending practices of banks and savings & loan associations.\u00a0 In other words, were lenders meeting the credit needs of all<\/em> borrowers in their local communities, regardless of borrowers\u2019 ability to repay their loans?\u00a0 Accordingly, they began to use the results of those examinations to determine whether or not to approve mergers and acquisitions<\/a>, and whether or not to approve applications for new branch banks.\u00a0 <\/a>Lenders soon found that the CRA was more stick<\/em> than carrot<\/em>.<\/p>\n As a result, lenders abandoned traditional lending criteria and made mortgage loans to almost anyone who applied, regardless of their income level or credit worthiness.\u00a0 Under normal circumstances, no prudent lender would ever lend money to those with little or no ability to repay, but these were not normal circumstances.\u00a0 Two of the Democratic Party\u2019s favorite patronage cesspools\u2026 Fannie Mae and Freddie Mac\u2026 were standing ready to buy up any and all mortgages.\u00a0 And why should Fannie and Freddie worry about the quality of the mortgages they bought?\u00a0 They had no reason to worry because, as quasi-public institutions, they had the cash assets of the American taxpayer\u2026 the U.S. Treasury\u2026 at their disposal.<\/p>\n Here\u2019s how it worked.\u00a0 When a home buyer took out a home loan from a bank or a savings & loan association, the mortgage was then sold to what was known as a Government Sponsored Enterprise (GSE), i.e. Fannie Mae or Freddie Mac.\u00a0 Fannie and Freddie then bundled the loan with other sub-prime mortgages and sold the bundle to private investors\u2026 promising not only attractive returns, but a high degree of security as well.\u00a0 By year end 2010, Fannie and Freddie had acquired more than half of the $11 trillion mortgage loan market in the United States.<\/p>\n However, the sale of mortgages to private investors was not a totally arms-length proposition because, even though Fannie and Freddie had sold the bundled mortgages, they continued to have a financial interest in them.\u00a0 They guaranteed the securities for the investors, promising to continue making payments on the mortgages even if the homeowner stopped paying.\u00a0 In 2008, when the overheated real estate market collapsed and a great many homeowners stopped paying all at once, the cash reserves of Fannie and Freddie were soon depleted, forcing them to default on their guarantees and precipitating a major economic crisis.<\/p>\n One might ask, how could something like this happen directly under the noses of our political leaders without anyone taking notice?\u00a0 The fact is, shortly after taking office in 2001, the Bush administration did notice and took steps to reform Fannie Mae and Freddie Mac.\u00a0 What they apparently failed to understand was that Fannie and Freddie existed in a world of their own, a world in which Democrats who were either owed big favors, or who were being paid to keep their mouths shut for one reason or another were well taken care of.<\/p>\n Among these was Franklin Raines, former Clinton White House budget director, who served as chairman and chief executive officer of Fannie Mae.\u00a0 Raines took \u201cearly retirement\u201d from Fannie Mae on December 21, 2004 after the Office of Federal Housing Enterprise Oversight<\/a> (OFHEO) accused him of participating in widespread accounting irregularities, including the shifting of losses so that senior Fannie Mae executives could earn large bonuses.\u00a0 Some $90 million was paid to Raines based on overstated earnings\u2026 earnings initially reported at $9 billion but later found to be in the neighborhood of $6.3 billion.<\/p>\n Tim Howard, Chief Financial Officer under Raines, is a former Senior Economic Advisor to Barack Obama.\u00a0 When Howard was terminated at Fannie Mae he walked away with a \u201cgolden parachute\u201d reported to be worth approximately $20 million.<\/p>\n Jim Johnson, a former Lehman Brothers executive who headed Obama\u2019s vice presidential search committee, is also a former Fannie Mae CEO who was forced to resign.\u00a0 Johnson\u2019s 1998 Fannie Mae compensation was reported at between $6-7 million.\u00a0 In truth, it was $21 million.