Why was the DNC allowed to create the financial crisis,

[alan1]

Why was the DNC allowed to create the financial crisis, and why should we trust them to fix it?

New Agency Proposed to Oversee Freddie Mac and Fannie Mae - New York Times
snip,

''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.

Probably 90% of the current economic problems in the US were caused by the failure of the congressional Financial Services Committee headed up by Barney Frank when they halted this action proposed by Bush 5 years ago.

And, we also have this, http://www.nytimes.com/2005/04/06/b...ml?_r=1&scp=3&sq=Fannie mae regulation&st=cse from 3.5 years ago.
Snip,

Greenspan Urges Better Regulation of Fannie Mae and Freddie Mac.......
Senator Charles E. Schumer, Democrat of New York, criticized Mr. Greenspan's recommendation..

 

[WillowTree]

Firstly.. and secondly, we don't trust em!

 

[mash107]

They definitely contributed to the mess, but were hardly responsible. You can't have bubbles without easy credit created by the Federal Reserve, and until you do destroy the Fed, or limit it's power with a gold standard, one can't blame other interventions. Both the GOP and DNC gain from the Federal Reserve printing press, and so I hardly see a difference between the two.

 

[alan1]

Firstly.. and secondly, we don't trust em!

I just find it interesting how media like the NY Times was so willing to publish stories like those linked above way back before things went to hell in a handbasket, but somehow, it is now all Bush's economic policies that somehow screwed everything up.
I think there is plenty blame to go around to almost all politicians, yet it seems that most people want to ignore facts and just point the finger at one man despite the facts that he was only one player in this game. It's like blaming the quarterback for the halfback fumbling the ball after he was 10 yards into his run.

 

[Toro]

Why was the DNC allowed to create the financial crisis, and why should we trust them to fix it?

Because they didn't create the financial crisis.

 

[alan1]

Because they didn't create the financial crisis.

I take it you didn't read the linked articles before you posted.
Tsk, tsk.

 

[Toro]

Some very simple facts.

- Most subprime mortgages were not guaranteed by Freddie and Fannie.
- Freddie and Fannie held relatively few subprime and Alt-A mortgages on their balance sheets. Freddie and Fannie accounted for about 10% of all subprime mortgages, meaning. Freddie and Fannie subprime mortgages accounted for about 1% of all mortgages.
- Freddie and Fannie were underexposed to the hottest housing markets which have also had the biggest busts because most loans guaranteed and warehoused by the GSEs are "conforming" loans, meaning they are below a certain price level and have a 30-year term. In the hottest housing markets, most loans were non-conforming and thus outside the purview of the GSEs.

It is true that the financial mess is not primarily Bush's fault - the primary culprit is the Fed. But it is certainly more so the Republicans' than the Democrats' because increasing deregulation which caused the bubble to inflate even higher.

 

[Toro]

I take it you didn't read the linked articles before you posted.
Tsk, tsk.

I've read that many times in the past. I am more than aware of the regulatory issues that have surrounded the mortgage market.

 

[Care4all]

This mess is MUCH BIGGER than Party....

Fannie and Freddie's problems are itty bitty compared to the others, and compared to those banks and financial institutions that did not even deal with Fannie and Freddie.

Some oversight from the Federal Agencies supposedly governing them would have solved alot as well as congress's.

Please don't think that the Democrats stopped the Legislation that Hagel had introduced which would have governed them SOMEWHAT more, (still not enough to stop what happened with all the banks etc).

The Republicans had the Majority at the time of Hagel's proposed legislation and the republican leadership DID NOT even bring his legislation up for debate and a vote on the floor of the Senate.

When I first heard this, I KNEW something was up...couldn't figure out for the life of me, IF the Republicans really wanted to regulate Fannie and Freddie more, WHY OH WHY did they not even bring up this legislation to regulate for a vote?

Even if the Democratic members eventually filibustered it, bringing it to the floor for debate would have brought attention to the issue and gotten our press and public more inquisitive and informed on what was going on....

BUT the Republican Leadership did not bring it up for a vote....HOW STRANGE, I thought?

