Posts Tagged ‘reform’

US Is in Even Worse Shape Financially Than Greece. And Why Is That In The Age Of Obama???

June 14, 2011

Thanks for “fundamentally transforming” our economy, Barry Hussein!

We’re constantly being told that Obama has done a great deal to make our economy stronger.  Because who wouldn’t rather have 9.1% unemployment than that 7.6% that Obama started out with.

The thing that most killed the US economy in 2008 was the sheer weight of godawful subprime mortgages that Democrats imposed on Fannie Mae, Freddie Mac and all the other mortgage lenders in order to create more “fairness” and allow everyone (especially racial minorities) to have “the right” to own a home whether they could actually afford to do so or not.  Fannie Mae and Freddie Mac were “Government Sponsored Enterprises,” all the investors knew.  So even as Fannie and Freddie began bundling together thousands of riskier and ever riskier mortgages into giant mortgage backed securities to advance Democrat-enacted policies, large investment houses continued to gobble them up.  After all, this was an arm of the United States Government – and the United States Government ALWAYS pays its debts.

Like all scams, it worked for a while.  But as soon as there was a correction in the dramatically overvalued housing market, the whole boondoggle began to implode.  And since Fannie and Freddie had bundled all kinds of bad mortgages in with the good ones, there was absolutely no way for anyone to know how much risk was contained in any of these giant investment vehicles all these giant private banking houses found themselves holding.

And suddenly the perception that Government Sponsored Enterprises Fannie Mae and Freddie Mac were “safe investments” turned into a “misperception.”  And the fecal matter began to hit the rotary oscillator bigtime.

Fannie and Freddie were the first to collapse.  The big private players who had played ball with them shortly followed.

President George Bush tried SEVENTEEN TIMES to reform Fannie and Freddie when there was actually a chance to do something.  Go back to what the New York Times stated in 2003:

WASHINGTON, Sept. 10—  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.

Republicans were demonized for “deregulation” by the dishonest Democrat Party machine.  But they TRIED to regulate what needed to be regulated.  Democrats stopped them.

Many Republicans like John McCain literally begged Democrats to do something before it was too late.  But Democrats threatened to filibuster any bill that in any way prevented Fannie and Freddie from continuing the reckless economy-killing policies.  Conservative economists such as Peter Wallison had been predicting the Fannie and Freddie boondoggles would cause an economic collapse since at least 1999.  Wallison had warned back then:

 In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

But rigid opposition from Democrats – especially Democrats like Senator Barack Obamawho took more campaign money from Fannie and Freddie and dirty crony capitalism outfits like corrupt Lehman Bros. than ANYONE in his short Senate stint – prevented any “hope and change” of necessary reform from saving the US economy.

The timeline is clear: Fannie Mae and Freddie Mac were giant behemoths that began to stagger under their own corrupt weight, as even the New York Times pointed out:

Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market — that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent.

And it was FANNIE and FREDDIE that collapsed FIRST before ANY of the private investment banks, which collapsed as a result of having purchased the very mortgaged backed securities that the Government Sponsored Enterprises SOLD THEM.  It wasn’t until Fannie and Freddie collapsed that investors began to look with horror at all the junk that these GSE boondoggles had been pimping.

The man who predicted the collapse in 1999 wrote a follow-up article titled, “Blame Fannie Mae and Congress For the Credit Mess.”  It really should have read, “Blame DEMOCRATS.”  Because they were crawling all over these GSEs that they had themselves created like the cockroaches they are.  But Wallison is nonpartisan.

That same New York Times article that said President Bush was trying to reform Fannie Mae and Freddie Mac ended with this demonstration of Democrats standing against necessary reform:

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.

Why was Barney Frank deceitfully claiming that Fannie and Freddie weren’t facing “any kind of financial crisis”?  BECAUSE REPUBLICANS WERE RIGHTLY WARNING THAT THEY WERE.

Only about a month before the whole Fannie and Freddie boondoggles Democrats had fiercely protected collapsed – taking the entire US economy with it – Democrat Barney Frank was on the record saying THIS:

REP. BARNEY FRANK, D-MASS.: “I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.”

So we blew up nearly COMPLETELY BECAUSE OF DEMOCRAT POLICIES.  But Democrats along with an ideological mainstream media that is the worse since Joseph Goebbels was the Nazi Minister of Propaganda were ready.  They ran on a platform that it happened while Bush was president, and that therefore Bush was entirely responsible for the thing he tried over and over again to fix while Democrats used their power to block those efforts.

Let me just say “Franklin Raines.”  Raines as Fannie CEO presided over Enron-style accounting policies and got $90 million in his account because of those corrupt policies.  But Raines was the first BLACK CEO of Fannie Mae.  And even though he was a Democrat and a Clinton guy, President Bush lacked the courage to push the “first black Fannie Mae CEO” out.  Which of course is the same reason that the “first black Fannie Mae CEO” didn’t do hard time in prison where he belonged.  “Political correctness” is a demonic device by which liberals protect themselves – usually from going to prison where they ought to go.  He got a sweetheart deal basically so Republicans wouldn’t be accused of being racists by
Democrats who of course call them racists no matter what they do.  My main point is simply that it was Democrats, Democrats, DEMOCRATS who did this to us.

Fannie Mae was well politically-connected Democrats went to make millions as they bounced back and forth between “public” employment where they developed contacts and “private” crony capitalism to get rich.

Here’s the conclusion of New York Times financial markets writer Gretchen Morgenson about DEMOCRAT Jim Johnson:

Morgenson focuses on the managers of Fannie Mae, the government-supported mortgage giant. She writes that CEO James Johnson built Fannie Mae “into the largest and most powerful financial institution in the world.”

But in the process, Morgenson says, the company fudged accounting rules, generated big salaries and bonuses for its executives, used lobby and campaign contributions to bully regulators, and encouraged the risky financial practices that led to the crisis.

And of course DEMOCRAT Jim Johnson who got rich plundering Americans was an OBAMA Democrat.

Morgenson – again a New York Times writer and not someone from Fox News – said of Fannie Mae on Larry Kudlow’s CNBC program on Monday, June 13: “Whatever Fannie Mae did, everybody else followed.”  And of course they all followed right into an economic Armageddon created by Democrats for Democrats.

But who got blamed?  Republicans, of course.  George Bush and Republicans were to Obama and the Democrats what Emmanual Goldstein was to Big Brother in 1984.  George Bush and Republicans were what the Jews were to Adolf Hitler.  Fascists always need a bogeyman.  And so the people who were truly to blame turned the people who tried futilely to stop them into the scapegoats.  All with the mainstream media’s complicity.

The analogy would be holding the police officer who tried but failed to catch the rapist for the rape of the woman rather than holding the actual rapist who raped her responsible.  But it was easier to say “This is the result of President Bush’s failed Republican policies” than it was to actually explain the facts to an enraged Attention Deficit Disorder-ridden ignorant pop culture – particularly when virtually no one in the biased mainstream media had any intention whatsoever of telling the truth.

Barack Obama – the ACORN community organizer who pushed these very America-killing policies – ran a demagoguing campaign promising to fix everything.

But has he?

How about a great big giant “NOT”???

What has Zero Obama done to fix that housing market that he helped collapse?  How about NOTHING???  After nearly three years of Obama, housing isn’t the worst since 2008; it’s gotten WAY WORSE than 2008 and is the worse since the Great Depression!!!  Obama started out with a terrible plan.  And we have terrible results to show for his terrible plan.  And yet this disgraceful fool actually keeps claiming he’s made things better!!!

Before you read this article, check out the “current account balance” compiled by the CIA.  Ours is a negative figure that dwarfs everyone else’s by so much it’s a joke.  Which is to say that Gross’s assessment is 1000% correct.

US Is in Even Worse Shape Financially Than Greece: Gross
Published: Monday, 13 Jun 2011 | 10:33 AM ET
By: Jeff Cox
CNBC.com Staff Writer

When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries, Pimco’s Bill Gross told CNBC Monday.

Much of the public focus is on the nation’s public debt, which is $14.3 trillion. But that doesn’t include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.

The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.

Taken together, Gross puts the total at “nearly $100 trillion,” that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.

“To think that we can reduce that within the space of a year or two is not a realistic assumption,” Gross said in a live interview. “That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly.”

Gross spoke following a report that US banks were likely to scale back on their use of Treasurys as collateral against derivatives and other transactions. Bank heads say that move is likely to happen in August as Congress dithers over whether to raise the nation’s debt ceiling, according to a report in the Financial Times.

The move reflects increasing concern from the financial community over whether the US is capable of a political solution to its burgeoning debt and deficit problems.

“We’ve always wondered who will buy Treasurys” after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. “It’s certainly not Pimco and it’s probably not the bond funds of the world.”

Pimco, based in Newport Beach, Calif., manages more than $1.2 trillion in assets and runs the largest bond fund in the world.

Gross confirmed a report Friday that Pimco has marginally increased its Treasurys allotment—from 4 percent to 5 percent—but still has little interest in US debt and its low yields that are in place despite an ugly national balance sheet.

“Why wouldn’t an investor buy Canada with a better balance sheet or Australia with a better balance sheet with interest rates at 1 or 2 or 3 percent higher?” he said. “It simply doesn’t make any sense.”

Should the debt problem in Greece explode into a full-blown crisis—an International Monetary Fund bailout has prevented a full-scale meltdown so far—Gross predicted that German debt, not that of the US, would be the safe-haven of choice for global investors.

America is going down because her stupid citizens wickedly voted for corrupt dishonest Democrat fools – the very fools who imploded our economy – to have complete power.  Nancy Pelosi took over dictatorial control in the House of Representatives, and Harry Reid took over the US Senate, in 2006.

Thanks to Obama, America is now worse off than Greece.  But that didn’t stop Obama from offering to bail out Greece.  Maybe it’s because George Soros is Greek; maybe because the American left has always adored the European-style socialism in spite of Thomas Jefferson’s warning that “the comparison of our governments with those of Europe is like a comparison of heaven and hell.”  Maybe because Obama simply WANTS hell for America.  But there you have it.

Republicans acknowledged they failed to live up to their values and spent too much.  But the last Republican budget (Fiscal Year 2007) passed in 2006 had only a $161 billion deficit.  The very next Democrat budget for FY 2008 had a deficit of $459 billion – nearly three times larger than the one they’d demonized Republicans for.  Then their FY-2009 budget dwarfed that deficit with a black hold of red ink deficit of $1.4 TRILLION.  That was more money than any government in the history of the world had ever contemplated.  But Democrats dwarfed that the very next year with a FY-2010 budget with a $1.6 trillion deficit.  And as for FY-2011, the Democrat Congress simply refused to perform its most basic duty of governance and didn’t even bother to pass a budget.  Republicans are now forced to do the last disgraced Democrat-controlled Congress’ job for them – and Democrats are demonizing them for it.

That’s how this game is played.  Democrats are fascist demagogues who shrilly launch into Republicans as they try to save the American people from unparalleled future suffering.  They are people who ROUTINELY demonize, demonize, demonize until THEY are the ones forced to call for the very things they demonized and tried to prevent from happening.  But by the time they react this time, just as before, it will be too late.

Try this on for size: our actual debt isn’t the $14 trillion we constantly hear about; it’s more like $200 trillion.  And even THAT gargantuan number doesn’t take into account the massive debts that all the liberal labor unions have amassed in state pensions (e.g., California’s public pension system has unfunded liabilities of $500 billion).  We cannot possibly hope to pay this – and yet Democrats demand more and more and more, and demagogue Republicans for even trying to cut millions when we need to cut TENS OF TRILLIONS or collapse.

Democrats run ads showing a look-a-like of Republican Rep. Paul Ryan pushing an old lady off a cliff; but they want every single senior citizen to die terribly as the Medicare system completely collapses while they refuse to do anything to fix it – as even Bill Clinton openly acknowledged.

We are going to end like the PIIGS – Portugal, Ireland, Italy, Greece and Spain- because we elected Democrat swine to ensure we perished like pigs.

Greece just got downgraded to the point where they are the lowest-rated currency in the history of the planet.  And it happened yesterday.

When that happens to us it will be the worst nightmare in history.  300 million Americans are going to go into an insanity of panic – and of course the violence will begin with the left.  If you don’t have an arsenal, someone will kick down your door and murder your whole family just to eat the food in your house.  And that hell on earth will be entirely because you trusted Democrats like Anthony Weiner to run your health care, your pension, your economy, your life.

I hope you vote in 2012 like your very LIFE was at stake in these elections.  Because this time it truly is.

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More Proof Democrats Destroyed The Economy In 2008: The Ongoing Fannie Mae/Freddie Mac Disaster

November 8, 2010

Who destroyed the economy in 2008?  Democrats say it was Bush.  Why?  Well, because he was president, that’s why.

Why – when applying the same logic – Barack Obama STILL isn’t responsible for any of his economic mess fully two years after George W. Bush left office is anybody’s guess.

But stop and think.  The primary cause for the 2008 economic meltdown was a downturn in the housing market and the underlying mortgage market.

At the core of that meltdown was GSEs (that’s “Government Sponsored Enterprises” to you) Fannie Mae and Freddie Mac.

The problem with Fannie Mae and Freddie Mac has always been that it was – and remains – a social welfare institution masquerading as a financial institution.  And they have made beyond-godawful “financial” decisions because their true loyalty has always been with socialist policies rather than financial ones.

Let’s look at Fannie and Freddie’s current picture:

Fannie, Freddie’s $685B fix
Bloomberg
Last Updated: 11:54 PM, November 4, 2010
Posted: 11:54 PM, November 4, 2010

Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the US covers losses and overhauls the housing-finance system, Standard & Poor’s said.

