Blame Freddie Mac And Fannie Mae On The Democrats

Atleast according to this old 2003 article from the New York Times:

New Agency Proposed to Oversee Freddie Mac and Fannie Mae

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….

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”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.”

Link via Greg Mankiw.

Update: Robert Reich has more and Arnold Kling has more. The Washington Post has more.

71 Responses to “Blame Freddie Mac And Fannie Mae On The Democrats”


  • So let me get this straight, the Democrats are at fault for not cleaning up the complete incompetence and unrestricted spending of the Republicans for the 6 years they were in control of everything. It was the republicans that removed all the safeguards from the lending industry and the oversight for fannie mae and freddie mac lies with the executive branch. More lies from the typical kindergarten finger pointing conservatives that can only wrongly blame everyone else for the mess they create.

  • The post above directly contradicts your claim: Bush did try to implement safeguards and regulations to guard against the collapse – Democrats wouldn’t let them.

    Oh, and lets also not forget what started us in this direction in the first place: Lyndon Johnson’s dubious move, see here.

  • And if you follow the money trail of where corporate donations from Fannie Mae and Freddie Mac were funneled things get ever more interesting.

  • the money trail exchanges, between democrats and republicans, whoever is in control of the legislature receives more money, its rather evenly split between both groups.

  • Dem congress was so bad back then huh guys?

    Oh wait the Republicans controlled it all!

    And Bush was not proposing any oversight if you look at it. He was just appointing a czar that would answer to him…

  • This is the key paragraph fp:

    “”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.””

  • SanFranciscoJim

    Who was in control of all three branches of government in 2003?

  • Not filibuster control – unfortunately.

  • I doubt those who would lamely defend the Democrats and accuse the Republicans even know what a filibuster is. If anyone has any desire to know the truth, I’ll explain.

    A filibuster is a procedure for blocking legislation from moving forward. Even a majority can not override it. If my memory serves, it takes at least 284 votes in the House of Representatives to overide a filibuster. That’s roughly a 2/3 majority, given that the house has 435 members.

    Basically, the Democrats blocked all efforts to reform Fannie and Freddie. You liberals can spin it how you want. You can mindlessly blame Bush. You can dig in your heels and lie to yourselves. But you can not deny the facts.

    The Democrats are to blame for the Fannie Mae mess.

  • Yep, and what I really love about this post is it shows – for everybody to see – just how desperate Democrats are to blame Bush for this. Even with the article above, they still claim it was more Republicans fault than Democrats.

    I just hope other non-partisan readers take this to heart – and remember it the next time someone quickly blames the right for the mess we are in.

  • HP, and it should also be noted that the Senate Banking Commitee is in charge of regulating and overseeing Fannie and Freddie. The Chairman of that commitee is Democrat Chris Dodd. He’s also the largest recipient of money fron Fannie and Freddie. The second largest recipient is Barack Obama, amazingly was able to earn that designation despite being in the Senate for only three years.

    Another thing, John McCain sponsored a bill in 2005 called the Federal Housing Regulatory Reform Act, which would have addressed the looming mortgage meltdown. It too was blocked by the Democrats.

    John McCain saw this coming and tried to correct it. Barack Obama just rang up the tab while planning his future Presidential run.

    Keep your eyes and ears open. I expect this reality is not goig away. McCain can blast Obama and the Democrats out of the water like sitting ducks.

  • Phantom_Unmasker

    What people should know before they shoot their mouths off and wound their feet:

    The bill following up on Bush’s recommendation, cited by hispanicpundit above, was S.190, the Federal Housing Enterprise Reform Act of 2005. It was sponsored by Republican Senator Chuck Hagel and co-sponsored by three other Republicans, one of whom was Senator John McCain. It was introduced in January of 2005 into the Republican-controlled Senate and referred to the Committee on Banking, Housing, and Urban Affairs, chaired, of course, by a Republican.

    By most accounts, the bill died in the Republican-dominated committee. govtrak.us indicates that the last action taken on the bill–on July 28, 2005, while Republicans still had control of the Senate–was to order it “reported with an amendment in the nature of a substitute favorably,” whatever that means. One consequence, though, was that the bill was never even scheduled for debate. It was certainly never voted on.

    All of these details make the political relevance of this bill in the current campaign for U.S. President vitually nil. McCain co-sponsored the bill and, for his trouble, got to express his concern with abuses that had come to light in a report by the Fannie Mae oversight agency. If McCain talked or did anything further about reforming the GSEs, following his half dozen paragraphs of concern, I have yet to see it.

    As far as McCain’s clairvoyance is concerned, his paragraphs simply acknowledge the problem highlighted in the report; namely, that executives at Fannie Mae had a significant interest in boosting the organization’s bottom line because it resulted in increased pay to them. McCain also noted another obvious point–that the GSEs had become so big and so crucial to the home lending industry that they needed closer oversight. Neither of these observations establish McCain’s credentials as a guru regarding how best to deal with the secondary mortgage market. Nor do we know how much real reform would have been achieved by S.190 had it ever reached the floor for debate from the Republican-dominated committee and been voted into law.

    McCain deserves a bit of credit for voicing, back in 2005, some general concern over a conflict of interest issue at Fannie Mae and some abuses that came to light in a report. That’s about it, as far as I can see.

    As for Obama getting large campaign contributions from GSE executives, I need further information: Were the contributions sizable enough to influence his votes (or abstentions) on any key legislation? Did any key legislation on this topic reach a stage where he could have said anything for or against it or voted for or against it, and if so, did he? If hispanicpundit can answer those questions in some detail, maybe we’ll have something to discuss regarding Obama. Right now I can’t see it.

