Take a deep breath. The “no” vote on the bank bailout was NOT the end of the world. It was, I think, a step in the right direction.
House Speaker Nancy Pelosi was at her imperious, partisan best, refusing to follow her own House rules, holding the bank bailout vote open for 40 minutes beyond the limit, “trying to convert ‘no’ votes by pointing to damage being done to the markets,” in the words of the IHT. If the Speaker of the House can’t follow such a simple rule, how can we expect people like ex-Fannie Mae CEO Frank Raines to do so?
Notably, forty percent of Pelosi’s own Democrats (who could have passed it without the Republicans) voted against the bill along with 60 percent of Republicans. How’d we get here? Glad you asked.
As a teaser, here’s an excerpt from June 15, 2006 testimony of James Lockhart, Acting Director of the Office of Federal Housing Enterprise Oversight, in which he highlights what OFHEO first reported about Fannie Mae, in September 2004:
Fannie Mae, in 2004, was an organization totally out of control, a law unto itself. (OFHEO released similar findings on Freddie Mac, in December 2003.) But the seeds of its corruption were sown much earlier, back in 1992, at the start of America’s century-ending decade of greed, irresponsibility and self-delusion.
The first step was the making of fundamentally bad loans — loans that the lenders did not expect to be repaid. Why did they make those loans? Jimmy Carter’s Community Reinvestment Act — given new, racially-tainted teeth by the Clinton administration — and out-of-control GSEs (Fannie Mae and Freddie Mac) drove otherwise rational banks to lend money, on the basis of skin-color or the skin-color of the neighbors of prospective borrowers, to people who the banks knew couldn’t or wouldn’t repay. But the banks also knew (or thought) they wouldn’t be on the hook for long.
Banks made these loans because (a) the GSEs promised to buy them and (b) they were threatened by “community organizers” in communities where minorities were in the majority (logic-defying, I know — try living in Atlanta sometime) with lawsuits if they did not make the loans. The GSEs then repackaged these bad, racially-motivated loans — like tainted Chinese milk — for resale. The bad loans, in turn, drove more money into the home-buying market, making it appear as if homes were worth more than they really were. Over time, it grew into a mountain of excess.
But the bad motives in this massive fraud were not all race-related. Just as at Enron, Worldcom, Ahold and Adelphia, financial greed was a big driver. Greedy, foolish buyers of these mortgages and their derivatives (called CDOs and CDSs — this is a great article) should have known better.
Greed drove the GSEs, as well. As highlighted above, OFHEO investigators reported, in 2004, that Fannie Mae executives raked in millions of dollars by lying about Fannie’s the earnings-per-share on which their compensation was based.
This was in very deed a financial Worldcom or Adelphia, but with consequences for the entire world of finance. Executives of those companies are serving long prison terms for relatively harmless misbehavior. What about Franklin Raines? What about Rep. Maxine Waters who aided and abetted this scam and pitched a fit when it was uncovered? Taxpayers — busy with their day jobs — figured that Congress would look out for them. Not a good bet.
The truth is that many congressional representatives were alert and tried to warn the country to the fraud going on at Fannie Mae and Freddie Mac. However, those who were alert never controlled the microphone before it was too late. Others — like Nancy Pelosi, Barney Frank and Christopher Dodd — deliberately looked the other way or obstructed corrective efforts. In any event . . .
Life will go on. The market is stupid and greedy, but not that stupid. Yes, I know the Dow dropped almost 780 points (7 percent) today. Yet, the sky is not falling. Yes, Americans need to learn to live within their means. But that won’t be a bad thing. It’s the kind of stress that purges bad attitudes and actors out of the system. It will make us a better nation, perhaps one with congressional leaders who tell the truth. After all, they do represent the people who put them in office. Pretty scary when you contemplate Maxine Waters and Barney Frank.
Those on both sides of the aisle who stopped the train today deserve our thanks. The ideal proposal — which we’re unlikely to get — should attack the real cause of the market distress. So far, it doesn’t. We’ll see what happens, as the world turns.
{ 6 comments… read them below or add one }
Kurt, you don’t garden or grow flowers, do you?
It don’t matter how many seeds you plant, or where you plant them, or what your intent was at the time: If those seeds aren’t watered, fertilized properly, weeded, protected, and generally cared for and nurtured, they just won’t produce.
You may be correct in saying that the seeds of this disaster were planted by Bill Clinton. You may be right in saying that a lack of regulatory authority which was engineered by Republican Senators like Phil Gramm, wasn’t all that big a deal, you may be right in ignoring the fact that a lot of the bad mortgages were made by mortgage brokers and savings and loans, but not banks. You may even be partially right in blaming the borrowers. Hell, with a little bit of imagination, you may be right is blaming the whole mess on a bunch of loser community organizers, a teen age B. Obama, and a crippled President–all of whom were able to intimidate the banking industry, the United States Senate, and god only knows how many other good, white people.
But for goodness sake, you can’t ignore or deny that the Congress was in the hands of Republicans for six of Clinton’s years, and six of Bush’s. They and their fat cat contributors loved what was going on. They fertilized the graft with all kinds of shit. They protected it from do-gooders like Mr. Lockhart. Who do you think was ignoring Mr. Lockhart’s report to the Senate — the custodial staff?
