Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Let’s Review “What They Said About Fan and Fred”

Posted by Larry Doyle on June 3, 2010 5:55 AM |

What do you have to do today? What did you do yesterday? What is on your schedule for tomorrow? What did the market do yesterday? What will the market do today? What might it do tomorrow?

America lives in the moment. While in certain circumstances that emphasis on the immediate may be helpful and appropriate, in my opinion, that approach generates a lack of real depth and understanding within our national psyche.

Real sense on cents requires a much greater understanding of the past in order to generate a much more astute projection of the future. We must hold our financial and political leaders to a similar — if not even more vigorous — standard. Regrettably, we allow the Wall Street and Washington establishments, in concert with an ineffective media, to frame our national debate. In the process, are we mere mindless lemmings being led to slaughter?

I raise this question prompted by a loyal reader, Rockie, who commented so poignantly on a recent article. In Rockie’s response was a link which should continually enrage the American public.  As billions upon billions of our taxpayer dollars flow like a river into the sinkholes known as Freddie Mac and Fannie Mae, NEVER forget how those in Washington blindly supported these financial frauds while sticking their faces deep into Fannie and Freddie’s trough.

You may have read this commentary or portions of it previously. That said, it definitely bears repeating. Breathe deep before you review this and be careful you do not hyperventilate.

What They Said About Fan and Fred
The Wall Street Journal; October 2, 2008

House Financial Services Committee hearing, Sept. 10, 2003:

Rep. Barney Frank (D., Mass.): I worry, frankly, that there’s a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. . . .

Rep. Maxine Waters (D., Calif.), speaking to Housing and Urban Development Secretary Mel Martinez:

Secretary Martinez, if it ain’t broke, why do you want to fix it? Have the GSEs [government-sponsored enterprises] ever missed their housing goals?

* * *

House Financial Services Committee hearing, Sept. 25, 2003:

Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

* * *

House Financial Services Committee hearing, Sept. 25, 2003:

Rep. Gregory Meeks, (D., N.Y.): . . . I am just pissed off at Ofheo [Office of Federal Housing Enterprise Oversight] because if it wasn’t for you I don’t think that we would be here in the first place.

And Freddie Mac, who on its own, you know, came out front and indicated it is wrong, and now the problem that we have and that we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum so that we can talk about it and maybe change the direction and the mission of what the GSEs had, which they have done a tremendous job. . .

Ofheo Director Armando Falcon Jr.: Congressman, Ofheo did not improperly apply accounting rules; Freddie Mac did. Ofheo did not try to manage earnings improperly; Freddie Mac did. So this isn’t about the agency’s engagement in improper conduct, it is about Freddie Mac. Let me just correct the record on that. . . . I have been asking for these additional authorities for four years now. I have been asking for additional resources, the independent appropriations assessment powers.

This is not a matter of the agency engaging in any misconduct. . . .

Rep. Waters: However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn’t broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine. With last week’s hurricane and the drain on the economy from the war in Iraq, we should do no harm to these GSEs. We should be enhancing regulation, not making fundamental change.

Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. . . .

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

Mr. Raines?

Mr. Raines: No, sir.

Mr. Frank: Mr. Gould?

Mr. Gould: No, sir. . . .

Mr. Frank: OK. Then I am not entirely sure why we are here. . . .

Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.

* * *

Senate Banking Committee, Oct. 16, 2003:

Sen. Charles Schumer (D., N.Y.): And my worry is that we’re using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie’s mission. And I don’t think there is any doubt that there are some in the administration who don’t believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.

Mr. Raines: But more importantly, banks are in a far more risky business than we are.

* * *

Senate Banking Committee, Feb. 24-25, 2004:

Sen. Thomas Carper (D., Del.): What is the wrong that we’re trying to right here? What is the potential harm that we’re trying to avert?

Federal Reserve Chairman Alan Greenspan: Well, I think that that is a very good question, senator.

What we’re trying to avert is we have in our financial system right now two very large and growing financial institutions which are very effective and are essentially capable of gaining market shares in a very major market to a large extent as a consequence of what is perceived to be a subsidy that prevents the markets from adjusting appropriately, prevents competition and the normal adjustment processes that we see on a day-by-day basis from functioning in a way that creates stability. . . . And so what we have is a structure here in which a very rapidly growing organization, holding assets and financing them by subsidized debt, is growing in a manner which really does not in and of itself contribute to either home ownership or necessarily liquidity or other aspects of the financial markets. . . .

Sen. Richard Shelby (R., Ala.): [T]he federal government has [an] ambiguous relationship with the GSEs. And how do we actually get rid of that ambiguity is a complicated, tricky thing. I don’t know how we do it.

I mean, you’ve alluded to it a little bit, but how do we define the relationship? It’s important, is it not?

Mr. Greenspan: Yes. Of all the issues that have been discussed today, I think that is the most difficult one. Because you cannot have, in a rational government or a rational society, two fundamentally different views as to what will happen under a certain event. Because it invites crisis, and it invites instability. . .

Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. And we don’t want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that’s been done here. And that shouldn’t be lost in this debate and discussion. . . .

* * *

Senate Banking Committee, April 6, 2005:

Sen. Schumer: I’ll lay my marker down right now, Mr. Chairman. I think Fannie and Freddie need some changes, but I don’t think they need dramatic restructuring in terms of their mission, in terms of their role in the secondary mortgage market, et cetera. Change some of the accounting and regulatory issues, yes, but don’t undo Fannie and Freddie.

* * *

Senate Banking Committee, June 15, 2006:

Sen. Robert Bennett (R., Utah): I think we do need a strong regulator. I think we do need a piece of legislation. But I think we do need also to be careful that we don’t overreact.