    P.S. I am an independent voter who supports Obama and regards McCain as a plodder who, for all his years in the Senate, doesn’t seem to have developed much depth of understanding of the basic issues facing our next president. Obama’s understanding can be inferred from his detailed and coherent plans for dealing with each major issue. If you want to see the contrast, you need to go to both candidate’s web sites and actually do your homework. Most of the stuff that comes out daily in the media and on these blogs amount to mere distractions and fodder for that odd form of election year entertainment: the Battle of (deceitful) Blatherers.

  • McCain deserves a bit of credit for voicing, back in 2005, some general concern over a conflict of interest issue at Fannie Mae and some abuses that came to light in a report. That’s about it, as far as I can see.

    Or, another way to see it, McCain saw the problem coming and Democrats didn’t.

    Btw, this bill was proposed back in 2003, not 2005 – now thats foresight.

  • Phantom_Unmasker

    What was proposed in 2003 was merely a restructuring of an existing regulatory agency. There is no reason to believe a different structure would have solved the problems. At the time Bush recommended the restructuring, he had earned a well-deserved reputation for filling appointments in his agencies with political loyalists of dubious competence, the most notorious example being his head of FEMA, Michael Brown, whose qualifications for a position of such importance were simply pitiful. We all know how stunningly bad FEMA’s response to Katrina was, in large part due the fact that Bush jettisoned most of the professional staff Clinton had put in place, replacing them with amateur political hacks. The Bush administration created a similar disaster after the invasion, staffing the Iraq reconstruction team with political ideologs with no experience, no competence, and no training at what they were sent there to do.

    After surveying the scandalous performances at agency after agency that fell under the Bush administration’s responsibility–FEMA, the FDA, the Department of the Interior, and on and on–it’s hard to come away thinking the creation of new titles and organizational charts could have solved any major problems placed under the administration’s jurisdiction. That certainly includes something as massive as the subprime lending fiasco.

    If you think the creation of new titles and organizational charts is the way to tackle our most pressing national challenges, I can see how you might think McCain is the man (although you’d better find out how much he actually contributed to S.190–what you’ve shown us isn’t much to go by). On the other hand, if you think well-thought out, coherent approaches that address specific problems with specific solutions tailored to the job, you ought to be going over both candidate’s actual plans with a fine-toothed comb, as I have been doing. I can almost guarantee you it will change your perspective.

  • Say what you will about what would of happened, we will never know, after all the Democrats blocked the proposal. The point of the article has still not been rebutted: the Bush administration had the foresight to see problems ahead, Democrats denied the problems, one even saying, ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis”…

    …but of course, it was all Bush’s fault, the Democrats none.

    Readers could decide for themselves.

  • According to the New York Times, Democrats blocked Bush’s Fannie Mae and Freddie Mac reforms so low income people with bad credit could buy houses.
    ”These two entities -Fannie Mae and Freddie Mac – are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, and the less we will see in terms of affordable housing.” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee.
    http://strategicthought-charles77.blogspot.com/2008/09/democrats-blocked-bushs-fannie-mae-and.html

  • Phantom_Unmasker

    I am hearing a number of claims made that are simply false. S.190 died in a Republican-controlled committee. It never saw floor debate in the Senate and never came to a floor vote. Hence there was never any Democratic filibuster on the Senate floor.

    Where are you getting your information that Democrats blocked this bill? As far as I can see you’ve only established that a Democrat criticized it. That scarcely constitutes “blocking” the legislation.

    I’d like to hear more facts and fewer false claims.

  • The important quote:

    “Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.”

    Remember, this is a post filibuster congress – merely denouncing a bill is enough to signal that it will be blocked by the filibuster, of which Republicans did not have votes to override.

    But more importantly, atleast Bush and his administration saw the problems coming, Democrats, even in 2003, had no concept of the dangers ahead – yet they are the ones pointing fingers most, now.

  • Finally,

    Phantom has the correct information.
    People keep sending me stupid e-mails that make no sense. In my opinion Freddie Mac and Fannie Mae are in trouble for buying packages of bad loans from most banks. Reform Act of 2005, most of the bad subprime loans were already completed. Mortgage loans that were given…….no money down, no doc loans, 5% down and after closing 5% back to the borrower. Not to mention the appraisal business once again.

  • Phantom_Unmasker

    So now are you claiming that in a closely divided Congress, no bill can even get out of committee if one party denounces it? Remember, this bill failed to get out of a Republican-dominated committee.

    Would you have us henceforth assume that Republicans have “blocked” every bill they have denounced? Such a principle would be very useful to Democrats in the present Congress, who could very convincingly use it against Republicans precisely because the Republican Party disciplines its members far more stringently than Democrats. On the other hand, your principle becomes ludicrous when applied to Democrats, especially during the year S.190 languished in a Republican committee. Democrats have never in recent memory had the kind of unity that would enable the party leadership to block a bill simply by denouncing it.

    You’d better come up with a better explanation for the fact that the bill never got even got out of a Republican-chaired committee. The one you’ve proposed is DOA.

  • I’ve said all I plan to say on this…readers could read the original NYT article, read the comments, and decide for themselves.

    I’ll let you have the last word.

  • Phantom_Unmasker

    I’ll take that last word just to say thanks for your generosity, Pundit.

  • Same to you…I appreciate the difference of opinion!

    Btw, did you get my emails?

  • Democrats created the Fannie Mae and Freddie Mac problems years ago, in a well intentioned but failed effort to allow low income groups to buy houses. They stopped ALL eforts at reform until it was too late. Now they are trying to blame Bush, McCain and Republicans, everyone but themselves. That’s the Gods truth and here is the proof:
    http://strategicthought-charles77.blogspot.com/2008/09/democrats-created-fannie-mae-and.html

  • I hear a lot of criticism about the Republicans being at fault for deregulating banking/mortgages/investment houses. If I recall, wasn’t it Pres. Clinton who signed this deregulation bill into act back in 1999? Not to mention that he did so after his own Chairman of the Treasury (volk) voiced great concerns.