So then, a couple of months after we first start seeing all the cut up and melded tapes of what Barney Frank had said regarding this issue and all those on the right BLAME one single person, Barney Frank for the FAILURE of the Hagel bill to regulate more pass....and I just couldn't figure out how BFrank could have anything to do with such, SINCE the Republicans were in the Majority and controlled what legislation came to the FLOOR, not the Democrats???

THEN, there is this article....here is a clip or two of it:

Freddie Mac Arranged Stealth Campaign

The St. Petersburg Times - Feature - Freddie Mac Arranged Stealth Campaign

The Associated Press

WASHINGTON — Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by lobbying firm DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Senator Chuck Hagel. DCI’s chief executive is Doug Goodyear, whom John McCain’s campaign later hired to manage the GOP convention in September.

Freddie Mac’s payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel’s bill to the then Republican-run Senate on July 28, 2005. All Republican members of the committee supported it; all Democrats opposed it.

In the midst of DCI’s yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with then Senate Majority Leader Bill Frist to allow a vote.

“If effective regulatory reform legislation ... is not enacted this year, 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,” the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.

In the end, there was not enough Republican support for Hagel’s bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.

McCain was not a target of the DCI campaign. He signed Hagel’s letter and three weeks later signed on as a co-sponsor of the bill.

By the time McCain did so, however, DCI’s effort had gone on for nine months and was on its way toward killing the bill.

In recent days, McCain has said Freddie Mac and Fannie Mae were “one of the real catalysts, really the match that lit this fire” of the global credit crisis. McCain has accused Democratic presidential candidate Barack Obama of taking advice from former executives of Fannie Mae and Freddie Mac, and failing to see that the companies were heading for a meltdown.

McCain’s campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month’s GOP convention.

Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550.

TARGETED SENATORS

The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel’s bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.

Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to the initiative as “the stealth lobbying campaign,” according to three people familiar with the drive.

They spoke only on condition of anonymity, saying they fear retaliation if their names were disclosed.

Freddie Mac executive Hollis McLoughlin oversaw DCI’s drive, according to the three people.

“Hollis’s goal was not to have any Freddie Mac fingerprints on this project and DCI became the hidden hand behind the effort,” one of the three people told the AP.

Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.

On Friday night, Hagel’s chief of staff, Mike Buttry, said Hagel’s legislation “was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Senator Hagel’s legislation every step of the way.”

“It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress’s bill that would strengthen the regulation and oversight of that institution,” Buttry said in a statement. “America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie.”

And I might add, even if this legislation had passed and become affective in 2006, it still would have been too LATE, to help the scenario....it had begun the bust already.

This does not even hit on Hedge funds and derivatives, and the numerous concoctions of subprime mortgages, or the Bush administration involvement of their BIG INITIATIVES to put millions in to homes by 2010, or the fact that companies that issued mortgages did not have to hold on to their mortgages and could sell them off to others, or Mortgaged backed securities where they bundled good mortgages and college loans with subprime mortgages to mask their risk and the insuring of those insuring those high risk tools, or the Fed keeping interest rates too low, etc etc etc...

THIS was a PERFECT STORM....Since the 2000 movie by the same name, the phrase has gained popularity and grown to mean any event where a combination of circumstances will aggravate a situation drastically.

Those from the new england area know the story of the Perfect Storm well!

 

[alan1]

Some very simple facts.

- Most subprime mortgages were not guaranteed by Freddie and Fannie.
- Freddie and Fannie held relatively few subprime and Alt-A mortgages on their balance sheets. Freddie and Fannie accounted for about 10% of all subprime mortgages, meaning. Freddie and Fannie subprime mortgages accounted for about 1% of all mortgages.
- Freddie and Fannie were underexposed to the hottest housing markets which have also had the biggest busts because most loans guaranteed and warehoused by the GSEs are "conforming" loans, meaning they are below a certain price level and have a 30-year term. In the hottest housing markets, most loans were non-conforming and thus outside the purview of the GSEs.

It is true that the financial mess is not primarily Bush's fault - the primary culprit is the Fed. But it is certainly more so the Republicans' than the Democrats' because increasing deregulation which caused the bubble to inflate even higher.

The subprimes were made by other banks, knowing they had a willing buyer of those bad loans in Freddie and Fannie. Were the government sponsorship (of Freddie and Fannie) not available, those banks wouldn't have made bad loans.