Costs for resolving the two government-sponsored entities could reach $280 billion, including $148 billion already delivered under a US Treasury Department promise of unlimited support, New York-based S&P said yesterday in a research report. The government may spend an additional $405 billion to capitalize a replacement for the two companies, which own or insure more than half the US mortgage market.

“It appears unlikely in our view that housing and mortgage markets will be able to operate normally without continuing and substantial government involvement,” S&P said, citing the GSEs’ growing portfolio of unsold homes, a sluggish economy, high unemployment, the prospect of rising foreclosures and billions in legacy losses.

Treasury Secretary Timothy F. Geithner, who has said there is a strong case to be made for continued US involvement, has promised to deliver the Obama administration’s plan to overhaul the housing-finance system by the end of January. Republican lawmakers, who will take control of the House of Representatives in January, have called for the government to end its support for Washington-based Fannie Mae and Freddie Mac, of McLean, Va.

“Although federal authorities have taken no concrete public steps toward sponsoring a GSE alternative, Standard & Poor’s believes that it’s a useful exercise to consider how much such a recapitalization might cost taxpayers,” the report said.

$685 BILLION.  That’s quite a mess.

Did it just happen?  Hardly.  This was going on for years.  This was what caused the subprime crisis that destroyed our economy in 2008.

Let’s survey the record.  According to record provided by The New York Times, Fannie and Freddie were in huge trouble PRIOR TO the economic collapse.  And their holdings were so massive that there is simply no reasonable way that one can maintain that their crisis didn’t directly contribute to the greater crisis to be revealed.  Read the article dated July 11, 2008:

Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market — that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent.

A timeline of the subprime loan crisis of 2008 clearly reveals that it was Fannie Mae’s collapse that started the entire mess rolling downhill.  From Wikipedia:

September 2008

    • September 7: Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.’s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them.[151][152]
    • September 14: Merrill Lynch is sold to Bank of America amidst fears of a liquidity crisis and Lehman Brothers collapse[153]
    • September 15: Lehman Brothers files for bankruptcy protection[154]
    • September 16: Moody’s and Standard and Poor’s downgrade ratings on AIG‘s credit on concerns over continuing losses to mortgage-backed securities, sending the company into fears of insolvency.[155][156] In addition, the Reserve Primary Fund “breaks the buck” leading to a run on the money market funds. Over $140 billion is withdrawn vs. $7 billion the week prior. This leads to problems for the commercial paper market, a key source of funding for corporations, which suddenly could not get funds or had to pay much higher interest rates.[157]
    • September 17: The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy.
    • September 18: Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: “If we don’t do this, we may not have an economy on Monday.”[158]
    • September 19: Paulson financial rescue plan is unveiled after a volatile week in stock and debt markets.

Democrats who bother to offer any reason at all why “Republicans got us into this mess” claim that the Republicans refused to regulate and reform the economic sector.

Well, let’s dig a little further.  Was it George Bush who refused to regulate or reform?

Hardly.

From US News & World Report:

Seventeen. That’s how many times, according to this White House statement (hat tip Gateway Pundit), that the Bush administration has called for tighter regulation of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

That’s right.  George Bush tried SEVENTEEN TIMES to reform and regulate Fannie Mae and Freddie Mac, the agencies at the epicenter of the economic crisis.

When did this thing start?  Under Bush?  Not according to The New York Times, as I have pointed out before in a previous article.

From the New York Times, September 30, 1999:

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

More.  Again from the New York Times, September 30, 1999:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

What do we have, even in the pages of the New York Times?  A prediction that as soon as the economy cooled off, the mortgage market would explode like a depth charge and the government would have to step in to prevent a catastrophe.  And from a Clinton program, at that.

The same man – Peter Wallison – who had predicted the disaster from 1999 wrote a September 23, 2008 article in the Wall Street Journal entitled “Blame Fannie Mae and Congress For the Credit Mess.”

So this disaster began under Bill Clinton.  Specifically, it began in the very final years of the Clinton administration.  Interestingly, at the same time that the Dot-com bubble was getting ready to explode on Clinton’s watch.  Clinton got all the credit for a great economy, and Bush got to watch 78% of the value of Nasdaq destroyed just as he was taking office.  $7.1 TRILLION in wealth was vaporized (43% of the the Market Capitalization of the Dow Jones Wilshire 5000 Full Cap between 2000 Q1 and Q1 2003).  Bill Clinton handed George Bush a massive economic disaster (made even worse by the shocking 9/11 attacks), and Bush turned economic calamity into the longest consecutive period of job growth (52 straight months) in history.  In diametrical contradiction to all the lies that you have  heard from Democrats and from a mainstream media propaganda machine that often puts Joseph Goebbels to shame

What did George W. Bush do to deal with the necessary regulation and reform of these government-subsidized behemoths Fannie and Freddie?

Read what the New York Times said back in September 11, 2003:

WASHINGTON, Sept. 10— 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.

So Bush WANTED to regulate and reform the industry that would destroy the economy five years later, again, in contradiction to a blatantly dishonest and ideologically liberal and biased media.  Bush didn’t “refuse to regulate.”  Bush TRIED to provide the necessary regulatory steps that could have averted disaster.

And who blocked those regulations and reforms that Bush tried to provide?  None other than Barney Frank and his Democrat buddies:

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.

Democrats blocked reform and regulation of Fannie and Freddie.  They threatened to filibuster any attempt at regulation and reform.  Meanwhile John McCain wrote a letter in 2006 urging reform and regulation of the GSEs.  He said:

Congress chartered Fannie and Freddie to provide access to home financing by maintaining liquidity in the secondary mortgage market. Today, almost half of all mortgages in the U.S. are owned or guaranteed by these GSEs. They are mammoth financial institutions with almost $1.5 Trillion of debt outstanding between them. With the fiscal challenges facing us today (deficits, entitlements, pensions and flood insurance), Congress must ask itself who would actually pay this debt if Fannie or Freddie could not?

And it came to pass exactly as John McCain warned.

Because of Democrats.  Who were virtually entirely to blame for the disaster that ensued as a result of their blocking of reform and regulation.

What did Democrats do with the mainstream media’s culpability?  They falsely dropped the crisis at the feet of “greedy” Wall Street.  But while examples of Wall Street greed abound, the liberal intelligentsia deliberately overlooked the central and preceding role of Democrat-dominated Fannie Mae and Freddie Mac.

Here’s how the mess actually happened:

The New York Times acknowledged that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac “buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.”

And the Los Angeles Times on May 31, 1999 describes how this process turned into a bubble, as more begat more, and then more and more begat more and more and more:

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more. . . .

In a nutshell, Fannie and Freddie, in their role as Government Sponsored Enterprises, bought tens of millions of mortgages, and then repackaged them into huge mortgage-backed securities that giant private entities such as Bear Stearns, AIG and Lehman Brothers purchased.  What made these securities particularly attractive to the private banking entities was that these securities were essentially being sold – and had the backing – of the United States government.  Fannie Mae and Freddie Mac, again, are Government Sponsored Enterprises.

Here’s the process:

The Role of the GSEs is to provide liquidity and stability to the U.S. housing and mortgage markets. Step 1 Banks lend money to Households to purchase and refinance home mortgages Step 2 The GSEs purchase these mortgage from the banks Step 3 GSEs bundle the mortgages into mortgage-backed securities Step 4 GSEs sell mortgage-backed and debt securities to domestic and international capital investors Step 5 Investors pay GSEs for purchase of debt and securities Step 6 GSEs return funds to banks to lend out again for the issuance of new mortgage loans.

Now, any intelligent observer should note a primary conflict that amounts to a fundamental hypocritical contradiction: the GSE’s role was to “provide stability,” and yet at the same time they were taking on “significantly more risk” in the final year of the Clinton presidency.  What’s wrong with this picture?

The GSEs Fannie Mae and Freddie Mac were designed to bundle up the mortgages into mortgage backed securities and then sell them to the private market.

Fannie Mae is exempt from SEC [Securities and Exchange Commission] regulation. Which screams why Bush wanted to regulate them.  This allowed Fannie Mae to bundle up mortgages, which were then rated AAA with no requirement to make clear what is in the bundle.  Which screams why Bush wanted to regulate them.

This is what allowed the toxic instruments that have been sold across the world to proliferate.  And then to explode.  It also created a situation where money institutions did not know and could not find out whether potential inter-bank business partners were holding these “boiled babies on their books, complete with a golden stamp on the wrapping,” rather than safe instruments.  This then inclined banks to a natural caution, to be wary of lending good money to other banks against these ‘assets’.  And thus banks refused to lend to one another.

And it was Democrats, not Bush, and not Republicans, who were all over this disaster that destroyed our economy in 2008.

We were led by a pathologically dishonest media to believe that Republicans had created this mess, when it fact it had been Democrats.  And so we gave the very fools who destroyed our economy total power.

And what have they done in the two years since?

They made bad far, far worse.

It Was DEMOCRATS Who Blew Up Our Economy In 2008

October 19, 2010

I’ve been saying this for months: It was DEMOCRATS who destroyed our economy in 2008.

First of all, given all the times that you’ve heard the line, “The Republicans created this mess,” ask yourself a question: when was the last time you heard an explanation as to just precisely what the Republicans did to cause the disaster?

Don’t be a lemming and a tool; read up on how Democrats loaded up GSEs Fannie and Freddie with liberals, massively increased the government ownership of the mortgage industry, engaged in incredibly risky policies even as our housing market was beginning a cyclical downturn, and then refused to allow any regulations or reform whatsoever:

With Eyes Finally Wide-Open, Reconsider Why The Economy Collapsed In The First Place

Who REALLY Exploded Your Economy, Liberals Or Conservatives?

Biden: We Misread The Economy – And It’s All The Republicans’ Fault

Want To Know Why Your Economy Blew Up?

Barney Frank And Democrat Party Most Responsible For 2008 Economic Collapse

This Blame Bush Crap Has Just GOT To End

And here’s the latest fact and the latest explanation as to just how Democrats blew up our economy:

The quotes that explain the entire financial meltdown
posted at 12:10 pm on October 12, 2008 by Ed Morrissey

For those who want a smoking gun to show the genesis of the financial collapse, this short sequence from a longer video I posted this week will do it. Clinton HUD Secretary Andrew Cuomo announced a settlement of a lending discrimination complaint with Accubanc, a Texas lender whose prerequisites for mortgages came under attack from “community organizers” at the Fort Worth Human Relations Commission and the city of Dallas. I clipped out this sequence to underscore its importance:

Watch the video.

CUOMO: To take a greater risk on these mortgages, yes. To give families mortgages that they would not have given otherwise, yes.

Q: [unintellible] … that they would not have given the loans at all?

CUOMO: They would not have qualified but for this affirmative action on the part of the bank, yes.

Q: Are minorities represented in that low and moderate income group?

CUOMO: It is by income, and is it also by minorities? Yes.

CUOMO: With the 2.1 billion, lending that amount in mortgages — which will be a higher risk, and I’m sure there will be a higher default rate on those mortgages than on the rest of the portfolio

Here, in fact, is the genesis of the problem, the ideology that created the monster.  Cuomo, the Clinton administration, and Congress believed they had the right and the power to determine acceptable risk for the lenders, rather than lenders determining it for themselves in a free market.  Even while imposing risk standards on lenders, Cuomo admits that he expects a higher default rate on the new loans — which is why the lenders didn’t want to write them in the first place.

In other words, the CRA didn’t get used to fight discrimination, but to force lenders to give money to high-risk borrowers for political purposes.  And Cuomo knew it.

That was the political arrogance at the heart of the collapse.  However, the CRA was more a sideshow than the actual problem.  When Congress decided that enforcement alone wouldn’t generate enough mortgages to boost their political fortunes, they had Fannie Mae and Freddie Mac eliminate the risk entirely for lenders through the purchase of the subprime loans.  Without that risk and with almost-guaranteed short-term profits of subprime loans, lenders went wild while Fannie and Freddie repackaged them as quasi-government bonds for investors.

While Democrats like Barack Obama, Harry Reid, and Nancy Pelosi keep blaming “greed” for the collapse, it was Democrats like Barney Frank and Chris Dodd building that “greed” into the system in order to drive the subprime lending market.  And it was Democrats like Frank, Dodd, Maxine Waters, and Lacy Clay who suggested that regulators like Armando Falcon were racists for blowing the whistle on the Ponzi scheme they created.

The Democrats decided, as Michelle says, that mortgages were a civil right, and wouldn’t cost the American taxpayers a dime.  How well is that working out, America?  And now, the question you have to ask yourselves is this: Do you want the nation’s economic policies run by Obama, Pelosi, Reid, Dodd, and Frank for the next two years?

John Adams said, “Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”

The problem is that we aren’t a moral or religious people anymore.

We’ve become a bad people.  And bad people allow a climate in which lies dominate, and then they believe the lies they are told.

And that is why we allowed a mainstream media to fabricate an entire culture of lies, and then we believed their narrative that Republicans (who hadn’t been in power for two years in the Congress) were the party to blame.  We blamed Bush – who tried SEVENTEEN TIMES to reform and regulate Fannie Mae and Freddie Mac prior to the economic meltdown just in 2008 alone.  And Bush had called for reform and regulation of the GSEs 34 times since 2001.  And we put the very Democrats who blew up our economy by refusing to allow those reforms or regulations until after it was too late in charge of the economy that they ruined.