    I’m not saying that the Republicans can wash their hands of this because there are steps they could have taken. Greenspan kept interests rates unrealistically low for too long in a war-time economy. Furthermore, the Republicans SHOULD have been more aggressive in their formation of an oversight committee.

    Yet we must not forget that it was the actions of Democractic GSE’s and corporations that also brought us here. Dem Barney Frank insisted in 2005 that the housing situation was strong. These GSE’s and other corporations allowed their own greed and the materialism of the American society to fill their coffers.

    There is enough blame to throw around both sides of the aisle. I just hope the left-weighted media will put blame where blame is due and not just focus on the fact that the Republicans have been in office the past 8 years.

  • I, the reader, read the original NYT article, the comments, and decide for myself:
    HispanicPundit buys all the propaganda from the Mccain camp, and Phantom_unmasker shows facts and insight in the topic

  • If you read the bill you will see that it was disguised as a desire for more regulation but in reality it was an attempt to PRIVATIZE regulation. In other words: Lending regulation ala Blackwater.

  • Unlike the Europeans, American (religious based) political culture historically tends to blame the individual or individual entities/organizations and never the overarching economic system (in terms of inherent structural flaws/weakness). Thus, to Americans the free market place is GOD (unassailable/pure/perfect and thus not in need of a radical change of ethos). First off people overlook the issue of potential structural conflict given that both Fannie Mae and Freddie Mac are joint public/private sector concerns. It is therefore amazing to see folks deriding the government’s involvement in those organizations but conveniently ignoring the potentially negative impact of the “for profit at all cost” motivations of the private sector interests that are present within the said Fannie Mae/Fressie Mac bureaucracy.

    Further,…..analysts critical of government or the deregulation of the housing market keep forgetting that while government may have an altruistic interest in providing cheap/cheaper housing for the poor (who have been left behind by the economy) it is really the “capitalisitic” private sector elements withn Freddie Mac and Fannie Mae who have a vested interest to create as wide a market as possible (among the poor) in order to drive the accumulation of more and more profit streams for the banking sector’s benefit–a position no different from the ethos of greed involved in the sub prime mortgage fiasco.

  • Wow…that is basically a dressed up version of the populist message Gary O’Neil. Nothing new. I still dont buy it – no matter how much you dress it up.

  • What do you mean by a dressed up populist message”?? The realities of (free market) economics are clear………do you even appreciate the concept of market exploitation? Do you see the reality that if left alone/unregulated,…free market capitalism tends to implode as a few wealthy folks become disproportionately richer while an increasing number of people within the majority population becomes poorer and debt ridden as they struggle (via credit card/mortgage and bank loan based debt) to maintain their materialistic/consumer lifestyle,…..a reality that precipitates market imbalance/instability (as evidenced in the realities of economic booms and busts)as the working poor struggle to keep up with the realities of the declining value of money (re: inflation) over time, bouts of unemployment/underemployment and attendant poverty. If you doubt the veracity of my arguments I challenge you to bring converse data on the economy to the table of debate. Further,…please examine the wage/debt realities of the decade preceding the Wall Street stock market crash of 1929 (where cheap bank loans were used to buy stocks/bonds on margin)and the resulting Great Depression.

  • Gary, putting politics aside, there is a sad truth about humans… we don’t like to be proven wrong. We’ll go through very long and hairy arguments to ignore or bend facts and support ideas given to us by our parents/school/church/FoxNews during our teenage years.
    This is why you can present all the facts in the world to hispanicpundit that you wish, and he won’t change his mind. And he can give you all his ‘facts’ and you won’t change yours. The difference is that after his blind economic conservatism drives the world into a deep economic, political and environmental crisis, they’ll say that it was inevitable anyways, and we’ll say, ‘we told you so’.

  • Sorry but I just turn off anytime I hear certain key words like “greed” or an over emphasis on regulations.

    Why? I’ll explain.

    First, it is personal interest itself that drives capitalism, so unless you are against capitalism itself, any criticism that places “greed” as center stage is, almost by definition, economically void of content.

    Second, if this was really about greed, then why are these companies failing? Greed means wanting to hoard more of the resources for yourself, but if that was happening, then why did the companies fail? In other words, you can say incompetent, you can blame a bubble, you can even say a followers mentality, but greed just doesn’t fit the data. It’s clear to me that these companies all assumed that they would make money on these loans, else they wouldn’t have taken them (unless of course, you think they wanted to go bankrupt). This is the same assumption that buyers as well as lenders operated under.

    Third, greed is a charge that doesn’t fit the ups and downs of an economy. Take oil for example, if the price of oil is really the result of greedy oil executives, than what do you say when the price of oil drops? Were these oil executives then being generous? Should we send them thank you cards for letting the price of oil drop? Greed, again, just doesn’t fit.

    On regulations, it too is too simplistic an explanation. Regulations is not an either/or solution. Everybody believes in some regulations and nobody believes in an overly regulated environment (unless of course you are a communist sympathizer or have no appreciation for innovation).

    Also, it just doesn’t fit the data. In fact, the the more lightly regulated hedge fund industry is weathering this storm better than the more heavily regulated banks.

    Last thing, lighter regulation as a whole has helped the United States overall. For example, compare west europe to the United States. West Europe has always been more regulated and the United States – year after year – has experienced higher levels of growth, lower levels of unemployment, and greater amounts of innovation. In other words, less regulation doesn’t just win when you compare communism vs. capitalism, it wins when you compare capitalist economies themselves.