The linked articles explicitly point out how Republicans were trying to regulate this farce, yet you blame the Republicans for deregulation. You might want to pay attention to your own signature line.

 

[Care4all]

Really though, the Bankers and Financial institutions and hedge fund managers and and insurers "caused it" through creating and making UNSOUND FINANCIAL decisions for the companies and stock holder in which they worked.

The Fed with low interest rates...

And the Federal agencies neglect to exercise their oversight duties...

And the congress's deregulation in some areas...

Did not "cause" it, but gave the opening for the others to let their immediate greed to overcome, their fiduciary responsibilities to their share holders.

 

[Truthmatters]

Cox the SEC chairman who was appointed by Bush has blamed the GLB act of 1999 for tying his hands and making oversight of the industry next to impossible.

The idea that it is all the Macs fault is just partisan hackery.

 

[mash107]

Really though, the Bankers and Financial institutions and hedge fund managers and and insurers "caused it" through creating and making UNSOUND FINANCIAL decisions for the companies and stock holder in which they worked.

The Fed with low interest rates...

And the Federal agencies neglect to exercise their oversight duties...

And the congress's deregulation in some areas...

Did not "cause" it, but gave the opening for the others to let their immediate greed to overcome, their fiduciary responsibilities to their share holders.

Nah, but the Fed was like a guy spiking a punchbowl with alcohol. If the "banks" get drunk with the tainted punch, it's not their fault, but the fault of the Federal Reserve. A gold standard and full reserve banking would be a giant step in the right direction.

 

[Toro]

The subprimes were made by other banks, knowing they had a willing buyer of those bad loans in Freddie and Fannie. Were the government sponsorship (of Freddie and Fannie) not available, those banks wouldn't have made bad loans.

Well, its your lucky day, isn't it? You get to test your own hypothesis on a real, live market participant. See, I'm one of those buyers you claim wouldn't buy this stuff if it weren't guaranteed by the GSEs.

I saw several pitch books from Wall Street firms extolling the virtues of why I should use a subprime collateralized debt obligation as the counterpart to an equity swap deal. No where in the pitch and no where in the conversation was there ever any mention of Freddie and Fannie. Our bond desk runs $30 billion in fixed income assets and have participated in many structured products. No one even remotely considered that the subprime mortgages would be backed by Freddie and Fannie. In fact, we were surprised when we first heard that the GSEs held subprime mortgages on their books, small as they may be. And I have conversations every day with the buyers of such products. No one I know ever believed they would be put back to the GSEs.

If buyers bought subprime mortgages because they believed they could be put back to the GSEs then they are fools. I don't know any fools like that.

Total subprime debt held by the GSEs was less than $200 billion.

Fannie, Freddie face $4.7 billion in subprime losses: Citigroup - MarketWatch

Total market size of the subprime mortgage market was $1.5 trillion, and total size of the mortgage market is $10 trillion.

http://www.chicagofed.org/publications/fedletter/cflaugust2007_241.pdf

So what you'd have us believe is that 12% of the total subprime market and less than 0.2% of the total mortgage market is responsible for the collapse in home prices and the financial system.

Sorry.

If only 12% of the market is supposedly guaranteed, I know that 7 out of every 8 bonds is not going to backed by the government, then my liquidity is not the government. My liquidity is the market.

So I'm afraid your thesis isn't correct.

The linked articles explicitly point out how Republicans were trying to regulate this farce, yet you blame the Republicans for deregulation. You might want to pay attention to your own signature line.

Ah, but I didn't say the Democrats weren't responsible. What I said that was that the Democrats did not cause the financial crisis, which is what you argued, and which is incorrect.

For certain, the Democrats are culpable to a degree. No doubt about that. Their sheltering of the GSEs increased the systemic risk in the market place, but not because of subprime. It was because they allowed the GSEs to operate with too little capital. The GSEs pumped tons of money into politicians' pockets. More capital means less profitability and a lower stock price, which means lower compensation for the executives. Since the Dems were the primary backers of the GSEs, they were the ones that resisted increasing capital to the GSEs.