<\/p>\n And last, but not least, we have former Deputy Attorney General in the Clinton administration, Jamie Gorelick, the woman who erected the infamous \u201cGorelick Wall\u201d which prevented the CIA and the FBI from sharing intelligence that could have prevented the 9\/11 attacks on the World Trade Center and the Pentagon.\u00a0 After leaving the Justice Department she resurfaced as Vice Chairman of Fannie Mae from 1997 to 2003.\u00a0 And although she had no training or experience in finance, whatsoever, during the six years she worked at Fannie Mae she earned over $26 million.<\/p>\n While serving as Vice Chairman of Fannie Mae, Gorelick participated in the development of an accounting scheme which allowed Fannie\u2019s Mae\u2019s top executives \u2013 whose bonuses were tied to earnings-per-share \u2013 to meet the target for maximum bonus payouts.\u00a0 For example, in 1998 the target earnings for maximum bonus payout at Fannie Mae was $3.23 per share.\u00a0 Fannie Mae reported earnings of exactly $3.2309.\u00a0 (Don\u2019t you just hate it when that happens?)<\/p>\n So how was this arranged?\u00a0 Because of lower interest rates in 1998, Fannie Mae found itself facing an extraordinary expense estimated at $400 million.\u00a0 Johnson, Franklin, and Gorelick decided to recognize only $200 million of the $400 million expense, deferring the remainder to the next fiscal year.\u00a0 This fortuitous \u201ccoincidence\u201d resulted in maximum bonus payouts: $1.932 million to then-CEO Jim Johnson, $1.19 million to CEO-designate Franklin Raines, and $779,625 to accounting whiz Jamie Gorelick.<\/p>\n Democrats do have an uncanny way of taking care of their own.<\/p>\n In the 2 years and 11 months that Barack Obama has been in office, Democrats have waged an uninterrupted and unabashed attack on George W. Bush, insisting that he did nothing to forestall the Fannie and Freddie disasters that we now face.\u00a0 However, the facts are these: The Bush administration warned Congress of impending insolvency at Fannie Mae and Freddie Mac in April 2001, May 2002, November 2003, February 2004, August 2007, December 2007, March 2008, April 2008, May 2008, and June 2008.\u00a0 In addition, officials of the Bush administration testified before Congress, calling for reform of Fannie and Freddie, in September 2003, June 2004, April 2005, and February 2008.<\/p>\n In each instance, their warnings were either ignored or were subjected to strong push-back from leading Democrats, who charged Republicans with opposing home ownership by the poor and minorities.\u00a0 In each instance, the principal push-back came from Senator Chris Dodd (D-CT), Chairman of the Securities and Investment Subcommittee of the Senate Banking Committee, the recipient of major \u201csweetheart\u201d loans from now-defunct Countrywide Financial Corporation; and Rep. Barney Frank (D-MA), Ranking Member of the Housing and Community Opportunity Subcommittee of the House Financial Services Committee.\u00a0 Not surprisingly, one of Frank\u2019s homosexual partners, Herb Moses, was a high-ranking official of Fannie Mae at a time when he and Frank played house together on Capitol Hill.<\/p>\n In short, the financial crisis that our country now faces is exclusively the product of Democratic political excess.\u00a0 It is further proof that, when government interferes in the private economy in order to guarantee what liberals and Democrats see as \u201cfairness\u201d and \u201cequal outcomes,\u201d the unintended consequences are always predictable, but never pretty.\u00a0 What would be pretty would be to see Christopher Dodd, Barney Frank, Franklin Raines, Jim Johnson, Jamie Gorelick, and other Obama cronies being led away in handcuffs.\u00a0 The current charges being investigated by the Securities & Exchange Commission are a good beginning.<\/p>\n","protected":false},"excerpt":{"rendered":" Wall Street melt-downs?\u00a0 Banking industry bailouts? \u00a0Hedge fund hanky-panky?\u00a0 Multi-million dollar Wall Street bonuses?\u00a0 Collapse of the dollar?\u00a0 National debt default?\u00a0 Economic collapse?\u00a0 Who can possibly make sense of it all?\u00a0 How did it happen, and who\u2019s to blame?\u00a0 Did … Continue reading