    So yes, when I hear key words like ‘greed’ or simple solutions like ‘we need more regulation’, I usually don’t waste my time responding. The people who I want to reach would already know its a useless comment anyway, and those that don’t are probably too far gone to change their minds anyway.

  • ‘Always for Less Regulation’?
    John McCain’s record on Wall Street oversight gets some misleading spin from Barack Obama.

    Friday, September 19, 2008; Page A18

    TO LISTEN to Sen. Barack Obama, Sen. John McCain is a Johnny-come-lately to the cause of regulating financial markets. “He has consistently opposed the sorts of common-sense regulations that might have lessened the current crisis,” Mr. Obama said in New Mexico yesterday. “When I was warning about the danger ahead on Wall Street months ago because of the lack of oversight, Senator McCain was telling the Wall Street Journal — and I quote — ‘I’m always for less regulation.’ ”

    But the full quotation from Mr. McCain’s March interview with the Journal’s editorial board belies Mr. Obama’s one-sided rendition. The Republican candidate went on to say, “But I am aware of the view that there is a need for government oversight. I think we found this in the subprime lending crisis — that there are people that game the system and if not outright broke the law, they certainly engaged in unethical conduct which made this problem worse. So I do believe that there is role for oversight.”

    It’s fair to say that Mr. McCain has dramatically ramped up the regulatory rhetoric in the wake of the meltdown on Wall Street. Mr. Obama made the argument about the need for increased oversight much earlier. And Mr. McCain has generally taken an anti-regulatory stance, although not in all cases — his support for federal regulation of tobacco and boxing being prominent counter-examples. Mr. McCain backed a moratorium on all new federal regulation in 1995, saying that excessive regulations were “destroying the American family, the American dream.” On the campaign trail in 2000, he touted his record of voting “for smaller government, for less regulation.”

    However, when it comes to regulating financial institutions and corporate misconduct, Mr. McCain’s record is more in keeping with his current rhetoric. In the aftermath of the Enron collapse and other accounting scandals, he was a leader, with Sen. Carl M. Levin (D-Mich.), in pushing to require that companies treat stock options granted to employees as expenses on their balance sheets. “I have long opposed unnecessary regulation of business activity, mindful that the heavy hand of government can discourage innovation,” he wrote in a July 2002 op-ed in the New York Times. “But in the current climate only a restoration of the system of checks and balances that once protected the American investor — and that has seriously deteriorated over the past 10 years — can restore the confidence that makes financial markets work.”

    Mr. McCain was an early voice calling for the resignation of Securities and Exchange Commission Chairman Harvey Pitt, charging that he “seems to prefer industry self-policing to necessary lawmaking. Government’s demands for corporate accountability are only credible if government executives are held accountable as well.”

    In 2006, he pushed for stronger regulation of Fannie Mae and Freddie Mac — while Mr. Obama was notably silent. “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,” Mr. McCain warned at the time.

    One element of the Obama campaign’s brief against Mr. McCain is that he supported repeal of the law separating commercial banks from investment banks. “He’s spent decades in Washington supporting financial institutions instead of their customers,” Mr. Obama said yesterday. “Phil Gramm, one of the architects of the deregulation in Washington that led directly to this mess on Wall Street, is also the architect of John McCain’s economic plan.” Would it be churlish to point out that another author of the Gramm-Leach-Bliley law is former congressman Jim Leach, a founder of Republicans for Obama? Or that Obama advisers Lawrence H. Summers and Robert E. Rubin supported the repeal — which was signed by President Bill Clinton?

    It’s a reasonable question which candidate has been more attentive to the brewing problems on Wall Street and which has a better prescription for them. But Mr. Obama’s attack does not give a fair reading of the McCain record.

  • A little basic education about Mortgage Brokers. Firstly, every state is different. Some states such as Calif. Mortgage Brokers are heavily monitored and regulated and they have to be licensed. Loan officers that work for Banks do not have to be licensed. To understand it better if you can only get that banks products then you have a loan officer. Many people make the mistake of referring to Mortgage Brokers that are really loan officers. Mortgage Brokers only originate loans. Several licensed salespersons work under a Broker whom has broker agreements with several banks. BoA, WAMU, CHASE, Wells, First Franklin…etc. To become a Premier Broker you have to do a lot of volume. My broker that I work for has an MBA from USC and every Mortgage Broker in our office is not only licensed but we all have college degrees.

    Mortgage Brokers have absolutely NOTHING to do with the programs that a lender offers. A Mortgage Broker has absolutely nothing to do with the underwriting standards a lender uses. I can only send in a prospective borrowers loan application for a program that exists. Contrary to many of things I have read on this blog, nearly every person has an idea of what kind of loan they want. The majority are very certain. If good MB will give them a couple of options and some suggestions for their particular situation. A loan package just to get the whole thing started is 26 pages of required disclosures including the application. Then the borrowers get’s disclosures from Escrow and then the Lender sends their disclosures out. And all this is before you even get to the loan doc’s. You know what your signing and if fraud is committed there has always been recourse for those circumstances. That is not what has produced this mess.

    Fannie/Freddie: As I stated early a Mortgage Broker has nothing to do with each lenders underwriting standards but I will tell you that nearly all lenders in the past 10 years have been taking all Fannie/Freddie approvals. What do I mean: A Mortgage Broker will do a DU , Desktop Underwriting which is Fannie Mae on the lender your are using, web-site to get an approval. What was happening until this past year was that nearly every lender took Fannie/ or LP Loan Prospectors (Freddie’s,) findings or approval. So I’m sorry the analyzes of the original author is correct. Personally as a very conscientious and conservative Mortgage Broker I have always felt that Fannie and Freddie’s Underwriting Standards were much to lax. Yes, it was ultimately the lenders responsibility whether they were going to completely accept those findings, but they got greedy and it was a wild ride the past 8 years. Then you had the packaging of the loans to sell on Wall St. and well you know the rest of the story.