It was Democrats and the Government Sponsored Enterprise system Democrats created (i.e., GSEs Fannie and Freddie) that created the financial disaster; just as it is Democrats who are in total control of our government who are CONTINUING to undermine our economy now.

We gave Democrats total power.  And in just two years they have so destroyed our economy and our health care system that we may never be able to recover.

How Should Democrats Eat The Half-Trillion $ Monsters Fannie And Freddie? One Bite At A Time

May 14, 2010

The truth is finally starting to come out in spite of the media.  After a mountain of Democrat-media complex lies buried so many inconvenient truths.

First it was Barney Frank’s admissions on tape before the economy went to hell caused by his horrendous liberal policies.

And now this little exchange:

CNBC’s Rick Santelli Rips Key Democrat For Ignoring Fannie/Freddie Reform
Dems’ Financial “Reform” Leaves Taxpayers on the Hook for Government Mortgage Giants

Washington, May 11 Follow @GOPLeader on Twitter for updates.

Democrats still don’t get it, and they refuse to reform Fannie Mae and Freddie Mac, the government mortgage companies that sparked the meltdown by giving high-risk loans to people who couldn’t afford it.   Standing up for American taxpayers, CNBC’s on-air editor, Rick Santelli teed off on Rep. Paul Kanjorski’s (D-PA) claim that Democrats’ couldn’t reform Fannie & Freddie in their financial regulation bill because it was “too complicated,” asking: “It’s too complicated?  You think taxpayers that go to work to pay the money you are subsidizing, it will end up a half a trillion, do you think they think complicated is an excuse?

The exchange couldn’t have come at a worse time for Rep. Kanjorski and Congressional Democrats, because Fannie and Freddie simply won’t go away.  As the Financial Times reported today:

“Fannie Mae said on Monday it would need an additional $8.4bn in aid, as the US government-controlled mortgage finance company continued to suffer heavy losses on its bad loans…Fannie Mae’s appeal for help comes on the heels of a similar plea last week by smaller rival Freddie Mac, which asked for an additional $10.6bn cash infusion.  The latest requests for aid bring the total amount of taxpayer dollars drawn down by these companies to $148bn since the 2008 government-led bail-out.

“Anthony Sanders, a senior scholar at the Mercatus Center at George Mason University, called Fannie and Freddie ‘our own Greek tragedy.’  Mr. Sanders estimated that total taxpayer liability was about $8,000bn for the combined companies, including public debt and loan guarantees.”

But the unlimited bailout that the Administration has bestowed on Fannie and Freddie doesn’t seem to bother Democrats, though the latest giveaway may come at an “inconvenient time,” as the New York Times noted today:

“Fannie Mae’s request on Monday for another $8.4 billion in federal aid comes at a politically inconvenient time for the Obama administration, which is pressing to pass sweeping financial legislation without resolving the company’s future…. Democrats want to defer an overhaul of federal housing policy until next year, after the midterm elections. But Republicans have seized on the continuing losses to argue that a plan for the two companies should be a priority of the current legislation.”

Republicans have been pressing for an end to bailouts that would get the government out of the mortgage business once and for all.  But Democrats are not only unwilling to reform Fannie and Freddie, they are doubling down on the failed government mortgage companies – burning through hundreds of billions of taxpayer dollars in the process.  As the Washington Post noted in a report today: “Under the terms of the government’s 2008 emergency takeover of Fannie and Freddie, the Treasury must pump money into either firm whenever its worth, as measured by assets minus liabilities, goes into the red. Late last year, the Obama administration pledged unlimited backing.”

For years, Republicans raised red flags about Fannie and Freddie’s financial condition and proposed responsible reforms only to be thwarted by Democrats who have deep political ties to the worst offenders.  These same powerful Democrats are now pushing for a financial reform bill that doesn’t even address the need to fix these government mortgage companies.  As the Wall Street Journal wrote last week, “reforming the financial system without fixing Fannie and Freddie is like declaring a war on terror and ignoring al Qaeda.”

House Republicans’ plan would phase out taxpayer subsidies of Fannie Mae and Freddie Mac over a number of years and end the current model of privatized profits and taxpayer losses.  Find out more by clicking HERE.

For the record, “8,000 billion” is another way of saying $8 TRILLION DOLLARS.  That’s what Fannie Mae, Freddie Mac, and the Democrat Party have cost us.

The biggest problem with Fannie Mae and Freddie Mac has always been that it was a social welfare institution disingenuously masquerading as a financial institution.  The giant GSEs were packaged and sold under entirely false pretenses.

It was Democrats who established Fannie Mae and Freddie Mac.  It has been Democrats who have controlled the staffing of both agencies for decades.  It was Democrats – and particularly it was Barack Obama – who took more campaign money from Fannie Mae and Freddie Mac than ANYONE.  It was Democrats who refused to regulate Fannie Mae and Freddie Mac when George Bush and later John McCain repeatedly pleaded for such regulation and reform of the out-of-control agencies.  It was Democrats like Franklin Raines who were running Fannie and Freddie when all the policies that led us down the road to hell were imposed, just as it was Democrats who were running Fannie and Freddie when the fecal matter started hitting the rotary oscillator.

It was a Democrat who said that everything was fine with Fannie and Freddie less than TWO MONTHS before they completely collapsed:

REP. BARNEY FRANK, D-MASS, July 14, 2008: I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.

And I think that anybody who respects what you think is a deluded and deranged dumbass, Mr. Frank.

Fannie Mae and Freddie Mac are now in control of 96.5% of all mortgages, for those who don’t think they’re all that important in their role of creating the mortgage meltdown.  It was Fannie and Freddie that bundled all the bad mortgages into mortgage-backed securities and then sold the mortgage-backed and debt securities to domestic and international capital investors under the illusion that they were guaranteed by the federal government.

Fannie and Freddie were a $5 trillion wasted boondoggle BEFORE things got even worse.  They exist only to help liberals and lose money.  And there’s no end in sight.

How bad is it???

Just how bad is the news at Fannie/Freddie? On Friday morning, Moody’s downgraded their outstanding preferred stock 5 notches from A1 to Baa3 (a slight gradation above junk) and their Bank Financial Strength Ratings (BSFR) to D+ from B- (one/half notch above D, which is reserved for companies in default). […]

When the Treasury peels back the onion, I believe they will find a hornet’s nest. I think we will see an initial bailout of $100 billion or so, with 2/3-3/4 going to Fannie (as it is a larger organization). The scenario I foresee however, just as happened at Merrill Lynch, Lehman Brothers and Morgan Stanley, is that they came to the financing window expecting to have borrowed enough, but then find they have to keep coming back repeatedly until the buyers go away or until “We The People” have thrown at least $500 billion at Fannie/Freddie to get them back on their feet again. This will also likely take an Act of Congress to raise the Treasury’s Debt ceiling quite dramatically

The United States used to be the greatest nation in the history of the world; now we’re more like a chicken that has had its head cut off, but is too disconnected from reality to know that it’s already dead.

Our deficits are now four times as high as they were a year ago, and they are twice as high as Obama said they would be in the very worst case scenario.

We’re screwed.  Frankly, America voted to be screwed when it elected Barack Obama and Democrats.

AEI Article: How Fannie And Freddie Blew Up The Economy

January 23, 2010

Below is a very good article that everyone should read to better understand why the economy imploded in 2008: it was as a result of literally decades of risky and in frankly socialist decisions implemented primarily by GSEs Fannie Mae and Freddie Mac.

But allow me to say a few words before getting to the full article.

I compiled the following to respond to the typical liberal charge that “the economic collapse in 2008 was Bush’s fault”:

The Democrat Party/lamestream media narrative is that Bush was responsible for the economic meltdown because it “happened during his watch.” There was never once a mention that it happened during Nancy Pelosi’s and Harry Reid’s watch. Because that particular narrative doesn’t fit their leftist agenda.

I can very easily explain why Democrats were the primary cause of the 2008 collapse.

I can even give you the story in video, namely an 11 minute video titled “Burning Down the House: What Caused Our Economic Crisis?”

Or how about watching John Stossel explain what happened in a 5 1/2 minute ABC 20/20 piece?

Do you really want to know the true origins of the financial collapse? Then please do a little reading and start learning. The mortgage market collapsed in 2008 because of its biggest player: Fannie Mae, which held some 60% of the mortgages. And Democrats were entirely behind the policies that led to the collapse of Fannie Mae and the private mortgage industry that bought Fannie’s mortgage-backed securities. Investors were falsely led to believe that the bonds they were buying were guaranteed implicitly by the federal government.

Here are the words of Mortimer Zuckerman – a liberal, an Obama supporter, a billionaire, a trustee of the Council on Foreign Relations, and the owner of a couple major news sources:

What about Fannie Mae and Freddie Mac that got there with the support of the Democrats in Congress. That’s what kicked off the great housing bubble; that’s what started this whole thing rolling down the hill. Did they ever talk about that kind of excess in the congress? No…..this isn’t something that is just due to the “Wall Street community”.

George Bush called for reform of the housing finance market 17 times in 2008 alone — and Democrats ignored him. They had been blocking his every effort to prevent disaster ever since Bush first tried to do so beginning in 2003. At that time, Democrat Barney Frank led the effort to block reform, saying:

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.”

George Bush and John McCain repeatedly warned that if we didn’t address the situation, we would suffer a financial collapse.

John McCain wrote an urgent letter in 2006 that read:

These are entities that have demonstrated over and over again that they are deeply in need of reform. For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac—known as Government-sponsored entities or GSEs—and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns.

In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

John McCain signed another letter that ended with these words:

With the fiscal challenges facing us today (deficits, entitlements, pensions and flood insurance), Congress must ask itself who would actually pay this debt if Fannie or Freddie could not?

Substantial testimony calling for improved regulation of the GSEs has been provided to the Senate by the Treasury, Federal Reserve, HUD, GAO, CBO, and others. Congress has the opportunity to recommit itself to the housing mission of the GSEs while at the same time making sure the GSEs operate in a manner that does not expose our financial system, or taxpayers, to unnecessary risk. It is vitally important that Congress take the necessary steps to ensure that these institutions benefit from strong and independent regulatory supervision, operate in a safe and sound manner, and are primarily focused on their statutory mission. More importantly, Congress must ensure that the American taxpayer is protected in the event either GSE should fail. We strongly support an effort to schedule floor time this year to debate GSE regulatory reform.

And they DID fail. They massively, massively failed.

Only about a month before the whole system crashed, Barney Frank went on the record and said this:

REP. BARNEY FRANK, D-MASS.: “I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.”

They sure were, you fat, miserable, loathsome, obscene, disgusting, slobbering, lying toad.

The top three headlines under the Google search “Fannie Mae collapse”:

Freddie, Fannie Scam Hidden in Broad Daylight

Financial Markets Reeling from Fannie & Freddie Collapse and Evitable Government Bailout

Fannie Mae and Freddie Mac: Too big not to fail

But as our economy exploded along with the boondoggle housing finance market artificially sustained by Fannie and Freddie, the Democrats demagogued the Republicans. And the lamestream media duly reported it as though it were all the liberal’s-god-socialist-big-government’s truth.

So to answer your question, it was DEMOCRATS who led us into this mess. Just as it is DEMOCRATS who are now making the mess far worse.

I would point out in addition that Republicans deserve condemnation because they lacked the political courage and the political will to oppose enormously risky Democrat policies rather than face the demagoguery that they were “racist” for not allowing low-income minorities to own their own homes.  So they allowed the Democrats to keep expanding the Community Reinvestment Act, and allowed them to keep expanding the portfolio of Government Supported Enterprises Fannie Mae and Freddie Mac.

The following AEI article from Peter Wallison and Charles Calomiris is also available as a PDF file.

The Last Trillion-Dollar Commitment
The Destruction of Fannie Mae and Freddie Mac

By Peter J. Wallison, Charles W. Calomiris  |  AEI Online
(September 2008)

The government takeover of Fannie and Freddie was necessary because of their massive losses on more than $1 trillion of subprime and Alt-A investments.

The government takeover of Fannie Mae and Freddie Mac was necessary because of their massive losses on more than $1 trillion of subprime and Alt-A investments, almost all of which were added to their single-family book of business between 2005 and 2007. The most plausible explanation for the sudden adoption of this disastrous course–disastrous for them and for the U.S. financial markets–is their desire to continue to retain the support of Congress after their accounting scandals in 2003 and 2004 and the challenges to their business model that ensued. Although the strategy worked–Congress did not adopt strong government-sponsored enterprise (GSE) reform legislation until the Republicans demanded it as the price for Senate passage of a housing bill in July 2008–it led inevitably to the government takeover and the enormous junk loan losses still to come.

Now that the federal government has been required to take effective control of Fannie and Freddie and to decide their fate, it is important to understand the reasons for their financial collapse–what went wrong and why. In his statement on September 7 announcing the appointment of a conservator for the two enterprises, Treasury Secretary Henry M. Paulson pointed to their failed business models as the reason for their collapse. This was certainly a contributing element, but not the direct cause. The central problem was their dependence on Congress for continued political support in the wake of their accounting scandals in 2003 and 2004. To curry favor with Congress, they sought substantial increases in their support of affordable housing, primarily by investing in risky and substandard mortgages between 2005 and 2007.