I know the press, particularly, keeps saying this is another Enron, which it clearly is not. Fannie Mae has taken its lumps. Fannie Mae is paying a very large fine. Fannie Mae is under a very, very strong microscope, which it needs to be. . . . So let’s not do nothing, and at the same time, let’s not overreact. . .

Sen. Charles Schumer (D., N.Y.): I think a lot of people are being opportunistic, . . . throwing out the baby with the bathwater, saying, “Let’s dramatically restructure Fannie and Freddie,” when that is not what’s called for as a result of what’s happened here. . . .

Sen. Chuck Hagel (R., Neb.): Mr. Chairman, what we’re dealing with is an astounding failure of management and board responsibility, driven clearly by self interest and greed. And when we reference this issue in the context of — the best we can say is, “It’s no Enron.” Now, that’s a hell of a high standard.

People who have been shown incapable of seeing beyond their own political noses do not deserve to represent our collective American interests. Do you feel confident and comfortable that a number of these aforementioned individuals are integrally involved in our financial regulatory reform?

Never forget what they said and how they acted. All of us are paying for the MASSIVE mistakes made by this collective crowd.

Thank you, Rockie, for sharing the link and more importantly the reminder!!

LD

  • sweet ebony diamond

    Hello Larry,

    Franklin Raines is a first-class scumbag.

    He is the epicenter of all problems that exist today.

    Sweet Ebony Diamond

    • LD

      Sweet Ebony Diamond,

      How do you really feel?

      I will say that I firmly believe Franklin Raines committed accounting fraud and he should have paid a very steep price in terms of fines and time.

  • divvytrader

    oh Larry ….. you must have gotten up on wrong side of bed today …. despite nary a mention of the words ‘ Fannie ‘ or ‘ Freddie ‘ in the great Dodd Financial Reform Bill , Geithner assured his fellow G20 members they need to follow his lead that has ALREADY ( apparently ) boosted financial oversight …. never mind despite the biggest tax hikes in history looming , Buffet warning the muni bond market is a disaster in making and jobless claims still at recession levels that USA growth is booming !

    ____________________________________________________________

    Geithner Says U.S. Meeting G-20 Pledge to Boost Economic Growth

    By Ian Katz and Timothy R. Homan
    June 3 (Bloomberg) — Treasury Secretary Timothy F.
    Geithner said the U.S. is meeting its pledge to the Group of 20 nations to strengthen financial oversight and boost growth, and he called on developing and industrial countries to accelerate efforts to reinforce the global recovery.

    “The world economy is in a much better place,” Geithner
    told reporters yesterday in Washington. “The most important
    thing is to make sure that everyone understands that we’re going to continue to work together to make sure we’re reinforcing this recovery.”

    • LD

      Divvy,

      He can continue to say it to himself and his cronies all he wants, and perhaps he believes it, but it does not make it so.

      Lying to each other on a consistent and regular basis is no way to run a business, let alone a bank, an economy or a country.

  • Mike

    Great article… it really highlights Congress’ stupidity and inability to face the truth about the real risks embedded in Fannie and Freddie.

    Sure it seemed fine on a ‘day to day’ basis, but everything does until it finally crashes.

    Larry is there any source to tell us exactly how much Fan and Fred have cost the taxpayers thus far? Perhaps since December 24?

  • coe

    LD – It’s been said before and yet needs to be said again…for the longest time, Freddie Mac (then the FHLMC) and FannieMae operated in perfect harmony with their mission and played a key intermediation role in safely and soundly greasing the wheels of housing finance – they were mortgage insurers – i.e. guaranteeing performance according to specific and narrow program underwriting requirements; and they were mortgage bankers – i.e. purchasing and securitizing product that was originated to their rigorous program characteristics. It was only when they went public, pushed the envelope on their purchasing predilections, started building a leveraged investment portfolio filled with risk, arbitraged seriously flawed and asymmetrical accounting standards, ignored prudent capital standards, and used derivatives not only as a hedge of risk but as a vehicle that created off-balance sheet synthetic risk, did things spiral out of control. And yet they still might have pulled it off were it not for the disruption in accelerating housing prices and global liquidity that in a chicken and egg sense caused the crisis or was the crisis. Well, I guess the executive management team wanted a piece of the American dream…who really can blame them – sitting there watching the Wall St bankers, traders, salesmen and hedge fund investors and celebrity bank presidents get rich – wouldn’t anyone want a bite of that peach? And yes, the Congress and related regulators were then and continue to be essentially clueless – they never could and never will get their arms around the complexities of the associated risks – why should that be a shock? clearly, sophisticated investors bungled the very same issues…

    There were times when those cited in your article might have been able to keep the horses in the barn, but they were too stupid, too greedy, too partisan, too self-serving, too self-important, and ultimately, too misguided to answer the call…

    This can be fixed in one fell swoop – I really believe that – carve out the legacy exposures and finance that through the various mechanisms we have been playing with recently, and don’t hesitate to reposition the GSEs to behave as they did in the latter part of the 70s, and not as they did during the go-go 90s and this past decade…

    …and let’s elect leaders with courage, honor, and is it too much to ask for brains and the ethical inclinations to serve the people – not their own agendas!

  • Bill

    Of course, one of the boyfriends of that dirty Barney Fraud made big bucks at Fannie Mae. Fraud absolutely refuses to accept any responsiblity for the meltdown. That’s a lot of the problem. Almost nobody in Washington is possessed of any shame for their misdeeds.






Recent Posts


ECONOMIC ALL-STARS


Archives