Get some integrity into these posts, please. It ain’t the Democrats’ fault any more than it is the Republicans’.
Doran –
I haven’t pulled punches on the FLDS stuff. And I’m not pulling punches with the banking crisis. You, however, need to check your facts.
Obama was no teenager in the 1990s. He’s 46 today. He was well into his community organizer role by at least 1985, maybe earlier, according to the LA Times. Clinton began beefing up the CRA in 1992.
It’s hardly fair to say that the Republicans were “in control” of Congress for six of the Bush years unless you’re counting Sen. Jeffords as a Republican. Yes, they had a chance here and there, but as we all know, 2001-2002 presented a wide array of challenges that would have distracted any Congress and President enough to bypass a latent CRA/Fannie Mae problem. After that, the Repubs really didn’t have a majority for practical purposes.
The CRA thing was huge in this mess. And it wasn’t just a few seeds sown in 1992. The Clinton administration made it a centerpiece — a major effort to “transform” America’s cities throughout the 1990s.
It’s no overstatement to say that the CRA is the single biggest factor — the sine qua non — of this mess. And it was almost entirely a Dem initiative from its Jimmy Carter beginnings, to its Clinton expansion, to its Pelosi/Barney Frank flameout.
Of course there were Republicans who participated along the way. But they have been, for the most part, supporting actors dwarfed by leads like Frank Raines and Barney Frank. No, of course, Republicans are not immune to graft. But in the banking arena, the Dems have been supernovas.
GLB was not the factor that some want it to be. Even without GLB, we’d still have the crisis. In fact, arguably, GLB has softened the impact, quoting here from NRO:
“Gramm-Leach-Bliley did not create securitization and collateralized debt obligations. It did not change the rules for banks’ leverage ratios. If anything, Gramm-Leach-Bliley mitigated some risks by allowing financial companies to diversify their businesses, and it is the most diversified firms that are best weathering the storm. Which makes sense: An investment portfolio is more stable the more diversified it is. The firms that have spectacularly imploded have mostly been non-diversified commercial banks, like Countrywide, or pure investment banks, like Lehman Brothers. But the broadly diversified megabanks are enduring — taking a hit from housing, sure, but they have other lines of business to sustain them. And we should not forget: Without the Gramm-Leach-Bliley reforms, Bank of America would have been legally forbidden to take over Merrill Lynch — very possibly leaving taxpayers on the hook for that one, too. Morgan would not have been able to buy Bear Stearns without Gramm’s reforms.”
On the basis of these facts, I disagree with your assertion that Republicans share equal blame with Democrats on this issue.
So who, individually speaking, is going to pay the Fannie Mae piper? Enron’s Jeff Skillings is serving a 24 year prison term.
What is Franklin Raines going to get (apart from serving as an adviser on finance to Obama’s campaign)? A cabinet appointment as Secretary of the Treasury? … Think I’m joking?
Doran, either YOU don’t garden, or you live in an extreme desert! Even here in the desert of NM, fruit springs forth from un-nurtured seeds all the time. In fact, this year we’ll be carving pumpkins that grew from a pumpkin we tossed aside last year. In fertile soil, with minimal sunlight and rainfall, “volunteer” seeds can produce fruit before you even know the plant exists. In northern CA, we had multiple plum trees and a nectarine that grew this way. That is how birds are able to spread vegetation; they eat the fruit in one location, poop in another, leaving the unknown seeds to bring forth life. Don’t ask me if the swallow was African or European!
Sticking with your gardening theme…
When it comes to corruption, the soil in the democrat controlled congress appears to be just right to bring forth the thistles we are now facing. Yes, these seeds were planted by the Democrats (including the Obama puppeteers). And, yes, some Republicans failed to take proper action to kill those seeds. But, there were plenty of Republicans (including McCain) who attempted to use herbicide, only to have the nozzle of their sprayers broken off by Democrats who instead continued spraying the fledgling thistles with Miracle Grow. “By their fruits ye shall know them.”
Cosmo, thanks for gardening talk. I was talking about a garden, not about volunteer plants here and there. I’ll bet that if you do garden, you don’t just stick the seeds in the ground and then ignore them. If you do, even in the desert of New Mexico, they will wither if not watered until the roots are established. If you don’t keep you garden watered, it will die-off. If you don’t keep weeds under control, they will overtake the planted varieties of vegies.
Whatever it was the Clinton administration did, that program had to have been nurtured by the Republican controlled Congress during his Administration and during the GW Bush Administration. You know, appropriations, over-sight, things like that.
Kurt is just blowing smoke about the Republicans not being in control of the Congress. They had a veto-proof majority during the six year period of the Clinton administration. Kurt keeps throwing in Jeffords, while ignoring crazy old what his name from the South. Tell us how the Democrats thwarted the majority will of the Senate, please.
As for my gardening, I live in what the locals call a semi-tropical desert. Crazy name, but it fits. I am in the sandy land, Post Oak Savannah on the western edge of Lee County, Texas, to the east of Austin. Last year we had over 40 inches of rain, most of it in the first half of the year. The year before that we had an extended drought; this year we are having an extended drought. When it rains here things get absolutely jungle-like. When it does not, the sand drys out and almost everything except deeply rooted trees and some hardy native plants, dies-off.
Makes for a real challenge. Sorta like this blog.
Crazy old Zell something or other.