    Defaults: Please be aware that 73% of all defaults today are of loans that were 100% financing. So why is Congress in such a rush to bail out people that didn’t LOSE ANYTHING! NO money down folks, why would you bail them out. From what….I would tell every client I had that wanted a 100% loan that it was a form of gambling. I told them that when they went to refinance that if the values went down they would still owe what was on the note. I will tell you that in all the years that there have been 100% loans I only had 2 people (out of 100’s) that opted to get fixed loans fully amortized. If more people that qualified did this and you would be surprised how many did qualify and just wanted the couple hundred dollars cheaper monthly payment. Those 2 clients that got 100% fully amortized have lost the value just like everyone else, but they both have 30 year fixed loans and won’t lose their homes and they have the chance for the market to come back. Millions of other people got 100% financing and a couple of years later refi’d and got fixed rates and their not losing their houses either. Anyone with half a brain knows real estate always goes up and down and that 100% financing on adjustables was stupid. I think we should keep the 100% financing but make the borrowers qualify with a fully amortized fixed loan. Here in expensive California homes are still very expensive.

    I think the corrections that Bush recommended back in 03 and then again in 05 should have been adopted. In 03 when the Republicans were the majority 10 Republicans voted nay so that is why it did not pass. I think there is a mix up on all the different legislation that was introduced. Surprisingly, all the regulation was requested from 01 till 06 by Republicans. Check out all the bills that never made it out of committee and/or the bills that did not pass. It’s a shame because this all could have been prevented with common sense.
    Keep the faith folks,
    it’s hell out here
    M Anne

  • But what you’re ignoring here my friend is that man is a gregarious animal,….a reality that dictates the need for strategic cooperation as a group/team over and above raw selfish behavior via unfettered “free” market based competition. This point is ever more important within the context of the axiom of economics 101 which claims that all resources (given prevailing technologies) are scarce.

  • Your quote: On regulations, it too is too simplistic an explanation. Regulations is not an either/or solution. Everybody believes in some regulations and nobody believes in an overly regulated environment (unless of course you are a communist sympathizer or have no appreciation for innovation).

    My response: You’re assuming a lot here about the rationale for human motivation towards innovation. What of the deciding factor of altruism in terms of the drive to invent? Why is it that the Soviet Union during the late 1950s and into the early 60s excelled over and above the “west” as far as space research and attendant advanced technologies were concerned? Today a number of so called “socialist economies” doing quite well in various aspects of social technology based innovation.

    Here’s some food for thought,…..would you agree that a true intellectual/academic should not afraid of critically examining (in an objective manner) all sides of the economics equation (re: the free market versus state based comannd capitalism?? (N.B. capitalism simply being defined as the application of capital vis-a-vis labor in production–hence capitalism being either state driven, privately driven or driven by a mix of public and private sector contributions). I suspect that one of us is inadequate in out knowledge of the widest spectrum of economics as an academic discipline.

  • EDITED
    Your quote: On regulations, it too is too simplistic an explanation. Regulations is not an either/or solution. Everybody believes in some regulations and nobody believes in an overly regulated environment (unless of course you are a communist sympathizer or have no appreciation for innovation).

    My response: You’re assuming a lot here about the rationale for human motivation towards innovation. What of the deciding factor of altruism in terms of the drive to invent? Why is it that the Soviet Union during the late 1950s and into the early 60s excelled over and above the “west” as far as space research and attendant advanced technologies were concerned? Today a number of so called “socialist economies” doing quite well in various aspects of social technology based innovation.

    Here’s some food for thought,…..would you agree that a true intellectual/academic should not afraid of critically examining (in an objective manner) all sides of the economics equation (re: the free market versus state based comannd capitalism?? (N.B. capitalism simply being defined as the application of capital vis-a-vis labor in production–hence capitalism being either state driven, privately driven or driven by a mix of public and private sector contributions). I suspect that one of us is inadequate in our knowledge of the widest spectrum of economics as an academic discipline.

  • Dear MaryAnne,…free market capitalism is all above seeking to expand markets in order to sustain industry profits and and profitability (a fact that drives the stock market). Thus,…in an economy where an increasing number of people are becoming “the working poor” due to a sluggish national economy which precipitates increasing levels of unemployment/underemployment (the latter with low paying service jobs) etc. we see a market place where new business opportunities for the retail and investment banking sectors are declining thus triggering under performing investment portfolios (in terms of the level of desired profit margins/return on money investment). Business solution?….seek new markets for loans within an increasingly impoverished American economy under stress from the outsourcing of higher paying jobs via globalization (which seeks lower costs on the international labor market), Keep in mind that the American economy is one driven and sustained historically by loan/debt financing,…a reality that precipitates market instability whenever an increasing number of people become either unemployed or relatively impoverished via the tendency for industry to seek to lower real wages/income and/or the realities of rising inflation (a fact realized via the “Time Principle on the (declining) Value of Money”. That reality is the crux of the problem at hand so let’s stop sticking our heads in the sand by blaming individual instituions and not the flawed structure of the wider economic system.