As GSEs, Fannie and Freddie were serving two masters in two different ways. The first was an inherent conflict between their government mission and their private ownership. The government mission required them to keep mortgage interest rates low and to increase their support for affordable housing. Their shareholder ownership, however, required them to fight increases in their capital requirements and regulation that would raise their costs and reduce their risk-taking and profitability. But there were two other parties–Congress and the taxpayers–that also had a stake in the choices that Fannie and Freddie made. Congress got some benefits in the form of political support from the GSEs’ ability to hold down mortgage rates, but it garnered even more political benefits from GSE support for affordable housing. The taxpayers got highly attenuated benefits from both affordable housing and lower mortgage rates but ultimately faced enormous liabilities associated with GSE risk-taking. This Outlook tells the disheartening story of how the GSEs sold out the taxpayers by taking huge risks on substandard mortgages, primarily to retain congressional support for the weak regulation and special benefits that fueled their high profits and profligate executive compensation. As if that were not enough, in the process, the GSEs’ operations promoted a risky subprime mortgage binge in the United States that has caused a worldwide financial crisis.

The special relationship with Congress was the GSEs’ undoing because it allowed them to escape the market discipline–the wariness of lenders–that keeps corporate managements from taking unacceptable risks.

The peculiar structure of the GSEs–shareholder-owned companies with a public mission–reflected a serious confusion of purpose on the part of the Lyndon Johnson administration and the members of Congress who created this flawed structure in 1968. In seeking to reduce the budget deficits associated with the Vietnam War and Great Society programs, the administration hit upon the idea of “privatizing” Fannie Mae by allowing the company to sell shares to the public. This, according to the budget theories of the time, would take Fannie’s expenditures off-budget, while allowing it to continue its activities with funds borrowed in the public credit markets. But turning Fannie into a wholly private company was not acceptable either. Various special provisions were placed in Fannie’s congressional charter that intentionally blurred the line between a public instrumentality and a private corporation. Among these provisions: Fannie was given a line of credit at the Treasury; the president could appoint five members of its board of directors; and its debt could be used, like Treasury debt, to collateralize government deposits in private banks.

Fannie’s congressional charter and its unusual ties to the government ensured that the market would recognize its status as a government instrumentality: that despite its private ownership, the company was performing a government mission. Because it was highly unlikely that the U.S. government would allow one of its instrumentalities to default on its obligations, Fannie was perceived in the capital markets to have at least an implicit government backing and was thus able to borrow funds at rates that were only slightly higher than those paid by the U.S. Treasury on its own debt offerings. In 1970, the Federal Home Loan Bank Board created Freddie Mac to assist federal savings and loan associations in marketing their mortgages; Freddie was also allowed to sell shares to the public in 1989 and became a competitor of Fannie Mae under a congressional charter that established an identical special relationship with the government.

The special relationship, codified by these unique charters, required the GSEs to pursue another inherently conflicted mission that pitted their shareholders against the taxpayers. To the extent that their government backing allowed the GSEs to take excessive financial risks, it was the taxpayers and not the shareholders who would ultimately bear the costs. That result–the privatization of profit and the socialization of risk–has now come to pass. U.S. taxpayers are now called upon to fill in the hole that reckless and improvident investment activity–fueled by inexpensive and easily accessible funds–has created in the GSEs’ balance sheets. The special relationship was also the GSEs’ undoing, because it allowed them to escape the market discipline–the wariness of lenders–that keeps corporate managements from taking unacceptable risks. Normally, when a privately held company is backed by the government (for example, in the case of commercial banks covered by the Federal Deposit Insurance Corporation), regulation is the way that the government protects the taxpayers against the loss of market discipline. When Fannie Mae was privatized in 1968, however, no special regulatory structure was created to limit the taxpayers’ exposure to loss. The Johnson administration officials who structured the privatization may not have realized that they were creating what we recognize today as a huge moral hazard, but when Fannie became insolvent (the first time) in the high-interest-rate environment of the early 1980s, policymakers recognized that the company represented a potential risk to taxpayers.

In 1991, as Congress finally began the process of developing a regulatory regime for the GSEs, congressional interest in supporting affordable housing was growing. At this point, Fannie Mae initiated its first foray into affordable housing–a relatively small $10 billion program, probably intended to show Congress that the GSEs would support affordable housing without a statutory mandate. Nevertheless, Congress added an affordable housing “mission” to the GSE charters when it created their first full-time regulator, the Office of Federal Housing Enterprise Oversight (OFHEO). The new agency had only limited regulatory authority. It was also housed in the Department of Housing and Urban Development (HUD), which had no regulatory experience, and it was funded by congressional appropriations, allowing the GSEs to control their regulator through the key lawmakers who held OFHEO’s purse strings.

The new affordable housing mission further increased the congressional policy stake in the GSEs, but it also initiated a destructive mutual dependency: Congress began to rely on Fannie and Freddie for political and financial support, and the two GSEs relied on Congress to protect their profitable special privileges. In later years, attention to the political interests of Congress became known at the GSEs as “management of political risk.” In a speech to an investor conference in 1999, Franklin Raines, then Fannie’s chairman, assured them that “[w]e manage our political risk with the same intensity that we manage our credit and interest rate risks.”[1]

Benefits to Congress

Managing their political risk required the GSEs to offer Congress a generous benefits package. Campaign contributions were certainly one element. Between the 2000 and 2008 election cycles, the GSEs and their employees contributed more than $14.6 million to the campaign funds of dozens of senators and representatives, most of them on committees that were important to preserving the GSEs’ privileges.[2] And Fannie knew how to “leverage” its giving, not just its assets; often it enlisted other groups that profited from the GSEs’ activities–the securities industry, homebuilders, and realtors–to sponsor their own fundraising events for the GSEs’ key congressional friends. In addition to campaign funds, the GSEs–Fannie Mae in particular–enhanced their power in Congress by setting up “partnership offices” in the districts and states of important lawmakers, often hiring the relatives of these lawmakers to staff the local offices. Their lobbying activities were legendary. Between 1998 and 2008, Fannie spent $79.5 million and Freddie spent $94.9 million on lobbying Congress, making them the twentieth and thirteenth biggest spenders, respectively, on lobbying fees during that period.[3] Not all of these expenditures were necessary to contact members of Congress; the GSEs routinely hired lobbyists simply to deprive their opponents of lobbying help. Since lobbyists are frequently part of lawmakers’ networks–and are often former staffers for the same lawmakers–these lobbying expenditures also encouraged members of Congress to support Fannie and Freddie as a means of supplementing the income of their friends.

The failure to adopt meaningful GSE reform in 2005 was a crucial missed opportunity.

In the same vein, Fannie and Freddie hired dozens of Washington’s movers and shakers–at spectacular levels of compensation–to sit on their boards, lobby Congress, and in general help them to manage their political risk. (An early account of this effort was an article entitled “Crony Capitalism: American Style” that appeared in The International Economy in 1999.[4] A later version of the same point was made in Investor’s Business Daily nine years later.[5]) The GSEs also paid for academic research to assure the public that the GSE mission was worthwhile and that the GSEs posed minimal risks to taxpayers. For example, Nobel laureate Joseph Stiglitz coauthored an article in 2002 purporting to show that the risk of GSE default producing taxpayer loss was “effectively zero.”[6]

One of the most successful efforts to influence lawmakers came through community groups. Both Fannie and Freddie made “charitable” or other gifts to community groups, which could then be called upon to contact the GSEs’ opponents in Congress and protest any proposed restrictions on the activities or privileges of the GSEs. GSE supporters in Congress could also count on these groups to back them in their reelection efforts.

But these activities, as important as they were in managing the GSEs’ political risks, paled when compared to the billions of dollars the GSEs made available for spending on projects in the congressional districts and states of their supporters. Many of these projects involved affordable housing. In 1994, Fannie Mae replaced its initial $10 billion program with a $1 trillion affordable housing initiative, and both Fannie and Freddie announced new $2 trillion initiatives in 2001.[7] It is not clear to what extent the investments made in support of these commitments were losers–the GSEs’ profitability over many years could cover a multitude of sins–but it is now certain that the enormous losses associated with the risky housing investments appearing on Fannie and Freddie’s balance sheet today reflect major and imprudent investments in support of affordable housing between 2005 and 2007–investments that ultimately brought about the collapse of Fannie and Freddie.

Even if the earlier affordable housing projects were not losers, however, they represented a new and extra-constitutional way for Congress to dispense funds that should otherwise have flowed through the appropriations process. In one sense, the expenditures were a new form of earmark, but this earmarking evaded the constitutional appropriations process entirely. An illustration is provided by a press release from the office of Senator Charles E. Schumer (D-N.Y.), one of the most ardent supporters of the GSEs in Congress. The headline on the release, dated November 20, 2006–right in the middle of the GSEs’ affordable housing spending spree–was “Schumer Announces up to $100 Million Freddie Mac Commitment to Address Fort Drum and Watertown Housing Crunch.” The subheading continued: “Schumer Unveils New Freddie Mac Plan with HSBC That Includes Low-Interest Low-Downpayment Loans. In June, Schumer Urged Freddie Mac and Fannie Mae Step Up to the Plate and Deliver Concrete Plans–Today Freddie Mac Is Following Through.”[8] If this project had been economically profitable for Fannie or Freddie, Schumer would not have had to “urge” them to “step up.” Instead, using his authority as a powerful member of the Senate Banking Committee–and a supporter of Fannie and Freddie–he appears to have induced Freddie Mac to make a financial commitment that was very much in his political interests but for which the taxpayers of the United States would ultimately be responsible.

Of course, Schumer was only one of many members of Congress who used his political leverage to further his own agenda at taxpayer expense and outside the appropriations process. The list of friends of Fannie and Freddie changed over time; while the GSEs enjoyed broad bipartisan support in the 1990s, over the past decade, they have become increasingly aligned with the Democrats. This shift in the political equilibrium was especially clear in the congressional reaction to the GSEs’ accounting scandals of 2003 and 2004.

The Accounting Scandals

Fannie and Freddie reaped significant benefits from the careful management of their political risk. In June 2003, in the wake of the failures of Enron and WorldCom, Freddie’s board of directors suddenly dismissed its three top officers and announced that the company’s accountants had found serious problems in Freddie’s financial reports. In 2004, after a forensic audit by OFHEO, even more serious accounting manipulation was found at Fannie, and Raines, its chairman, and Timothy Howard, its chief financial officer, were compelled to resign.

It is eloquent testimony to the power of Fannie and Freddie in Congress that even after these extraordinary events there was no significant effort to improve or enhance the powers of their regulator. The House Financial Services Committee developed a bill that was so badly weakened by GSE lobbying that the Bush administration refused to support it. The Senate Banking Committee, then under Republican control, adopted much stronger legislation in 2005, but unanimous Democratic opposition to the bill in the committee doomed it when it reached the floor. Without any significant Democratic support, debate could not be ended in the Senate, and the bill was never brought up for a vote. This was a crucial missed opportunity. The bill prohibited the GSEs from holding portfolios of mortgages and mortgage-backed securities (MBS); that measure alone would have prevented the disastrous investment activities of the GSEs in the years that followed. GSE immunity to accounting scandal is especially remarkable when it is recalled that after accounting fraud was found at Enron (and later at WorldCom), Congress adopted the punitive Sarbanes-Oxley Act, which imposed substantial costs on every public company in the United States. The GSEs’ investment in controlling their political risk–at least among the Democrats–was apparently money well spent.

Nevertheless, the GSEs’ problems were mounting quickly. The accounting scandal, although contained well below the level of the Enron story, gave ammunition to GSE critics inside and outside of Congress. Alan Greenspan, who in his earlier years as Federal Reserve chairman had avoided direct criticism of the GSEs, began to cite the risks associated with their activities in his congressional testimony. In a hearing before the Senate Banking Committee in February 2004, Greenspan noted for the first time that they could have serious adverse consequences for the economy. Referring to the management of interest rate risk–a key risk associated with holding portfolios of mortgages or MBS–he said:

To manage this risk with little capital requires a conceptually sophisticated hedging framework. In essence, the current system depends on the risk managers at Fannie and Freddie to do everything just right, rather than depending on a market-based system supported by the risk assessments and management capabilities of many participants with different views and different strategies for hedging risks.[9]

Then, and again for the first time, Greenspan proposed placing some limit on the size of the GSEs’ portfolios. Greenspan’s initial idea, later followed by more explicit proposals for numerical limits, was to restrict the GSEs’ issuance of debt. Although he did not call for an outright reduction in the size of the portfolios, limiting the issuance of debt amounts to the same thing. If the GSEs could not issue debt beyond a certain amount, they also could not accumulate portfolios. Greenspan noted:

Most of the concerns associated with systemic risks flow from the size of the balance sheets that these GSEs maintain. One way Congress could constrain the size of these balance sheets is to alter the composition of Fannie and Freddie’s mortgage financing by limiting the dollar amount of their debt relative to the dollar amount of mortgages securitized and held by other investors. . . . [T]his approach would continue to expand the depth and liquidity of mortgage markets through mortgage securitization but would remove most of the potential systemic risks associated with these GSEs.[10]

This statement must have caused considerable concern to Fannie and Freddie. Most of their profits came from issuing debt at low rates of interest and holding portfolios of mortgages and MBS with high yields. This was a highly lucrative arrangement; limiting their debt issuance would have had a significant adverse effect on their profitability.

In addition, in January 2005, only a few months after the adverse OFHEO report on Fannie’s accounting manipu-lation, three Federal Reserve economists published a study that cast doubt on whether the GSEs’ activities had any significant effect on mortgage interest rates and concluded further that holding portfolios–a far risker activity than issuing MBS–did not have any greater effect on interest rates than securitization: “We find that both portfolio purchases and MBS issuance have negligible effects on mortgage rate spreads and that purchases are not any more effective than securitization at reducing mortgage interest rate spreads.”[11] Thus, the taxpayer risks cited by Greenspan could not be justified by citing lower mortgage rates, and, worse, there was a strong case for limiting the GSEs to securitization activities alone–a much less profitable activity than holding MBS.

