How Dems blocked Fannie, Freddie reforms, created financial crisis

23 Comments

by: Another skeptic

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.

23 thoughts on “How Dems blocked Fannie, Freddie reforms, created financial crisis”

Nine House McCain says:

September 22, 2008 at 9:54 pm

its a commentary by…

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.

Golly… this guy wouldn’t be a biased liar. It’s not like the McCain camp is a bunch of serial liars or anything.

OWN the failure of your ideas, Republicans.

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1. Danny the Red (hair) says:
  
  September 22, 2008 at 10:08 pm
  
  McCain’s proposal was actually to completely DEREGULATE fannie and freddie.
  
  He was pushing legislation written by Fannie lobbyist and current McCain campaign manager Charlie Black.
  
  Lie. Lie Lounder. Stomp Your feet and lie again.
  
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  1. ThillyWabbit says:
    
    September 22, 2008 at 10:45 pm
    
    But Republicans can’t count. In 2005 Republicans outnumbered Democrats in the Senate. A party-line vote would mean that the bill passed out of committee unless some Republicans didn’t see fit to show up for work and vote on this bill that clearly would have solved everything, and everything would be OK if we had just followed his visionary leadership that couldn’t even get something passed out of a Republican-controlled committee.
    
    Damn Democrats are responsible for all of Republicans’ mistakes. God I hate those damn Democrats.
    
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    1. DavidThi808 says:
      
      September 22, 2008 at 11:37 pm
      
      As the Republicans rammed their philosophy down our throats, we Dems were apparently able to interfere enough to be responsible for every problem.
      
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      1. redstateblues says:
        
        September 22, 2008 at 11:40 pm
        
        has a short memory. Dems regained control of Congress, officially, in January of ’07–and yet it’s all their fault.
        
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      2. Another skeptic says:
        
        September 23, 2008 at 12:23 am
        
        Sorry you can’t deal with the facts when they hurt.
        
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        redstateblues says:
        
        September 23, 2008 at 12:26 am
        
        When the Democrats stall legislation it’s “creating gridlock” and then anything that happens that is even remotely related to that legislation is blamed on them.
        
        When Republicans stall legislation and filibuster everything that comes under their noses, they’re the champions of the taxpaying American, and they can do no wrong.
        
        Oh yeah, I forgot IOKIYAR.
        
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        Another skeptic says:
        
        September 23, 2008 at 12:29 am
        
        It’s clear you don’t.
        
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2. Middle of the Road says:
  
  September 22, 2008 at 10:09 pm
  
  Nice catch.
  
  He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election.
  
  I think it’s time for Another Skeptic to find another hobby besides blogging–preferably something he is actually good at.
  
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  1. Another skeptic says:
    
    September 23, 2008 at 12:24 am
    
    Deal with it.
    
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    1. Middle of the Road says:
      
      September 23, 2008 at 12:27 am
      
      Spin, baby, spin…
      
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    2. ClubTwitty says:
      
      September 23, 2008 at 12:28 am
      
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    3. redstateblues says:
      
      September 23, 2008 at 12:29 am
      
      it wreaks of truthiness.
      
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    4. Phoenix Rising says:
      
      September 24, 2008 at 12:54 am
      
      Something not on an editorial page or blog.
      
      I’ve looked for a source for the claim that Democrats blocked these votes, and it’s simply not out there. This is simply a repeat of the WSJ editorial, which appears to have been the original and unsubstantiated source of the claim.
      
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      1. redstateblues says:
        
        September 24, 2008 at 12:58 am
        
        The McCain camp is telling lies? I’m so disillusioned!
        
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3. Another skeptic says:
  
  September 23, 2008 at 12:28 am
  
  Chris Dodd has released his 44-page bill in response to the 2 1/2-page proposal issued by Paulson.
  
  He basically wants to confiscate the nation’s banks and nationalize them. The market sank 400 points today in fear of such nonsense and in reaction to Paulson’s idea.
  
  Back to the drawing boards.
  
  Watch your 401ks and pension funds evaporate, and plan to fund your parents’ retirement from your paychecks, because the Dems are up to their old, partisan tricks.
  
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  1. ClubTwitty says:
    
    September 23, 2008 at 12:30 am
    
    http://www.dailykos.com/
    
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  2. redstateblues says:
    
    September 23, 2008 at 12:31 am
    
    because all of your patriotic friends on Wall St. pumped all their money into oil thinking it was a safe bet.
    
    I’m sure that made Crown Prince Abdullah quite happy, but it doesn’t really help out America much does it?
    
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Middle of the Road says:

September 22, 2008 at 10:07 pm

And once again, you force me to do your research for you.

Let’s start here to refute your inane bullshit.

Then, let’s move on to the truth:

Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say. […]

“The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again,” said Robert McCarson, a former spokesman for Fannie Mae, who said that while he worked there from 2000 to 2002, Fannie Mae and Freddie Mac together paid Mr. Davis’s firm $35,000 a month.

That’s nearly $2 million dollars, genius, to advocate for deregulation, one of the primary culprits of this bailout fiasco.

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1. Another skeptic says:
  
  September 23, 2008 at 12:25 am
  
  You’re trying to discredit a good piece because it shows how wrong the Dems were and are.
  
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  1. Middle of the Road says:
    
    September 23, 2008 at 12:28 am
    
    Big surprise there.
    
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  2. ClubTwitty says:
    
    September 23, 2008 at 12:29 am
    
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  3. Aristotle says:
    
    September 25, 2008 at 7:43 pm
    
    ever since that time that you proposed that an article in the MSM that used the term “global warning” revealed liberal bias.
    
    You and your free-market ilk are desperate. The mortgage crisis is a tell-tale failure of your philosophy since it was business-friendly administrations that allowed this crisis to come to fruition.
    
    You can never find credible, unbiased reports to support any of your assertions. Saying “they’re facts – deal with it” doesn’t cut it, especially when the person saying it is a climate change flat-earther. They’re facts when a non-partisan, unbiased observer comes to those conclusions. They’re hard right (wrong) spin until then.
    
    It is entertaining to read you, however. Just when I think you’ve pissed away your last drop of credibility, you somehow squeeze out some more. You could make a drinking game out of it.
    
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