  • EDITED-Pardon my edits as I’m visually impaired and the font is very small here.
    Dear MaryAnne,…free market capitalism is all about seeking to expand markets in order to sustain industry profits and and profitability (a fact that drives the stock market). Thus,…in an economy where an increasing number of people are becoming “the working poor” due to a sluggish national economy which precipitates increasing levels of unemployment/underemployment (the latter with low paying service jobs) etc. we see a market place where new business opportunities for the retail and investment banking sectors are declining thus triggering under performing investment portfolios (in terms of the level of desired profit margins/return on money investment). Business solution?….seek new markets for loans within an increasingly impoverished American economy under stress from the outsourcing of higher paying jobs via globalization (which seeks lower costs on the international labor market), Keep in mind that the American economy is one driven and sustained historically by loan/debt financing,…a reality that precipitates market instability whenever an increasing number of people become either unemployed or relatively impoverished via the tendency for industry to seek to lower real wages/income and/or the realities of rising inflation (a fact realized via the “Time Principle on the (declining) Value of Money”. That reality is the crux of the problem at hand so let’s stop sticking our heads in the sand by blaming individual instituions and not the flawed structure of the wider economic system.

  • I will just note that I disagree strongly with Carmelo’s assertion above that HispanicPundit is too head-strong to be convinced to change his opinion when presented with strong counter facts or arguments. My experience commenting on this blog has been the opposite – I frequently disagree with HP, but he seems to genuinely weigh and consider facts and opinions of others, and will even occasionally admit to a change of heart on a particular subject – almost unheard of in the blogosphere. That’s pretty much why I hang around here.

  • Phantom_Unmasker

    Gary O’Neil attempts a deeper analysis of our economic problems than the yahoos taunting each other from opposite sides of the American political divide. For the last 28 years, conservative Republicans and Libertarians have been systematically conditioning us to believe that freer markets are the solution to all our economic ills, and Democrats have gone along for the ride. As a result, no one on either side of the political divide has undertaken a serious critique of laissez-faire capitalism itself.

    While markets are indispensable to any well-functioning economic system, in societies as large and diverse as ours, unregulated markets in a capitalistic system have a demonstrated tendency to run amok over and over again. Bubbles form and bubbles pop, repeatedly, until a bubble big enough to take the whole system down comes along. Nowhere is this more true than in financial markets, where the primary good being bought and sold is money itself.

    HPundit points out that greed is the very driver of productivity in our economic system. It is the steam in the engine of capitalism, so to speak. But without regulation, steam engines ultimately explode–and you don’t want to be too near one when it does, as we’re finding out for the second time in less than a hundred years.

    Prudent regulation of markets is as indispensable to the stability of an economic system as markets themselves are to its productivity. Our political system, itself dominated by interests of self and class, has not given us that prudent regulation for quite some time. The dominance of doctrinaire capitalism during the past three decades is largely responsible. I’m glad someone is pointing that out here.

  • You are arguing a straw man here Phantom_Unmasker, Conservatives are not Libertarians…”conservatives argue for no regulations” is just about as true as the statement that “liberals argue for full regulation”. The different philosophies are in the margins, yes, but not absolutes (Democrats tend to want more regulations and Republicans tend to want less – but nobody argues for none or full).

    Especially in this case. As the article mentions above, it was Republicans who argued for more regulations and Democrats who argued against it.

    With that said, I still find it ironic that the failing of clearly the most regulated part of the economy is somehow the fault of “a lack of regulations”.

    Btw, looks like the spam problem is fixed. :-D

  • Phantom_Unmasker

    I hope you’re right about the spam problem, Pundit.

  • Gary: My comments weren’t based on economics. I was trying to give a factual assessment of how Mortgage Brokers factored into this whole debacle. Every day I hear pundits and so called economist characterize and offer incorrect analyzes of the mortgage loan aspect of this crisis. Lou Dobbs s is the worst offender of this. I have written him several times and emailed him with the actually documentation showing that 73% of all these defaults are for borrowers that used 100% financing and he still insists on making all these people into victims and wants a bail out for people that were not victimized. That would require punishing people whom did not engage in this kind of financial suicide and rewarding stupidity. To put in simple terms as I was trying to point out in my earlier post; default rates from 1999 -06 were within normal parameters and borrowers that got these 100% loans with adjustable and before 06 were able to refi into fixed products are fine. VALUES WENT DOWN! That is what happened. Anyone older then 40 years old realizes real estate goes up and down. They will climb up again folks.

    People are going into default not because of financial difficultly (job lose, medical reasons etc..)as was the norm in the past. They are going into default because when these 100% loans become adjustable, and the borrower needs to refi the values aren’t there and no lender will lend to them and they don’t want to pay the new adjustable rates. So after 3 months of not paying their mortgage the lender files a notice of default and they have another 6 months to pay. So these victims that put no money down now live mortgage and rent free for 9 months.

    Yes of course for the millions and millions of loans that were written over the past 9 years there was probably some fraud. That has always existed along with the regulations and laws to enforce this. Fraud has always been illegal. Lying on a loan application or forging documents has always been illegal. Individual State Attorney Generals have already come out with comments that what their finding is not fraud they are calling it “not necessary ethical.” That’s doublespeak for we can’t find any higher of a percentage of fraud then in the pass we just have found that:
    1)Fannie/Freddie had too lax of underwriting standards
    2)The lenders had products that encouraged people to take these loans.
    3)The Lenders had these dumb arse stupid products and then lower their underwriting standards.
    4)Wall Street was happy to gobble up these risky mortgage backed securities and make lots and lots of money buying and selling them.

    Sorry none of this has happened because of some complicated macro/micro econ reasons. People like to think things are more complicated then they are. Lenders made some Fannie/Freddie backed ,risky loans, Wall St. brought and sold them. Real f…ging simple. That’s it in a nutshell.