So why are the Republicans "more responsible." (As an aside, I think most people who are politically motivated want to see the world through political lenses first. This causes them to miss many other reasons why stuff happens. In this case, the primary cause of the financial crisis is not in the political arena. It lies first with the Federal Reserve and next simply to human behavior, particularly how people react to greed, which repeats over and over.) Because what Freddie and Fannie were doing was widespread and much, much larger on Wall Street. And who are the primary backers of Wall Street? The Republicans. Yes, there are some Democrats who are supportive of Wall Street, just like there are Republicans supportive of the GSEs. However, the primary cover in Washington for Wall Street is the GOP.

And what Wall Street wanted was more de-regulation. And they got it.

The Securities and Exchange Commission can blame itself for the current crisis. That is the allegation being made by a former SEC official, Lee Pickard, who says a rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns, and Merrill Lynch.

Making matters worse, according to Mr. Pickard, who helped write the original rule in 1975 as director of the SEC's trading and markets division, is a move by the SEC this month to further erode the restraints on surviving broker-dealers by withdrawing requirements that they maintain a certain level of rating from the ratings agencies.

"They constructed a mechanism that simply didn't work," Mr. Pickard said. "The proof is in the pudding — three of the five broker-dealers have blown up."

The so-called net capital rule was created in 1975 to allow the SEC to oversee broker-dealers, or companies that trade securities for customers as well as their own accounts. It requires that firms value all of their tradable assets at market prices, and then it applies a haircut, or a discount, to account for the assets' market risk. So equities, for example, have a haircut of 15%, while a 30-year Treasury bill, because it is less risky, has a 6% haircut.

The net capital rule also requires that broker dealers limit their debt-to-net capital ratio to 12-to-1, although they must issue an early warning if they begin approaching this limit, and are forced to stop trading if they exceed it, so broker dealers often keep their debt-to-net capital ratios much lower.

Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers - September 18, 2008 - The New York Sun

Why did they lobby to change the amount of leverage they could use (i.e. regulate themselves)? Because it made the insiders on Wall Street far more money. If you double the amount of leverage you can use, you can double your revenue. Since finance is a highly scalable business, and since compensation is a percentage of revenues, Wall Street wanted to decrease regulation to increase their pay, which is exactly what happened. Kids coming out of MBA a few years ago were making up to $325k to start. The average bonus for Goldman a few years back was a cool $3 million. There are other examples of Wall Street wanting more de-regulation and getting it, i.e. holding SIVs off their books though they were recourse to the firm, but the reasons are all the same.

As for the Fed, Greenspan could have increased regulation of the subprime market, since the Fed has oversight of the banking industry, but chose not to do so because he was philosophically opposed to doing so. Now, Greenspan says he was all wrong.

almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform. ...

Critics, including many economists, now blame the former Fed chairman for the financial crisis that is tipping the economy into a potentially deep recession. Mr. Greenspan’s critics say that he encouraged the bubble in housing prices by keeping interest rates too low for too long and that he failed to rein in the explosive growth of risky and often fraudulent mortgage lending.

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

http://www.nytimes.com/2008/10/24/business/economy/24panel.html

 

[Toro]

Two articles on how incentives within lending institutions, in this case Washington Mutual, warped the credit market.

http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1
“If you were dead, they would still give you a loan” | The Big Picture

This is what Greenspan meant by putting too much faith in the self-correcting mechanism of the market. The market became unhinged.

 

[alan1]

And again, the linked articles point out how democrats fought regulation of Freddie and Fannie.

 

[Old Rocks]

And again, the linked articles point out how democrats fought regulation of Freddie and Fannie.

No matter how the Dems fought the regulation of the Macs, had the GOP desired greater regulation of them, they had the votes to make it so. That is the final and bottom line.

 

[Toro]

And again, the linked articles point out how democrats fought regulation of Freddie and Fannie.

I'm not disagreeing with that. What I am disagreeing with is your implication that Freddie and Fannie caused the meltdown. Yes, Freddie and Fannie and the Dems contributed to this mess, but they aren't the cause of it.

 

[alan1]

I'm not disagreeing with that. What I am disagreeing with is your implication that Freddie and Fannie caused the meltdown. Yes, Freddie and Fannie and the Dems contributed to this mess, but they aren't the cause of it.

When one is a new member on a board, sometimes they have to use an attention grabbing title to get responses.