How Dems blocked Fannie, Freddie reforms, created financial crisis

From Bloomberg.com.

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 Community Comments, Facebook Comments

  1. Nine House McCain says:

    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.

  2. Middle of the Road says:

    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.

    • Another skeptic says:

      You’re trying to discredit a good piece because it shows how wrong the Dems were and are.

      • Middle of the Road says:

        Big surprise there.

      • Aristotle says:

        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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