The events in 2003 and 2004 had undermined the legitimacy of the GSEs. They could no longer claim to be competently–or even honestly–managed. An important and respected figure, Alan Greenspan, was raising questions about whether they might be creating excessive risk for taxpayers and systemic risk for the economy as a whole. Greenspan had suggested that their most profitable activity–holding portfolios of mortgages and MBS–was the activity that created the greatest risk, and three Federal Reserve economists had concluded that the GSEs’ activities did not actually reduce mortgage interest rates. It was easy to see at this point that their political risk was rising quickly. The case for continuing their privileged status had been severely weakened. The only element of their activities that had not come under criticism was their affordable housing mission, and it appears that the GSEs determined at this point to play that card as a way of shoring up their political support in Congress.

From the perspective of their 2008 collapse, this may seem to have been unwise, but in the context of the time, it was a shrewd decision. It provided the GSEs with the potential for continuing their growth and delivered enormous short-term profits. Those profits were transferred to stockholders in huge dividend payments over the past three years (Fannie and Freddie paid a combined $4.1 billion in dividends last year alone) and to managers in lucrative salaries and bonuses. Indeed, if it had not been for the Democrats’ desire to adopt a housing relief bill before leaving for the 2008 August recess, no new regulatory regime for the GSEs would have been adopted at all. Only the Senate Republicans’ position–that there would be no housing bill without GSE reform–overcame the opposition of Senators Christopher Dodd (D-Conn.), the banking committee chairman, and Schumer.

The GSEs’ confidence in the affordable housing idea was bolstered by what appears to be a tacit understanding. Occasionally, this understanding found direct expression. For example, in his opening statement at a hearing in 2003, Representative Barney Frank (D-Mass.), now the chairman of the House Financial Services Committee, referred to an “arrangement” between Congress and the GSEs that tracks rather explicitly what actually happened: “Fannie and Freddie have played a very useful role in helping to make housing more affordable, both in general through leveraging the mortgage market, and in particular, they have a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing.”[12] So here the arrangement is laid out: if the GSEs focus on affordable housing, their position is secure.

Increased Support for Affordable Housing

Affordable housing loans and subprime loans are not synonymous. Affordable housing loans can be traditional prime loans with adequate down payments, fixed rates, and an established and adequate borrower credit history. In trying to increase their commitment to affordable housing, however, the GSEs abandoned these standards. In 1995, HUD, the cabinet-level agency responsible for issuing regulations on the GSEs’ affordable housing obligations, had ruled that the GSEs could get affordable housing credit for purchasing subprime loans. Unfortunately, the agency failed to require that these loans conform to good lending practices, and OFHEO did not have the staff or the authority to monitor their purchases. The assistant HUD secretary at the time, William Apgar, later told the Washington Post that “[i]t was a mistake. In hindsight, I would have done it differently.” Allen Fishbein, his adviser, noted that Fannie and Freddie “chose not to put the brakes on this dangerous lending when they should have.”[13] Far from it. In 1998, Fannie Mae announced a 97 percent loan-to-value mortgage, and, in 2001, it offered a program that involved mortgages with no down payment at all. As a result, in 2004, when Fannie and Freddie began to increase significantly their commitment to affordable housing loans, they found it easy to stimulate production in the private sector by letting it be known in the market that they would gladly accept loans that would otherwise be considered subprime.

Although Fannie and Freddie were building huge exposures to subprime mortgages from 2005 to 2007, they adopted accounting practices that made it difficult to detect the size of those exposures. Even an economist as seemingly sophisticated as Paul Krugman was misled. He wrote in his July 14, 2008, New York Times column that

Fannie and Freddie had nothing to do with the explosion of high-risk lending. . . . In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble. . . . Partly that’s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn’t do any subprime lending, because they can’t . . . by law. . . . So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works.[14]

Here Krugman demonstrates confusion about the law (which did not prohibit subprime lending by the GSEs), misunderstands the regulatory regime under which they operated (which did not have the capacity to control their risk-taking), and mismeasures their actual subprime exposures (which he wrongly states were zero). There is probably more to this than lazy reporting by Krugman; the GSE propaganda machine purposefully misled people into believing that it was keeping risk low and operating under an adequate prudential regulatory regime.

One of the sources of Krugman’s confusion may have been Fannie and Freddie’s strange accounting conventions relating to subprime loans. There are many defi-nitions of a subprime loan, but the definition used by U.S. bank regulators is any loan to a borrower with damaged credit, including such objective criteria as a FICO credit score lower than 660.[15] In their public reports, the GSEs use their own definitions, which purposely and significantly understate their commitment to subprime loans–the mortgages with the most political freight. For example, they disclose the principal amount of loans with FICO scores of less than 620, leaving the reader to guess how many loans fall into the category of subprime because they have FICO scores of less than 660. In these reports, too, Alt-A loans–which include loans with little or no income or other documentation and other deficiencies–are differentiated from subprime loans, again reducing the size of the apparent GSE commitment to the subprime category. These distinctions, however, are not very important from the perspective of realized losses in the subprime and Alt-A categories; loss rates are quite similar for both, even though they are labeled differently. In its June 30, 2008, Investor Summary report, Fannie notes that credit losses on its Alt-A portfolio were 49.6 percent of all the credit losses on its $2.7 trillion single-family loan book of business.[16] Fannie’s disclosures indicate that when all subprime loans (including Alt-A) are aggregated, at least 85 percent of its losses are related to its holdings of both subprime and Alt-A loans. They are all properly characterized as “junk loans.”

Beginning in 2004, after the GSEs’ accounting scandals, the junk loan share of all mortgages in the United States began to rise, going from 8 percent in 2003 to about 18 percent in 2004 and peaking at about 22 percent in the third quarter of 2006. It is likely that this huge increase in commitments to junk lending was largely the result of signals from Fannie and Freddie that they were ready to buy these loans in bulk. For example, in speeches to the Mortgage Bankers Association in 2004, both Raines and Richard Syron–the chairmen, respectively, of Fannie and Freddie–“made no bones about their interest in buying loans made to borrowers formerly considered the province of nonprime and other niche lenders.”[17] Raines is quoted as saying, “We have to push products and opportunities to people who have lesser credit quality.”

There are few data available publicly on the dollar amount of junk loans held by the GSEs in 2004, but according to their own reports, GSE purchases of these mortgages and MBS increased substantially between 2005 and 2007. Subprime and Alt-A purchases during this period were a higher share of total purchases than in previous years. For example, Fannie reported that mortgages and MBS of all types originated in 2005–2007 comprised 49.8 percent of its overall book of single-family mortgages, which includes both mortgages and MBS retained in their portfolio as well as mortgages they securitized and guaranteed. But the percentage of mortgages with subprime characteristics purchased during this period consistently exceeded 49.8 percent, demonstrating that Fannie was substantially increasing its reliance on junk loans between 2005 and 2007. For example, in its 10-Q Investor Summary report for the quarter ended June 30, 2008, Fannie reported that mortgages with subprime characteristics comprised substantial percentages of all 2005–2007 mortgages the company acquired, as shown in table 1. Based on these figures, it is likely that as much as 40 percent of the mortgages that Fannie Mae added to its single-family book of business during 2005–2007 were junk loans.

If we add up all these categories and eliminate double counting, it appears that on June 30, 2008, Fannie held or had guaranteed subprime and Alt-A loans with an unpaid principal balance of $553 billion. In addition, according to the same Fannie report, the company also held $29.5 billion of Alt-A loans and $36.3 billion of subprime loans that it had purchased as private label securities (non-GSE or Ginnie Mae securities).[18] These figures amount to a grand total of $619 billion–approximately 23 percent of Fannie’s book of single-family business on June 30, 2008–and reflect a huge commitment to the purchase of mortgages of questionable quality between 2005 and 2007.

Freddie Mac also published a report on its subprime and Alt-A mortgage exposures as of August 2008. Freddie’s numbers were not as detailed as Fannie’s, but the company reported that 52 percent of its entire single-family credit guarantee portfolio was from book years 2005–2007 (slightly more than Fannie) and that these mortgages had subprime characteristics, as shown in table 2. Based on these figures, it appears that as much as 40 percent of the loans that Freddie Mac added to its book of single-family mortgage business during 2005–2007 also consisted of junk loans.

Freddie’s disclosures did not contain enough detail to eliminate all of the double counting, so it is not possible to estimate the total amount of its subprime loans from the information it reported. Nevertheless, we can calculate the minimum amount of Freddie’s exposure. In the same report, Freddie disclosed that $190 billion of its loans were categorized as Alt-A and $68 billion had FICO credit scores of less than 620, so that they would clearly be categorized as subprime. Based on the limited information Freddie supplied, double counting of $7.6 billion can be eliminated, so that as of August 2008, Freddie held or had guaranteed at least $258 billion of junk loans. To this must be added $134 billion of subprime and Alt-A loans that Freddie purchased from private label issuers,[19] for a grand total of $392 billion–20 percent of Freddie’s single-family portfolio of $1.8 trillion.

A New Trillion-Dollar Commitment

Between 2005 and 2007, Fannie and Freddie acquired so many junk mortgages that, as of August 2008, they held or had guaranteed more than $1.011 trillion in unpaid principal balance exposures on these loans. The losses already recognized on these exposures were responsible for the collapse of Fannie and Freddie and their takeover by the federal government, and there are undoubtedly many more losses to come. In congressional testimony on September 23, James Lockhart, the director of their new regulator, the Federal Housing Finance Agency, cited these loans as the source of the GSEs’ ultimate collapse, as reported in the Washington Post:

Fannie Mae and Freddie Mac purchased and guaranteed “many more low-documentation, low-verification and non-standard” mortgages in 2006 and 2007 “than they had in the past.” He said the companies increased their exposure to risks in 2006 and 2007 despite the regulator’s warnings.

Roughly 33 percent of the companies’ business involved buying or guaranteeing these risky mortgages, compared with 14 percent in 2005. Those bad debts on mortgages led to billions of dollars in losses at the firms. “The capacity to raise capital to absorb further losses without Treasury Department support vanished,” Lockhart said.[20]

Although a large share of the subprime loans now causing a crisis in the international financial markets are so-called private label securities–issued by banks and securitizers other than Fannie Mae and Freddie Mac–the two GSEs became the biggest buyers of the AAA tranches of these subprime pools in 2005-07.[21] Without their commitment to purchase the AAA tranches of these securitizations, it is unlikely that the pools could have been formed and marketed around the world. Accordingly, not only did the GSEs destroy their own financial condition with their excessive purchases of subprime loans in the three-year period from 2005 to 2007, but they also played a major role in weakening or destroying the solvency and stability of other financial institutions and investors in the United States and abroad.

Why Did They Do It?

Why did the GSEs follow this disastrous course? One explanation–advanced by Lockhart–is that Fannie and Freddie were competing for market share with the private label securitizers and had to purchase substantial amounts of subprime mortgages in order to retain their position in a growing market. Fannie and Freddie’s explanation is that they were the victims of excessively stringent HUD affordable housing goals. Neither of these explanations is plausible. For many years before 2004, Fannie and Freddie had followed relatively prudent investment strategies, even with respect to affordable housing, but they suddenly changed their approach in 2005. Freddie Mac’s report, for example, shows that the percentage of mortgages in its portfolio with subprime characteristics rose rapidly after 2004. Tables 1 and 2 show that for each category of mortgages with subprime characteristics, most of the portfolio of loans with those characteristics was acquired from 2005 to 2007. For example, 83.8 percent of Fannie’s and 90 percent of Freddie’s interest-only loans as of June 2008 were acquired from 2005 to 2007, and 57.5 percent of Fannie’s and 61 percent of Freddie’s loans with FICO scores of less than 620 as of June 2008 were acquired from 2005 to 2007. It seems unlikely that competing for market share or complying with HUD regulations–which contained no enforcement mechanism other than disclosure and delay in approving requests for mission expansions–could be the reason for such an obviously destructive course.

Instead, it seems likely that the event responsible for the GSEs’ change in direction and culture was the accounting scandal that each of them encountered in 2003 and 2004. In both cases, they lost their reputation as well-managed companies and began to encounter questions about their contribution to reducing mortgage rates and their safety and soundness. Serious observers questioned whether they should be allowed to continue to hold mortgages and MBS in their portfolios–by far their most profitable activity–and Senate Republicans moved a bill out of committee that would have prohibited this activity.

Under these circumstances, the need to manage their political risk became paramount, and this required them to prove to their supporters in Congress that they still served a useful purpose. In 2003, as noted above, Frank had cited an arrangement in which the GSEs’ congressional benefits were linked to their investments in affordable housing. In this context, substantially increasing their support for affordable housing–through the purchase of the subprime loans permitted by HUD–seems a logical and even necessary tactic.

Unfortunately, the sad saga of Fannie and Freddie is not over. Some of their supporters in Congress prefer to blame the Fannie and Freddie mess on deregulation or private market failure, perhaps hoping to use such false diagnoses to lay the groundwork for reviving the GSEs for extra constitutional expenditure and political benefit in the future. As the future of the GSEs is debated over the coming months and years, it will be important to remember how and why Fannie and Freddie failed. The primary policy objective should be to prevent a repeat of this disaster by preventing the restoration of the GSE model.

Peter J. Wallison (pwallison@aei.org) is the Arthur F. Burns Fellow in Financial Policy Studies at AEI. Charles W. Calomiris (cc374@columbia.edu) is a visiting scholar at AEI and the Henry Kaufman Professor of Financial Institutions at Columbia Business School.

