Amid all the hype surrounding the presidential campaign, key facts about the origin of the mortgage crisis that led to the financial meltdown have gotten lost.
Sen. Chris Dodd, D-Conn., who sought the Democratic Party’s nomination in the primaries, has acknowledged that “the root cause of this is the housing foreclosure crisis.”
As chairman of the Senate Banking Committee, Dodd should know. His committee passed key legislation in 1999 that deregulated the mortgage industry under pressure from community organizers such as ACORN, which was getting federal money to promote affordable housing, and from free-wheeling mortgage lenders such as Fannie Mae and Freddie Mac, who wanted to expand their lending portfolio and book larger profits.
Insiders of Sen. John McCain’s campaign tell Newsmax that McCain will hit this and other issues that resonate strongly with conservatives in the final debate with Sen. Barack Obama Wednesday.
“He’s going to pull out all the stops,” one insider told Newsmax. “Bill Ayers, ACORN, voter fraud, Obama’s funny money, the subprime implosion, the works. It’s time for Armageddon.”
The 1999 Graham-Leach-Bliley deregulation bill, which a majority of Senate Democrats supported, forced mortgage lenders to make subprime loans to families who couldn’t afford to buy houses by offering them interest-only loans, no income verification, and teaser adjustable interest rates.
If the banks refused to make the shaky loans, they would have been hit with big penalties to failing to advance the cause of affordable housing.
Dodd voted for the measure, as did Sen. Joe Biden, now Barack Obama’s running mate. Only eight senators, including McCain, bucked the current and voted against the 1999 deregulation plan, which even the liberal Brookings Institution condemned.
And yet, McCain has been reluctant to trumpet his record on the housing and financial crisis, even though he consistently has opposed measures that led to the mortgage meltdown underlying the financial collapse and supported new regulatory mechanisms that might have prevented it.
This has frustrated many of his supporters and the authors of several YouTube videos detailing the Democrats’ record in causing the financial meltdown.
In a tally of all congressional recipients of campaign cash from Fannie and Freddie from 1989 until 2008 compiled by the center-left Center for Responsive Politics (CRP), Dodd comes out No. 1.
Surprisingly, the second-largest-recipient of money from the two delinquent government-backed mortgage lenders for the same period was Obama, even though he has been in the U.S. Senate for only three years.
Obama took in $126,349 from Fannie and Freddie since coming to the U.S. Senate in 2005, while Dodd took in $165,400 since 1989, according to CRP.
That put Obama’s annual receipts from the failed mortgage lenders at nearly five times what Dodd took in.
By contrast, McCain took in just $21,500 during the 19-year-period, for an average of $1,131 a year, the CRP found.
Obama’s yearly income from Fannie and Freddie was 37 times McCain’s. Despite this, polling data suggests that Obama has convinced more Americans than McCain that he is best suited to handle the financial crisis as America’s next president.
In 2003, President Bush appealed to Congress to create a new regulatory agency that would oversee Fannie Mae and Freddie Mac.
During hearings the following year, Democrats in Congress, led by Dodd and Rep. Barney Frank, now the chairman of the House subcommittee in charge of regulating the industry, vigorously opposed the administration’s efforts.
In testimony before the subcommittee, Fannie Mae CEO Franklin Raines called the mortgage investments “riskless,” and insisted there were no problems at Fannie or Freddie.
Rep. Maxine Waters, D-Calif., applauded the “outstanding leadership of Franklin Raines” at Fannie Mae and said Congress and the administration were “trying to fix something that wasn’t broke.”
“Mr. Chairman, we do not have a crisis at Freddie Mac, and particularly at Fannie Mae,” Waters said.
Rep. Lacy Clay, D-Mo., another member of the Congressional Black Caucus, complained that “this hearing is about the political lynching of Franklin Raines.”
Franks, who continues to try to get money for ACORN set aside in the latest government bailout of the financial industry, swept aside a government oversight report that found serious problems in the way that Fannie and Freddie kept their books.
“I don’t see anything in this report that raises safety and soundness problems,” he said.
Despite being forced to disgorge $24.7 million in stock options and other benefits in a settlement with the government in April, Obama called Raines for advice on economic and housing issues, according to the Washington Post.
Obama campaign officials now claim that Raines is not a top economic adviser to the campaign, even though the Post never alleged that.
McCain next tried to reform the way that Freddie and Fannie booked profits in 2005, when he co-sponsored the Federal Housing Enterprise Regulatory Reform Act.
In a speech in support of the legislation on the U.S. Senate floor on May 25, 2006, McCain warned that Freddie and Fannie urgently needed to be reformed or financial disaster would strike.
“For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac . . . and the sheer magnitude of these companies and the role they play in the housing market. [T]he GSEs need to be reformed without delay.” (GSE is jargon for Fannie Mae and Freddie Mac.)
Obama voted against the bill and has opposed all efforts to reform the way Freddie and Fannie did business in the three years he has been in the Senate.
In a Sept 17, 2007, speech to NASDAQ, Obama said, “Subprime lending started out as a good idea, helping Americans buy homes who previously couldn’t afford to.”
Raines told C-Span television that Fannie “had a program to invest $1 trillion in targeted lending aimed at those who were not able to get mortgages in the past in urban areas, racial minorities.”
And yet, virtually all analysts agree that the collapse of the subprime market triggered the financial crisis.
Democrats opposed efforts for tighter regulation of Fannie and Freddie the administration proposed 17 times during the past eight years, according to a White House statement last month.
In April 2001, just after taking office, the new administration’s budget warned that the ballooning size of Fannie and Freddie’s mortgage portfolio “could cause strong repercussions in financial markets, affecting federally insured entities and economic activity.”
One year later, President Bush called on Fannie Mae and Freddie Mac to adopt a 10-point plan of corporate responsibility, which they refused.
In January 2003, the crisis began when Freddie Mac was forced to restate its profits for the preceding three years. In February, the Office of Federal Housing Enterprise Oversight, the regulator the Democrats loved to hate, announced that “unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market.”
Fannie Mae disclosed in September 2003 that the Securities and Exchange Commission was investigating allegations that it had manipulated its earnings. A month later, Fannie acknowledged a $1.2 billion “accounting error.”
“Much if not all” of the problems we face from the financial crisis, sparked by the collapse of the housing market, “could have been prevented by a bill cosponsored by John McCain and supported by all the Republicans and opposed by all the Democrats in the Senate Banking Committee in 2005,” pundit Michael Barone wrote last week.
“That bill, which the Democrats stopped from passing, would have prohibited the GSEs from speculating on the mortgage-based securities they packaged,” Barone said.
Barone notes that many Republicans are frustrated that McCain has shied away from blaming the Democrats for causing the mortgage and financial meltdowns.
“Why can't John McCain and Sarah Palin make the points about how the crisis was built illustrated in the ‘Burning Down the House’ YouTube video?” Jim Geraghty wrote at the Campaign Spot blog on National Review last week. “Could McCain please, please bring up some of this” in a debate?
McCain campaign insiders tell Newsmax that they believe their man will confront Obama this time for his responsibility in the financial crisis, and accuse Obama of “bad judgment” in choosing to ally with “terrorist” William Ayers and other questionable cronies.
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