  • Mary Anne,..you cannot look at the dynamics of the mortgage industry in isolation outside the wider structure of the American and indeed global political economy,…because mortgage and investment banking form the critical base of the wider economy and thus provides critical clues to the essence of the economic crisis to which we speak. The role of investment bankers is to seek new home loan markets (often at all cost) in order to boost profits and thus “beautify” quarterly earning reports. In order to effectively expand markets for home loans (and thus ‘beautify’ their respective Wall Street portfolios and stock value) within the wider context of a soft economy riddled with rising unemployment and more critically,…underemployment (e.g. low wages which cannot sustain traditional home loan costs),…the banksing industry has sought to engineered new risky forms of mortgage instruments (e.g. no money down loans and/or sub-prime mortgages). Of course,….with the growing inability of these shakey borrowers to repay given rising unemployment and inflation (as was the case during the tail end of the roaring 20s) the issuance of these risky loans have essentially bollooned into a financial catastrophie similar in nature and scope to the 1930s. Please read up on the many facets of the Great Depression and then add the negative employment effects of globalization’s outsourcing to the mix (which sees both a depression of wages and loss of high paying jobs within the American economy) and you’ll see the full picture of the current mortgage debacle. I urge multidisciplinary analysis of the current crisis and not just a narrow mortgage banker perspective. perspective.

  • urbanleftbehind

    Gary, great post regarding the wider economic picture. You could also add as causes (in urban markets) gentrification and the movement in poverty housing from large housing projects to Section 8 and mixed income. Both exasperated the supply of safe rental housing and forced many long-time and should-have-been renters into home buying.

  • I wonder gents, what is your view regarding this video on youtube? Granted, it is a partisan video but what part of it do you find inaccurate or misleading? Click here for the video

  • I swear I have to laugh at you guys post. What has happened is exactly why this financial meltdown has occured. Man….82% of Wall St., Finance, and Mortgage Industry is a bunch of man babbling on and treating money as a competitive sport. In my own industry when all these fancy stupid arse loan programs came into being all of sudden you had these young pup’s that had no desire to learn the business or do anything with integrity with concern to their client. What has happened could have been prevented. Quite easily.
    tks
    MaryAnne

  • The CRA was a law passed in 1977. Personally, I think its ridiculous to blame a law that is more than 30 years old. However, my thoughts alone mean nothing. I need something to back it up. So I did some searching. Come to find out, there was a study released in April 2008. CRA backed loans actually had a MUCH lower forclosure rate!

    Here is a link to the study.

    http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

    I’m not an economist, but I think the crisis we are in has more to do with jobs. I personally know people who signed their mortgages (with nothing down) who could afford them years ago. Their companies down-sized or shipped thier jobs overseas. When they went to looking for new jobs, they couldn’t find one making the same amount they are making now. They were forced to take a job making less. I’m positive this is happening all across the country.

    So..blame deregulation..blame democrats..blame republicans if it makes you feel better. It’s bigger than the mortgage crisis. Way bigger.

    It is more about corporations being able to farm out their work overseas for cheap. It’s more about American Companies caring squat about the american people. It’s about profit. That’s it.

    I think we are looking at the little picture instead of the big one. The second fall of Rome.

  • The whole reason these reforms never made it to the Senate floor is the commitee was made up of 11 Republicans and 9 Democrats. There has to be 60% approval to move a bill from commitee to the floor. Meaning that if one (only 1) Democrat had been concerned (and broke party lines), much of this crisis could have been avoided.
    BTW, the two people who have received the most political campaign contributions from Fannie Mae: #1 Christopher Dodd, Senate Finance Commitee Chairman and #2 Barack Obama. Is there any reason now to wonder why the Dems are blaming this $#!t on Bush?

  • Wendy:
    Prior to this whole mess (last year,) Unemployment hasn’t be this low since the 50’s. Perspective:
    When I graduated high school in Ca in 1976 the unemployment rate was 11%. The unemployment rate here in San Diego has been between 4 and 6% for the past 10 years. Even now I don’t know one person that has had a default because of job loss. Being that I’ve done several hundred loans over the past ten years I think I have an up close look at what’s going on. Personal aside: Interest rates on my first house in 81 was 12%. Interest rates have not gone over 6.5 in over 6 years and have gone as low as 5%.

    As I stated in the prior post this whole fiasco could have been prevented and it should have never happened. Too many people got these 100% adjustable loans.

    You are correct in that it’s not that they were not qualified for the loans (poor people,) it was the LOANS themselves. The default rate is completely tied to the type of loan and not being able to refinance the note because the values aren’t there. This blather about stated income is all a bunch of hooey. And nothing more clearly illustrates that, then all the hundreds of thousands of people that got these EXACT loans six years ago and were able to refi and get into fixed loans using the same qualifying standards. Those people are not losing their homes. Those of us in the industry predicted this whole thing happening. It was a no-brainer that this would occur. I do not support bailing out people that did not technically lose anything.

  • I agree with what you are saying MaryAnne about the loans.

    But there are people going into forclosure now because of job loss. It is happening. And since our economy was “propped” up with two industries–housing and war-everything else is going to pot, since the housing market was a sham.

    It all rolls downhill.

    I agree with you on the bailouts. I think there could have been a less costly way to do this.

    But it doesn’t address the issue of jobs. And the unemployment rate can’t be looked at alone. Just because it isn’t 11%, doesn’t mean things are not bad, and it sure doesn’t mean it can’t get worse. The fact is more people are making LESS money. I know I’m not better off than I was 4 years ago.

    I’m just waiting on my pink slip. My company is trouble and I don’t even work in the housing industry.

  • Unemployment might have been “low” (compared with the fairly prosperous 50s)but you’re really ignoring the issue of the type of low quality jobs (ones with low end wages/incomes) being generated within the context of this post Cold War (re: globalization based)boom. The bootom line,…the low and uncertain real incomes of this generation Y/Z cannot really sustain contemporary housing costs.