Messrs. Wallison and Calomiris wish to thank Edward Pinto, a former chief credit officer of Fannie Mae, for his assistance in deciphering the GSEs’ descriptions of their mortgage exposures. AEI research assistant Karen Dubas worked with the authors to produce this Financial Services Outlook.

Download file Click here to view this Outlook as an Adobe Acrobat PDF.

Notes

1. Quoted in Niles Steven Campbell, “Fannie Mae Officials Try to Assuage Worried Investors,” Real Estate Finance Today, May 10, 1999. See also Binyamin Appelbaum, Carol D. Leonnig, and David S. Hilzenrath, “How Washington Failed to Rein In Fannie, Freddie,” Washington Post, September 14, 2008.

2. Common Cause, “Ask Yourself Why . . . They Didn’t See This Coming,” September 24, 2008, available at www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=4542875 (accessed September 29, 2008).

3. Center for Responsive Politics, “Lobbying: Top Spenders,” 2008, available at www.opensecrets.org/lobby/top.php?indexType=s (accessed September 26, 2008).

4. Owen Ullmann, “Crony Capitalism: American Style,” The International Economy (July/August 1999): 6.

5. Terry Jones, “‘Crony’ Capitalism Is Root Cause of Fannie and Freddie Troubles,” Investor’s Business Daily, September 22, 2008.

6. Joseph E. Stiglitz, Jonathan M. Orszag, and Peter R. Orszag, “Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard,” Fannie Mae Papers 1, no. 2 (March 2002), available at www.sbgo.com/Papers/fmp-v1i2.pdf (accessed September 29, 2008). Interestingly, Stiglitz today is an outspoken critic of GSE risk-taking. According to Stiglitz, GSE risk-taking was a predictable consequence of the structure of the GSEs and their financial structure and compensation schedules. “We should not be worried about [GSE] shareholders losing their investments. In earlier years, they were amply rewarded. The management remuneration packages that they approved were designed to encourage excessive risk-taking. They got what they asked for. Nor should we be worried about creditors losing their money. Their lack of supervision fuelled the housing bubble and we are now all paying the price.” (Joseph Stiglitz, “Fannie’s and Freddie’s Free Lunch,” Financial Times, July 24, 2008.)

7. Funding Universe, “Fannie Mae–Company History,” available at www.fundinguniverse.com/company-histories/Fannie-Mae-Company-History.html (accessed September 29, 2008); Funding Universe, “Freddie Mac–Company History,” available at www.fundinguniverse.com/company-histories/Freddie-Mac-Company-History.html (accessed September 29, 2008); and Business Wire, “Fannie Mae’s $2 Trillion ‘American Dream Commitment’ on Course with Over $190 Billion in Targeted Lending,” news release, March 14, 2001, avail-able at http://findarticles.com/p/articles/mi_m0EIN/is_2001_March_14/ai_71707186/ (accessed September 29, 2008).

8. Office of Senator Charles E. Schumer, “Schumer Announces up to $100 Million Freddie Mac Commitment to Address Fort Drum and Watertown Housing Crunch,” news release, November 20, 2006, available at www.senate.gov/~schumer/SchumerWebsite/pressroom/record.cfm?id=266131 (accessed September 29, 2008).

9. Alan Greenspan, “Proposals for Improving the Regulation of the Housing Government Sponsored Enterprises” (testimony, Committee on Banking, Housing and Urban Affairs, U.S. Senate, 108th Cong., 1st sess., February 24, 2004), available at www.federalreserve.gov/boarddocs/testimony/2004/20040224/ default.htm (accessed September 29, 2008).

10. Ibid.

11. Andreas Lehnert, Wayne Passmore, and Shane M. Sherlund, “GSEs, Mortgage Rates and Secondary Market Activities” (Finance and Economic Discussion Series 2005-07, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, DC, January 12, 2005), 1, available at www.federalreserve.gov/Pubs/feds/2005/200507/200507pap.pdf (accessed September 29, 2008).

12. Quoted in Gerald Prante, “Barney Frank on Fannie Mae and Freddie Mac in 2003,” Tax Policy Blog, September 17, 2008, available at www.taxfoundation.org/blog/show/23617.html (accessed September 29, 2008).

13. Carol D. Leonnig, “How HUD Mortgage Policy Fed the Crisis,” Washington Post, June 10, 2008.

14. Paul Krugman, “Fannie, Freddie and You,” New York Times, July 14, 2008.
15. Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Office of Thrift Supervision, “Expanded Guidance for Subprime Lending Programs,” 2001, available at www.federalreserve.gov/Boarddocs/SRletters/2001/sr0104a1.pdf (accessed September 29, 2008).

16. Fannie Mae, “2008 Q2 10-Q Investor Summary,” August 8, 2008, available at www.fanniemae.com/media/pdf/newsreleases/2008_Q2_10Q_Investor_Summary.pdf (accessed September 29, 2008).

17. Neil Morse, “Looking for New Customers,” Mortgage Banking, December 1, 2004.

18. Fannie Mae, “2008 Q2 10-Q Investor Summary,” 20.

19. Freddie Mac, “Freddie Mac Update,” August 2008, 30, available at www.freddiemac.com/investors/pdffiles/investor-presentation.pdf (accessed September 29, 2008).

20. Zachary A. Goldfarb, “Affordable-Housing Goals Scaled Back,” Washington Post, September 24, 2008.

21. James Lockhart, “Reforming the Regulation of the Government Sponsored Enterprises” (testimony, Committee on Banking, Housing and Urban Affairs, U.S. Senate, 110th Cong., 2nd sess., February 7, 2008), 6, available at www.ofheo.gov/media/testimony/2708LockharttestimonyWeb.pdf (accessed September 29, 2008).

The economic implosion of our economy due to Fannie and Freddie’s losses continues.  From an AP article published Friday, January 22:

The two companies, which have been run by the government since they almost collapsed in September 2008, have required $111 billion in federal aid to stay afloat. Late last year the Obama administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion.

The “unlimited losses” amounts to an EXPANSION from the $800 BILLION that Congress was going to authorize.  Which is even more than the $787 billion stimulus, which was the largest government outlay in the history of the human race until the black hole of Fannie Mae and Freddie Mac beat it out.

It’s time to learn the truth.

Is This Economic Recovery? ‘1,000 Banks To Fail In Next Two Years’

August 31, 2009

Studies galore have demonstrated the bias of the media.  They have documented that more than 80% of supposedly objective journalists are Democrats.  And they have documented that their personal bias shaped their professional bias, with the media overwhelmingly favoring their “first love,” Barack Obama in the presidential campaign.

Their bias runs to even the smallest and most seemingly trivial matters, on the apparent theory that there is nothing to small to use to attack and undermine a Republican: journalists who stumbled all over themselves to praise Obama’s strenuous exercise rituals and his “chiseled pectorals” found Bush’s exercise “obsessive” and “creepy.” The media wouldn’t even allow President Bush to golf without attacking him for abandoning his duties, whereas they don’t attack Obama – even though he’s playing gold far more often than Bush did – and even golfing with a CEO of a firm in the midst of a tax corruption investigation.

So it really shouldn’t surprise anyone that the media would show its bias in big matters such as the economy.

University of Maryland senior research scientist John Lott Jr. says news coverage of the economy is slanted. Lott writes, “Over 78 percent more negative news stories discussed a recession when the economy — under a Republican president was soaring than occurred under a Democrat when the economy was shrinking.”

Lott — who researched 12,500 newspaper and wire service articles from 1985 through 2004 — also found that Democratic presidents got positive headlines 15 percent more of the time than Republican presidents for the same economic news.

Of his findings Lott writes, “The media’s focus on the negative side of everything surely helps explain people’s pessimism… Indeed, research has indicated that media bias is real.”

The media helped Obama fearmonger the economy when he wanted them to fearmonger the economy to push through his stimulus; but now they’re are trying to talk up the economy when Obama wants them to talk up the economy.  They are dutifully reporting that the recession seems to be over.

But it isn’t.  And it won’t be.

1,000 Banks to Fail In Next Two Years: Bank CEO
Published: Thursday, 27 Aug 2009
By: Natalie Erlich

The US banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May.

“We’ve already lost 81 this year,” Kanas told CNBC. “The numbers are climbing every day. Many of these institutions nobody’s ever heard of. They’re smaller companies.” (See the accompanying video for the complete interview.)

Failed banks tend to be smaller and private, which exacerbates the problem for small business borrowers, said Kanas, who became CEO of BankUnited when his firm bought the bank and is the former chairman and CEO of North Fork bank.

“Government money has propped up the very large institutions as a result of the stimulus package,” he said. “There’s really very little lifeline available for the small institutions that are suffering.”

This comes at a time when the FDIC has established new rules on bank sales. Private equity, for instance, would have to hold double the capital of their competitors in order to buy such an institution, said Kanas.

“This will have somewhat of a chilling effect on our participation,” he said. “As a result of having to keep higher capital levels, we’ll see lower prices coming from that sector.”

Of the 81 failed banks this year, two have been successfully acquired by private equity, he said. Kanas’ private equity firm bought UnitedBank, the failed Florida-based bank, from the FDIC in May. Regulators also allowed the sale of IndyMac Bank of California earlier this year.

“We are seeing more people step up and lobby bids in this situation,” he said. “We’re seeing more players mostly as a result of being attracted to the sector. I’m not so sure that will continue now that the rules have been ratchet it up.”

Meanwhile, much of the commercial realty problem resides in the regional and small community banks, said Kanas, because larger banks haven’t fueled that sector in the past.

“The market is expecting about the way we were expecting,” he said. “Unfortunately, we’re not seeing any evidence of a recovery in the real estate market in the southern Florida market,” he said.

It’s rather interesting that there’s a strong argument that Obama’s regulations are actually hurting our recovery, but Obama doesn’t have to worry about that message getting out to the public.  His secret, clearly,  is completely safe with the mainstream media.

The FDIC – the government entity which is supposed to step in if a bank goes bankrupt – is itself on the verge of going bankrupt:

March 4 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair said the fund it uses to protect customer deposits at U.S. banks could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

And think about it: one thousand banks failing over the next two years is to the notion of “economic recovery” what a giant asteroid hurtling toward us from space is to the statement “things are looking up for us.”  But again, the mainstream media is so focused on talking up the economy that they don’t have much time for such distractions.

What’s going to happen to unemployment?  The media made such a big deal about a temporary 1/10th of one percent drop in the unemployment rate.  But the longer term trend isn’t good.  It isn’t good at ALL:

Banks Stronger But Outlook Clouded by Job Loss: Whitney

Unemployment is likely to rise to 13 percent or higher and will weigh on the economy for several years, countering government efforts to stabilize the banking industry, analyst Meredith Whitney told CNBC.

While Whitney raised her short-term outlook for banks, causing stocks to open in positive territory after pointing lower earlier, she said the long-term outlook for the economy remains murky.

Consumers will not be able to spend as they continue to lose jobs and credit conditions stay tight, she said in a live interview. The result will provide a vivid display of how critical housing and lending are to economic growth. Unemployment is currently at 9.5 percent but is expected to keep rising.

We underestimate how much the whole economy is dependent on the mortgage industry, and that has to change,” Whitney said. “This is what happens when you delay the inevitable. We’re buying time here, but we’re not restructuring the economy.”

We’re looking a situation in which nearly half of American homes will be “underwater” – with the mortgages being higher than then homes are worth – by 2011.

And Obama’s policies are not helping to actually deal with the core problem facing the mortgage industry.

The dire assessment comes amid a slight stabilization in the U.S. housing market after three years of price drops, according to the National Association of Realtors.

The report states that the drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgage.

But, the foreclosed homes are not coming onto the market because people are finding out they can stay living in them and not pay their mortgage, according to Kudrle.

“The Obama administration is putting so much pressure on the banks and lenders to slow down the foreclosure process to try and keep people in their homes,” Kudrle said. “We have people who have not made a payment for 12 to 18 months and the bank still hasn’t come in to foreclose.”

That’s not a policy that is going to correct our financial woes; it’s just a delaying tactic that will ultimately make a bad problem far, far worse by postponing and in fact stockpiling the coming misery.

Government Supported Enterprises (GSEs) Fannie Mae and Freddie Mac – created by a Democrat-congrolled Congress and long run by connected Democrats – have been at the epicenter of the mortgage meltdown fiasco.

Peter Wallison predicted a future Fannie Mae and Freddie Mac failure in 1999 in a New York Times article, saying of Fannie Mae’s enormous financial exposure and risky policies:

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” . . .

Franklin Raines, Jamie Gorelick, Jim Johnson, Daniel Mudd.  That’s just part of your list of Democrats who ran Fannie Mae into the ground and profited wildly in doing so.  The Wall Street Journal cites the first three names for disgrace in the Fannie Mae Enron-scheme they produced.  The fourth figure, Fannie CEO Daniel Mudd, showed just how far to the left Fannie Mae was politically when he said to THE most radically liberal wing of the Democrat Party – the Congressional Black Caucus – the following:

So many of you have been good friends to Fannie Mae and our mission. You’ve been friends through thick and thin. We have indeed come upon a difficult time for Fannie Mae…  In many ways I want to tell you today you are also the conscience of Fannie Mae.

President Bush tried SEVENTEEN TIMES to create tighter regulation of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Bush’s efforts led to two major Republican efforts to push through regulations that would have limited the mess that Fannie and Freddie could create, but their every move was fiercely resisted by Democrats.  The first time, Barney Frank – leading the Democratic effort to shield Fannie and Freddie from necessary regulatory reform in 2003, said:

”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.”

