Article Image

The Democrats and Obama helped create this Financial Crisis and are now creating another

Written by Subject: Government
The Democrats and Obama helped create this Financial Crisis and are now creating another. Most people are led to believe that the fault for the current crisis rests totally on the banks. Yes they are major contributors especially since they mixed this poison throughout the financial system of the entire world. However if you watch Cops like they say there is his side, her side and the truth lies somewhere in the middle. In that vein lets examine what led to the implementation of the crisis. Back in 2005, Fannie and Freddie were, after years of dominating, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations. Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe. The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.'' What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets. Different World If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed. But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter. That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.'' Mounds of Materials Read the rest here... Another good look at the situation can be found here. I would also point out that dirty dodd and others including obama got special home loans from the friends of Angelo program. And now they are creating another!

3 Comments in Response to

Comment by Anonymous
Entered on:

I am happy this provoked some thought. Yes there is plenty of blame to go around. I just wanted people to understand that since it is no longer pointed out by the mainstream news. Please read the links. Another good look at the situation can be found here.

Comment by Al Parker
Entered on:

I would agree that the Fed kept rates artificially low for too long, and this had the effect of encouraging RE speculation. And yes, had this not occurred, it is very likely the RE bubble would not have grown so large.

But there's also a major component of blame consisting of massively lowered loan underwriting standards and the corruption of the ratings agencies, Fitch, Std and Poors, Moody's. This part was equally vital to the game. Because even if rates went to zero, there is and was still a monthly amortizing payment to be made on a mortgage, and that payment has not traditionally been allowed to exceed 36% of a family's gross wage, not to mention a nominal 20% down payment. The idea of a level of debt service far in excess of these time-tested guidelines gave the ratings agys cover to rate clusters of mortgage bonds "AAA" when they should have been rated "guarateed to fail".

Now I don't claim this was a rep or Democrat failure per se, but at the center of the whole s**tstorm was Fannie and Freddie. THEY were the ones who encouraged bunko underwriting [eg; assessing borrower capability] and when THEY lowered the standards to government guaranteed coverage of these loans, all guidelines pretty much disappeared.

Plenty of blame to go around, no question about it.

Comment by Forty Four O Nine
Entered on:

Lori wait a minute...the Federal Reserve controls the interest rates. If the feds would not have left the interest rates artificially low there would not have been speculation which led to the housing surge.

In as much it would not have mattered what the republicans or democrats passed to encourage home loans because the feds should have raised the rates to offset it to maintain stability and stay off speculation.

The problem in the housing market rests on the feds because it is their job to maintain stability. 

Join us on our Social Networks:


Share this page with your friends on your favorite social network: