Bloomberg: How the Democrats Created the Financial Crisis
In "How the Democrats Created the Financial Crisis," Hasset writes that the current economic woes involving Lehman Brothers, Fannie Mae, Freddie Mac and others are really not that difficult to understand. Fannie Mae and Freddie Mac fell apart, Hasset says, "...by becoming a key enable of the mortgage crisis."
He explains that the two mortgage giants "...fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools" and by holding significant numbers of the mortgages themselves. Just over a year ago, Hasset says, just Fannie Mae owned or guaranteed in excess of $388 billion in what he termed "high-risk" mortgages. It was the significant holdings of Fannie and Freddie that "...created an environment within which even mortgage-backed securities assembled by others could find a ready home."
This would not be a big deal, Hasset writes, as long as real estate prices continue to go up. But take Fannie Mae and Freddie Mac out of the equation altogether, he says, "...and it's hard to imagine how these highly liquid markets would ever have emerged."
The crucial point, he writes, came several years ago: "Back in 2005, Fannie and Freddie were...on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004...the Securities and Exchange Commission'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."
It was at this time that "legislative momentum" in the Republican-led Congress "...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." Next, Hasset says, the Senate Banking Committee passed a reform bill for Fannie Mae and Freddie Mac that would have provided more regulation and "...would have required the companies to eliminate their investments in risky assets."
But the reform legislation never made it all the way to becoming law. Why? Hasset says the bill failed because "...Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans...couldn't even get the Senate to vote on the matter." Securities and Exchange Commission chief accountant Peter Wallison wrote then, "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.''
In the interest of transparency and honesty, it is important to point out that Mr. Hasset is an adviser of Republican presidential nominee Senator John McCain.
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4 Comments
Post a CommentThe American Enterprise Institute is one of the 'genius' think-tanks providing the Bush Administration with its economic advisors. These are the same people who take money from oil companies and then turn around and bury legitimate climate scientists. Of course the AEI would blame democrats. That's what they've made their careers out of, that and wrecking the US economy with their greed based policies.
Where do you dig this stuff up? You cite an 'opinion piece' that has no basis in fact and then don't check the facts. Write your own material - you'kk have more credibility. McCain was a co-author of Fannie and Freddie sponsored legislation introduced by Chuck Hagel in his committee. Your opinion guy never mentions this.
THAT senate bill had bipartisan support. It passed the house with ONLY 90 dissenting votes. The 109th Session of the Senate had a 55-44 Republican MAJORITY. IF Republicans had backed that bill, there was NOTHING that Democrats could do to stop it.
"According to Mike Oxley, the Republican Congressman who wrote it:
* "Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration."
Contrary to Hassett's selective history, Republicans have LONG been some of the biggest backers of Freddie and Fannie. One of the biggest backers of Fannie and Freddie as stabilizers to the economic system WAS MCCAIN'S OWN CAMPAIGN MANAGER, Rick Davis. Davis wrote
*"Over the last year, some critics have quest
And you'll probably find the reverse analysis in Mother Jones. American Enterprise Institute is a heavily opinionated outlet. Also, the analysis is really flawed. Compare it to basic economic analyses of the current situation and it is far afield. Even John McCain blames the current Republican Admnistration for the collapse and has called on SEC chair to resign for being asleep at the switch.