Again, in 2005, Republicans tried and failed to establish necessary regulatory reforms of Fannie Mae and Freddie Mac at a time when reforms could have averted the 2008 disaster.  Again Democrats unanimously rose up to block any such effort.  John McCain warned:

If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

But Democrats refused to heed the warnings.  And when the economy DID collapse BECAUSE of their refusal to deal with the GSEs that they had politically-benefited from, the very people who created the disaster in the first place poised themselves to benefit from it by demagoguing Republicans whose greatest sin was not being strong enough in their efforts to stand up and stop Democrats from advancing a ruinous agenda.

Think about it: seventeen calls for regulatory reform of the housing mortgage industry, all resisted by Democrats.  Two major efforts at regulatory reform, both blocked by fierce and united Democrat opposition.  And then Democrats demonized Republicans for refusing to enact regulations.  That’s called ‘chutzpah.’  And when the mainline media reported it as if it were somehow true, it was called ‘propaganda.’

In only a couple short years in the Senate, Barack Obama racked up the 2nd highest total in campaign contributions from Fannie Mae and Freddie Mac (2nd only to fellow Democrat and Senate Finance Chairman Chris Dodd).  Barack Obama was second in receipts of campaign contributions from corrupt Wall Street leveraging companies such as Lehman Brothers behind only Hillary Clinton.  Lehman Brothers profited and profited by playing the insane Wall Street insiders game until it went belly up from its own bloated practices.  And somehow that parasitic leech of a company was under the impression that financing one Barack Hussein Obama’s political career would be good for it’s greedy special interests.

And now we’re in such good hands to fix the mess that Democrats almost exclusively created.

And hey, don’t worry.  If anything bad happens, you can count on the mainstream media to honestly and objectively keep you informed — NOT.

Democrats’ Pseudo-Demonization Again On Display

August 27, 2009

1 suspect in custody following Dem HQ vandalism in Denver
By Jessica Fender
The Denver Post

Posted: 08/25/2009 11:53:20 AM MDT
A volunteer cleans up glass at the Colorado Democratic Party Headquarters after someone smashed nearly all the windows of the office early Tuesday morning, on August 25, 2009. (THE DENVER POST

A 24-year-old arrested this morning on suspicion of smashing 11 windows at Colorado Democratic Party headquarters tried to conceal his identity while allegedly committing the crime, according to police descriptions.

Maurice Schwenkler wore a shirt over his face, a hooded sweat shirt and latex gloves before he and another man fled the scene on bicycles, police said. Schwenkler was apprehended after a short chase. The other suspect remains at large.

While Schwenkler does not appear in the state’s voter registration database, a person by that name in November 2008 received $500 from a political 527 committee called Colorado Citizens Coalition for “communications,” according to campaign finance disclosures.

The accountant for the 527 appears to be the same woman who handles the books for many other Democratic-leaning political committees.

A Maurice Schwenkler also signed an online 2005 petition to free anti-war Christian protesters who were captured in Iraq.

State Democratic Party Chairwoman Pat Waak initially blamed the vandalism on animosity surrounding the health care debate, though Denver police declined to comment on possible motives.

The shattered windows were emblazoned with posters touting President Barack Obama and the Democratic position on health care reform.

The other storefronts surrounding the building on West Eighth Avenue and Santa Fe Drive in downtown Denver’s art district were untouched. But the Democratic posters are scuffed from hammer blows, Waak said.

“We ought to be having a serious, conscientious debate about what’s best for the country,” Waak said. “Clearly there’s been an effort on the other side to stir up hate. I think this is the consequence of it.”

She estimates the damage at $11,000.

An officer on patrol spotted vandals in the act around 2:20 a.m. and took Schwenkler into custody after a short chase, Denver police spokeswoman Vicki Ferrari said.

And, lo and behold, the police arrested the 2nd person – a transgender anarchist.  Pretty clearly, “she” is not a Republican:

Ariel Attack, a Denver-based anarchist, was arrested at 2:27am Tues, 24 here in Denver for allegedly smashing 11 windows of the Democratic Party headquaters at 777 Santa Fe Drive.

***PLEASE FORWARD WIDELY***

Ariel Attack, a Denver-based anarchist, was arrested at 2:27am Tues, 24 here in Denver for allegedly smashing 11 windows of the Democratic Party headquaters at 777 Santa Fe Drive.

Right now we are trying to raise the bail money for her to get out of jail; her bail hearing will be tomorrow at 10am Denver time. Several lawyers have told us to expect anywhere from between $3,000 to $10,000 in bail, and due to the high publicity of the case here in Denver, we are expecting higher (lead story for most all local news outlets, and being picked up by national news networks).

At this moment, we do not know Ariel’s status within the jail, especially regarding her gender classification. We have been unable to talk with Ariel since she went in. She is listed in the jail records and media under her birth name. We also do not know what plans, if any, she had made for this situation.

So you see, when you hear about the “stirring up of hate,” think Democrats.

When you see a swastika and hear a Democrat talking about the vileness of Republicans, realize that a Democrat almost certainly put it there.

When you see Democrats blaming Republicans for something that is truly awful, realize that in all probability, a Democrat did it.

This has been going on at least since the 1960s, when radical black students burned a cross in a black women’s dorm to justify their violent riots.

The episode gives Kyle-Ann Shiver’s article, “Obama’s Nazi Straw Man: An Old Alinsky Trick,” a whole lot more credibility:

When Nancy Pelosi, Harry Reid and now the president’s own deputy press secretary conjure up images of Nazis at healthcare town halls, they are engaging in one of the oldest tricks in anyone’s book, but an especial favorite of their mentor, Saul Alinsky.
Alinsky himself employed this method, quite deviously.  Alinsky biographer, Sanford D. Horwitt provides an anecdote using precisely this same diabolical tactic to deceive the people.  From Horwitt’s Let Them Call Me Rebel:
“…in the spring of 1972, at Tulane University…students asked Alinsky to help plan a protest of a scheduled speech by George H. W. Bush, then U.S. representative to the United Nations – a speech likely to include a defense of the Nixon administration’s Vietnam War policies.  The students told Alinsky they were thinking about picketing or disrupting Bush’s address.  That’s the wrong approach, he rejoined, not very creative – and besides causing a disruption might get them thrown out of school.  He told them, instead, to go to hear the speech dressed as members of the Ku Klux Klan, and whenever Bush said something in defense of the Vietnam War, they should cheer and wave placards reading, ‘The KKK supports Bush.’  And that is what they did, with very successful, attention-getting results.”

Planting major falsehoods has been a favorite Alinsky strategy from the start.  His acolyte, Barack Obama, learned his Industrial Areas Foundation lessons on deceiving for power while on a side trip during his Harvard years, then taught the Alinsky power tactics at the University of Chicago.

Democrats are increasingly becoming truly vile people.  They don’t believe in God, they don’t believe in objective truth, they believe in the same postmodern and existentialist principles that led to Marxism and Nazism, and their philosophy of “will to power” permits them to say anything or do anything that will advance their agenda – no holds barred, and no consequences beyond their ideological objective ever once considered.

Obama’s Lies About Health Care Being Exposed

July 21, 2009

Just this morning Obama continued to repeat the lie that Americans can keep their own health care plans if they want to under the House Democrat legislation.  But it is high time the nation finally came to understand something important: Barack Obama is a smooth talking (at least while reading his lines off a teleprompter screen) serial liar.  From The Wall Street Journal:

Repealing Erisa

JULY 20, 2009

One by one, President Obama’s health-care promises are being exposed by the details of the actual legislation: Costs will explode, not fall; taxes will have to soar to pay for it; and now we are learning that you won’t be able to “keep your health-care plan” either.

The reality is that the House health bill, which the Administration praised to the rafters, will force drastic changes in almost all insurance coverage, including the employer plans that currently work best. About 177 million people—or 62% of those under age 65—get insurance today through their jobs, and while rising costs are a problem, according to every survey most employees are happy with the coverage. A major reason for this relative success is a 1974 federal law known by the acronym Erisa, or the Employee Retirement Income Security Act.

Erisa allows employers that self-insure—that is, those large enough to build their own risk pools and pay benefits directly—to offer uniform plans across state lines. This lets thousands of businesses avoid, for the most part, the costly federal and state regulations on covered treatments, pricing, rate setting and so on. It also gives them flexibility to design insurance to recruit and retain workers in a competitive labor market. Roughly 75% of employer-based coverage is governed by Erisa’s “freedom of purchase” rules.

Goodbye to all that. The House bill says that after a five-year grace period all Erisa insurance offerings will have to win government approval—both by the Department of Labor and a new “health choices commissioner” who will set federal standards for what is an acceptable health plan. This commissar—er, commissioner—can fine employers that don’t comply and even has “suspension of enrollment” powers for plans that he or she has vetoed, until “satisfied that the basis for such determination has been corrected and is not likely to recur.”

In other words, the insurance coverage of 132 million people—the product of enormously complex business and health-care decisions—will now be subject to bureaucratic nanomanagement. If employers don’t meet some still-to-be-defined minimum package, they’ll have to renegotiate thousands of contracts nationwide to Washington’s specifications. The political incentives will of course demand an ever-more generous “minimum” benefit and less cost-sharing, much as many states have driven up prices in the individual insurance market with mandates. Erisa’s pluralistic structure will gradually constrict toward a single national standard.

Yet a computer programming firm, say, and a grocery store chain have very different insurance needs, and in any case may not be able to afford the same kind and level of benefits. Innovation in insurance products will also be subject to political tampering. Likely casualties include the wellness initiatives that give workers financial incentives to take more responsibility for their own health, such as Safeway’s. Some politicians will claim that’s unfair. High-deductible plans with health savings accounts are also out of political favor, therefore certain to go overboard. If you have one of those and like it, too bad.

The new Erisa regime will be especially difficult to meet for businesses that operate with very slim profit margins or have large numbers of part-time or seasonal workers. They may simply “cash out” and surrender 8% of their payroll under the employer-mandate tax. A new analysis by the Lewin Group, prepared for the Heritage Foundation, finds that some 88.1 million people will be shifted out of private employer health insurance under the House bill. If those people preferred their prior plan, well, too bad again.

The largest employers—though not all—may clear the minimum bar, at least at first. But in addition to the “health choices” administrative burden, the cost of labor will rise because the House guts another key section of Erisa. Currently, lawsuits about employee benefits are barred under the law, allowing large employers to avoid the state tort lotteries in disputes over coverage. No longer. As a gratuity to the trial bar, Democrats will now subject businesses to these liabilities in the name of health “reform.”

So when Mr. Obama says that “If you like your health-care plan, you’ll be able to keep your health-care plan, period. No one will take it away, no matter what,” he’s wrong. Period. What he’s not telling the American people is that the government will so dramatically change the rules of the insurance market that employers will find it impossible to maintain their current coverage, and many will drop it altogether. The more we inspect the House bill, the more it looks to be one of the worst pieces of legislation ever introduced in Congress.

I hope you can see what a flat-out, whopping lie Barack Obama and his Democrat army of cockroaches have been telling you, and telling the American people.  They have been telling you what you wanted to hear.  The fact that what you want to hear is not in their damn bill is beside the point.  If they have to lie to sell you a boondoggle full of lies, then they will lie right up a blue streak.

This bill is a metaphor for the entire Barack Obama presidency: a gargantuan lie surrounded by attractive packaging and marketing.

Reject it.  And reject the man who has so deceitfully tried to sell it to you.

Democrat’s Government Health Care Will Increase, NOT Decrease, Costs

July 19, 2009

We don’t have any idea how expensive Obama care will truly be.  You can bet your britches – and you may end up actually being forced to BET your britches – that it will cost a whopping load more than advertised.

First, some figures to show the invariable tendency of the government to dramatically underestimate the cost of its own programs:

– 2009 (January) CBO estimated that the bailout TARP plan would cost taxpayers $189 billion; instead, several weeks later the estimated cost was raised to $356 billion, and will eventually be much more by end of 2009.

– 1965 CBO estimated that Medicare Pt. A cost would be $9 billion by 1990; instead the cost was $66 billion in 1990.  They were wrong by a mere 633%.  Today the costs have exploded so incredibly that no one’s even bothering to go back now and try to figure out just how terribly wrong the forecasters truly were.

1965 CBO estimated that all (Part A plus Part B) Medicare cost would be $12 billion by 1990; instead the cost was $107 billion in 1990, and today it has a stratospheric total unfunded liability of $61.6 trillion.  Oops.

1987 CBO estimated that subsidy for Medicaid special hospitals would be $100 million by 1992; instead the cost was $11 billion in 1992There’s a nice 10,900% cost markup for you.  Better luck next time.

1988 CBO estimated that Medicaid homecare cost would be $4 billion by 1983; instead the cost was $10 billion in 1983.  But don’t worry; it’s only money.  And being off by a mere 150% is actually quite excellent by the “close enough for government work” mindset.

2003 White House estimate of Iraq War cost would be $60 billion; instead the cost so far has exceeded $600 billion.  Oh, well, if at first you don’t succeed, there’s always Afghanistan to screw up too.

Maybe you’d better sit down for this shocker: The U.S. government controls its costs the way Monty Python’s famous Mr. Creosote controlled his weight:

And like Mr. Creosote, it will be that extra tiny little bit of spending that finally causes the U.S. treasury to explode in a gory death.  Instead of the mint that blows up Mr. Creosote, it will be a dollar bill that blows up the U.S. government.