  • The Republicans were not in control of “everything for the 6 years they had the majority in the Senate. And yes it was the Democrats that removed all the safeguards from the lending industry and the oversight for fannie mae and freddie mac. Oversight does not belong to the executive branch (President) you fool. Your comment “More lies from the typical kindergarten finger pointing conservatives that can only wrongly blame everyone else for the mess they create” only shows why Democrats get so much support from people like you….they go after the uneducated and those too lazy to search for the truth.
    Brother, you need to wake-up. What has the Democratic party done for hispanics? Nothing.

  • Dear Wendy: So sorry to hear about your lay-off. Now what is happening is going to start being about job loss and with credit tighting up and the bail out not doing anything but securing up lending institutions that should have been allowed to go out of business the road to recovery is in my opinion going to be much longer and deep. All the best with a new job search.
    M

  • 2005 oversight plan by Barney Frank. And Fannie and Freddy didn’t start buying toxic mortgages until 2005-2006.

  • Let me ask this very elementary question:………is the ethos of free market capitalism one of seeking new markets/profit streams/wealth creation (at all cost)??? If so,….why is it so difficult for those conservative pundits to grasp the fact that it’s not simply the socialist mantra of Johnson or Clinton seeking to give housing to the poor that’s the crux of the issue behind the current housing/mortgage crisis but rather the desire of the capitalist class to expand markets/profits within a moribund economy where the masses of consumers (and the wider economy) are suffering unemployment/underemployment/low wages/no wages within the wider context of increased dependency of credit cards/debt financing just to survive (let alone seeking to get ahead). You all are not understand the structural weakness of the free market system which tends (over time) to leave an inordinate amount of wealth in the hands of fewer and fewer individuals at the expense of increasing numbers of working poor who thus resort to credit facilities to make ends meet (in support of the massive banking sector’s ethos of lending).

  • I am curious Shugapro…what do you think of this? That is a direct result of capitalism and free markets.

    More importantly, if capitalism is not the solution, what is? What has worked better than capitalism? Nobody says capitalism is perfect…its just better than the alternatives.

  • First off let me clarify a point of concept definition. Capitalism is simply the application of capital (re: money/machinery/productive resources) in the productive process. Thus what is needed here is a clear examination/explanation of WHO exactly controls that capital appled in production (re: the private sector, public sector/government,…or both). Thus,…in our economy we tend to see a lean towards production via the (also wasteful) private sector unless the industry in question either yields profit streams/margins that are too weak/inconsistent in flow or engage resources that are too critical for the continued security of the entire system (e.g. space exploration via NASA, fire services, police services or the military etc.). Now,…in answer to your question as to which system is best??………….I would suggest a comprehensive evaluation of the socioeconomic structure of the society in question (e.g. the USA) towards a critical determination as to how much transparent government involvement in national production process is needed to preserve our collective wealth creation (via the current mixed privat/public sector production model) in a sustained/equitable manner. Does that answer your question??

  • So you dont have one…but you think the government can figure out a better solution.

    It answers my question but I am not buying it.

  • In case you didn’t get the message or have trouble deciphering my point of view…………I’m advocating greater government regulation of free markets via people transparent systems of policy development/management…….our present system of government by, of and for the rich has led to a collapse of the economy as fewer and fewer people control increasing amounts of the scarce resources (in a wasteful manner) while more and more of the population in being impoverished and living in a debt based facade of wealth. Have you ever read U.S. history on the ravages of the Gilded Age???

  • I see what you are saying…I just dont think your conclusion follows from the premise.

    Take, for example, the comparison between Europe and the USA. Europe is far more regulated, far more taxed, and has significantly more unions. Yet we see the exact opposite of what you desire: the same companies continue to dominate, the economy is doing worse and most importantly, they have been hit harder by this financial crisis than we have.

    Again…your belief that government is somehow this benevolent force that looks out for anything but its special interests is naive at best. The best we can do is limit governments power…giving it more power only spreads the misery.

    So as I said above: you can’t point to an alternative that, based on evidence, is better than more capitalism.

  • Why do you keep using the term capitalism as if it were only of the free market variety?? No wonder you can’t understand my response…………….

  • No country can exist without the defining institution called government. But countries can exist without private sector firms (via community collective productive entities). Now,…you keep arguing as if it were the presence of government in the market place that causes economic collapses instead of recognizing that it’s the unchecked inquitable flow of resources into the hands of a few that actually fosters the precipitation of the economic imbalances called the recession.In case you’ve forgotten……..the current crisis (like the 1929 Wall Street crash) didn’t spring from what you disdainfully call “socialist Europe” but rather,…the great “free market” economy called the United States.

  • The markets were on the brink of collapse all across the industrialized world. The only reason why it started – slightly – earlier here is because the United States is the 600 lb gorilla. Our economy swamps all others (to fully understand the sheer size difference, see this map). Its like the old economists saying, “when the United States sneezes, the rest of the world catches a cold”. But that, like the argument I made above that Europe is even worse, is yet another argument for more capitalism…not less.

  • What you have not furnished here are the reasons why the world economy was on the so called “brink”……….if you understand that free markets thrive over the short term on economic inequality,..you’ll then understand that over the long term such inequality becomes a chronic liability to sustainable economic stability and equitable growth.

  • What inequality are you talking about shuapro? Are you talking about income inequality or experienced inequality (see here for a definition of what I call experienced inequality)? Because personally, I only care about experienced inequality and under a free market system that goes down with time.

    Regarding the causes of the financial crisis…aside from the anti-immigration part, I generally agree with this video as to the primary causes of the financial crisis.

  • Yes.I am referring to chronic and growing income inequality within the free market structure…..a reality being ignored in the wider debate on the reasons for the ongoing economic collapse as masses of workers find it increasing difficult to pay their debt.

  • Why care about income inequality vs experienced inequality?

  • Hey there, You’ve done an incredible job. I will certainly digg it and in my opinion suggest to my friends. I am confident they’ll be benefited from this web site.

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