So when you hear the arguments over how much Obama’s health care “reform” will cost, realize that it isn’t a matter of whether it will cost $1 trillion, or $1.5 trillion, or $3.5 trillion; it’s a matter of whether it will cost one of those numbers times a factor of at least 10 or more.

The $1.5 trillion figure, which is currently being thrown around, is enough of a sticker shocker even without the realization that it will actually end up costing far, far more that even Democrats – fearing losing their seats – are beginning to bail out of it.

Still, the worse the plan looks, the faster Barack Obama wants it passed, before people know what a lemon they bought.  Obama has been claiming that we must immediately pass health care “reform” in order to save money in future years.  He has pounded away with that message again and again.

But that message is a complete lie.

Allow me to introduce Doug Elmendorf, the director of the Congressional Budget Office.  And allow me to cite an article by Rick Moran from Pajama’s Media to describe the truly dire situation we face, and which we are ignoring to our literal peril:

ObamaCare Gets a Red Light from Congressional Budget Office

The Democrats’ plan not only won’t save a dime, it will cost us billions over the next decade. (Also see PJTV: Nationwide Protests Target ObamaCare)

Doug Elmendorf, director of the nonpartisan Congressional Budget Office, was testifying before the Senate Budget Committee yesterday when he dropped a bombshell on the gathering that put a whole new spin on the effort by the Obama administration to reform the health care system.

The exchange with Democrat Kent Conrad was a shocker:

Conrad: Dr. Elmendorf, I am going to really put you on the spot because we are in the middle of this health care debate, but it is critically important that we get this right. Everyone has said, virtually everyone, that bending the cost curve over time is critically important and one of the key goals of this entire effort. From what you have seen from the products of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?

Elmendorf: No, Mr. Chairman. In the legislation that has been reported we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs.

Conrad: So the cost curve in your judgment is being bent, but it is being bent the wrong way. Is that correct?

Elmendorf: The way I would put it is that the curve is being raised, so there is a justifiable focus on growth rates because of course it is the compounding of growth rates faster than the economy that leads to these unsustainable paths. But it is very hard to look out over a very long term and say very accurate things about growth rates. So most health experts that we talk with focus particularly on what is happening over the next 10 or 20 years, still a pretty long time period for projections, but focus on the next 10 or 20 years and look at whether efforts are being made that are bringing costs down or pushing costs up over that period.

As we wrote in our letter to you and Senator Gregg, the creation of a new subsidy for health insurance, which is a critical part of expanding health insurance coverage in our judgment, would by itself increase the federal responsibility for health care that raises federal spending on health care. It raises the amount of activity that is growing at this unsustainable rate and to offset that there has to be very substantial reductions in other parts of the federal commitment to health care, either on the tax revenue side through changes in the tax exclusion or on the spending side through reforms in Medicare and Medicaid.

Elmendorf made additional news yesterday by scaring the hell out of everyone when he released the latest CBO report on the long-term budget outlook that, in technical terms, says that we are in very big trouble:

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. …

Measured relative to GDP, almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs — Medicare, Medicaid, and Social Security. For decades, spending on Medicare and Medicaid has been growing faster than the economy. CBO projects that if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035. By 2080, the government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.

This double dose of doom has made absolutely no impact on Capitol Hill. Three House committees seem ready to report out a $1.5 trillion health care reform measure while the Senate Finance Committee appears close to a bipartisan deal on how to fund it — this, despite the fact that the CBO chief has told them there is no way to pay for it.

It is like being in a bad dream where there’s a fire in a room where a dinner party is being held and you’re the only one who notices. Everyone else is still playing cards, eating, or sitting around having witty conversations, all the while the fire laps closer and closer.

But it’s not a nightmare and lawmakers really are ignoring the fire. Elmendorf doesn’t come up with these projections to amuse himself and the wonks at CBO. He has outlined a recipe for catastrophe that will eventually make the United States a second rate economic power, not to mention impoverish the population.

The president and Democrats have been pitching this plan as a cost-saving measure. The president especially has been warning that we have to pass this reform bill quickly in order to get control of the spiraling deficits grimly outlined in Elmendorf’s long-term budget outlook.

But Elmendorf is saying that we can’t get there from here, that the numbers being used by Democrats to close the gap between what the bill will cost and how they plan to pay for it are simply not adding up.

There is another aspect to this reform measure that few are talking about: history. Every single entitlement program ever created by the federal government has cost the taxpayer more than advertised — in some cases, astronomically more.

Medicare is a perfect example. When the program was created in 1965, it cost taxpayers around $3 billion. At that time, the House Ways and Means Committee estimated that Medicare would cost $12 billion by 1990 — and that number was adjusted for a predicted rate of inflation. The actual cost of the program in 1990 was $107 billion. And today, Medicare costs the U.S. taxpayer $440 billion.

At best, Congress is guessing. The fact is, no one knows how much this monstrosity is going to cost, no one knows how it is going to be paid for, and no one knows what effect it will have on the quality of care or on the private insurance industry.

The ideas being implemented are untried. And, unlike NASA testing a new rocket or the Air Force testing a new fighter where failure is expected, there is no room for error. However this thing works itself out, we are stuck with it. History is a telling guide here as well; there has never been an entitlement once created that was later rescinded.

Elmendorf’s testimony and budget outlook should be heeded. Yes, we need to reform the health care system — badly. But the Democrats’ plan is not the only game in town. There are many proposals left unexamined by the Democrats in their haste to give their president a triumph. The partisan nature of the debate, the deliberate closing off of alternatives that would cost far less and perhaps do as much as is being proposed, and the damnable rush to get it all done before anything is digested or weighed against the long term, is frightening.

The major justification for speed in passing this legislation just went out the window with Director Elmendorf’s admission that the health care reform bill will only add many billions to the record deficits we will already be running over the next decade. Is that reason enough to slow down or even stop what the Congress is doing in order to think this thing through and try to come up with alternatives?

Not when it’s easier to ignore the fire lapping at your toes in order to grant a political victory to a president in trouble with the voters.

They say elections have consequences, and since the country voted for total Democrat control, we should let the Democrats have their shot.  That may be true.  But what we did as a nation in November was vote to slash our jugular veins, so that the blood of the entire nation (measured in the red ink of crippling debts) would gush out until we are left with less than a banana republic.

It is my sincerely held belief that those who truly understand the real picture are not telling us how truly bad things are, lest the people bring the nation down in one massively giant “bank run.”

Reuters’ Nine Reasons Democrats’ Healthcare Surtax Is Dangerous

July 16, 2009

Our republic is in the worst kind of danger.  No enemy could do to us from without what Obama and liberal Democrats are doing to us from within.

9 reasons Pelosi’s healthcare surtax is disastrous

by: James Pethokoukis

So what explains the crazy, cockeyed optimism of House Democrats? Maybe they still believe Team Obama’s rosy-scenario forecast that shows the stimulus package a) keeping unemployment under 8 percent this year and b) launching an economic boom next year and beyond. For some reason, though, they think the battered U.S. economy is so strong that politicians can pile tax upon tax on it with no fear of further harm. Less than three weeks after passing a costly cap-and-trade carbon emission plan, Pelosi & Co. have giddily unveiled a $1.2 trillion healthcare plan partially funded by a $544 billion surtax on the work and investment income of wealthier Americans, including small business owners.

[See why Obama’s economic gamble is failing.]

The ten-year proposal calls for a 1 percent surtax on adjusted gross income — including capital gains — between $350,000 and $500,000; a 1.5% surtax on income between $500,000 and $1 million; and a 5.4% surtax on income exceeding $1 million. (Interestingly, the House fact sheet on the surtax forgets to mention the highest tax rate. Hey, they were in a rush.) How bad an idea is this? Let me count the ways:

It’s not the first Obama tax hike. This tax would be in addition to the $1 trillion in new taxes that Obama called for in his budget released earlier this year. (And then there’s cap and trade, remember.) And if healthcare reform costs more than expected — what are the odds of that, you think? — the surtax would go up.

[See 5 economic stimulus plans better than the one we’ve got.]

It pushes income tax rates above a key threshhold. Once you take into account state income taxes, the top tax rate would sneak above 50 percent. Research by former White House economist Lawrence Lindsey has found that rates above 40 percent really start to hit economic growth especially hard.

It’s risky in a weak economy. Democrats love the “consensus view” when it comes to climate change, so how about the economy? The consensus view is for unemployment to hit double digits this year and stay high throughout 2010 and beyond as the economy staggers to its feet. Even Treasury Secretary Tim Geithner said “it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals.” In a “long recession” environment, do we really want a policy that, according to research that current White House economic adviser Christina Romer conducted at Stanford University, is “highly contractionary.”

It actually makes America’s healthcare problem worse. Entitlements, including Medicare, will eventually bankrupt the economy unless action is taken. Agreed. But lowering the potential U.S. growth rate will only make those problems worse by generating lower tax revenue and making the overall pie smaller than it would be otherwise. Yet many economists think government interventions in finance, housing, autos, energy and now healthcare will do just that. And adding layers of additional new taxes helps how?

It makes the tax code more lopsided and inefficient. As it is, the top 1 percent of Americans in terms of income pay 40 percent of taxes. Not only would this plan exacerbate this imbalance, it adds further complexity to the tax code. Most tax reformers favor a simpler system with fewer brackets and deductions matched by a lower rate. Indeed, Howard Gleckman of the Tax Policy Center points out the following:

Many of the uber-rich are unlikely to pay much more in taxes than they do now, despite the rate increase. Since we’d be returning to pre-1986 rates, we shouldn’t be surprised when the very wealthy reprise their pre-1986 sheltering behavior. The hoary financial alchemy of turning ordinary income into capital gains, morphing individuals into corporations, and deferring compensation will return. Remember, the targets of these tax hikes are the people who can most easily manipulate their income. The bad old days of bull semen partnerships may not return, but I suspect the financial Merlins are already cooking up new shelters for what promises to be a booming new market.

It hurts U.S. competitiveness. America already has the second highest corporate tax rate in the world. Under the House plan, the top U.S. income tax rate would be higher than the OECD (advanced economies) average of 42 percent. France and Germany, by contrast, are looking to keep rates stable or lower them. Pro-growth China doesn’t even tax investment income.

It ignores the lessons of Clinton. Democrats love to point out how the Clinton tax increases didn’t tank the economy back in the 1990s. Oh, you mean the economy that was expanding for more than two years before he signed his tax increases? The economy is far weaker today and may be anemic for some time given the history of economies that suffered a banking crisis.

It ignores the lessons of 1937. The slowly recovering 1930s economy weakened again in 1937 and 1938. Again, Christina Romer tells all:

In this fragile environment, fiscal policy turned sharply contractionary. The one-time veterans’ bonus ended, and Social Security taxes were collected for the first time in 1937. … GDP rose by only 5% in 1937 and then fell by 3% in 1938, and unemployment rose dramatically, reaching 19% in 1938. The 1937 episode is an important cautionary tale for modern policymakers. At some point, recovery will take on a life of its own, as rising output generates rising investment and inventory demand through accelerator effects, and confidence and optimism replace caution and pessimism. But, we will need to monitor the economy closely to be sure that the private sector is back in the saddle before government takes away its crucial lifeline.

Except in this the case, Uncle Sam is not taking away a lifeline but tightening the noose.

It pays for a wrong-headed healthcare reform plan. Health exchanges, a public option, subsidies, taxes … well, we could go on and on. Or we could try to create a simpler consumer-driven market. Harvard Business economist Regina Herzlinger recommends reforming the tax system by making the money spent by employers on health insurance available as cash, tax-free, to employees. “Insurers would then compete for customers with policies that offer better value for the money,” she wrote in an analysis for consultancy McKinsey. Not even on the Obamacrat radar screen, though.

All in all, it’s another sign from the Obama administration and the Obamacrats in Congress that their top priority is redistributing existing wealth — at least what’s left of it — rather than creating new wealth. That, I guess, explains those ear-to-ear smiles on Capitol Hill.

Small businesses – widely recognized as by far and away the biggest job- and wealth-creating engines for our economy – are about to get hit with a massive double whammy.  Since most file as “S corporations” by which they are taxed on their total earnings, they will fall under the Democrats plans to “tax the rich.”  More than 1 million of our most successful small businesses which employ the most workers will be hit by this tax.  And at the same time, all but the very smallest small business will be hit with Obama’s additional 8% payroll tax unless they provide health care insurance that passes liberals’ scrutiny.

Meredith Whitney, who gained a great deal of credibility after predicting much of the economic calamity that has since come to pass, has predicted that unemployment will surpass 13%, and continue to harm the banking industry and the overall economy for years to come.  What fool thinks it’s a good idea to impose job-crushing policies while our unemployment rate is already soaring?

We are facing deficits and debts that dwarf anything ever seen in human history.  And we are about to reach a critical mass, a point at which the entire house of cards comes crashing down.  And America is going to experience suffering on a scale never even imagined before.

Gerald Celente, CEO of the highly regarded Trends Research Institute, predicted that we will have food riots and tax revolts by 2012.  He said “America’s going to go through a transition the likes of which no one is prepared for.”

Obama and his giant nest of liberal snakes have already imposed shocking levels of debt on this nation that will almost certainly result in hyperinflation in coming years.  And he is hard at work poisoning our economy with stupid and immoral health care legislation and even more stupid and immoral cap-and-trade legislation that will kill our economic output without even slightly reducing overall global warming gasses.

What is going to happen in the next few weeks is the difference between whether this nation has any chance whatsoever to recover, or whether we are destined to become a banana republic spiralling down a cyle of violence and repressive government regimes.