Our 2020 election has the Democratic National Party going Old School party line with Joe Biden who will likely choose a woman as his running mate. The problem with the DNC ‘old school’ is that their economic meddling, based on unproven conjecture, has been responsible for major problems in this country, and the consequences of their efforts are often not seen for years after the perpetrators are long gone from the scene. As lovely as that woman may be, her presence on the ticket does not change that ‘old school’ problem. It is our opinion the progressives in particular, are ill prepared to manage our country’s economy because their philosophy is based on a theory that has never been shown to achieve any degree of success in any economic setting at any time. If it has, I have yet to find it and I have looked.
The 2007 housing meltdown is the classic example of how the failure to understand that economic issues in particular can have a long history with decades of malfeasance and mismanagement, and not just reflect the history of the last person in a line of elected officials. The beginning of the 2007 housing meltdown started with President Bill Clinton’s financial deregulation in the 1990’s which allowed Barney Frank’s House Financial Services Committee to manipulate and/or force banks into giving mortgages to people who could not pay them back. This paved the way for Fannie Mae and Freddie Mac to meet a 30% quota on guaranteeing loans with US tax dollars for low income people who would not qualify for a conventional loan. In other words, their monthly income and expenses do not show an ability to make the payments on the loan.
By 2008, that quota reached over 55% of the Fannie and Freddie Loans because Barney Franks and Rahm Emanuel made every effort to prevent any oversight that would put the low income housing on safer, more credible grounds. Progressives do not own that today because it is politically unpalatable at election time. (For the sake of brevity, let’s just say big banks would not admit to knowingly passing a bad investment on to other banks and pension holders out of desperation.)
President Bush, in fact, proposed in 2003, that Freddie Mac and Fannie Mae become an agency under the Treasury Department in order to address the fact that Freddie and Fannie were not sufficiently supervised. It was blocked by Barney Franks who said there was no crisis within the agencies that warranted such a drastic action despite the testimony of Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee ‘We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,. …These irregularities, which have been going on for several years, should have been detected earlier by the regulator.‘‘
Yet in a matter of a few years later, the meltdown brought down the entire economy. There were, as well, alarming requests to President Obama to investigate Rahm Emanual’s activities on the Board of Freddie Mac and Fannie Mae in yet another attempt to bring some discipline to the poor financial oversight of Freddie and Fannie. We wish we could say 2003, was the first time this issue of oversight had been raised; it was not. As far back as 1992, the lack of supervision over Freddie and Fannie was considered more than troubling but Barney Franks blocked any and all efforts to remedy the problem.
The truly troubling part about this is we have a House Financial Services Committee telling privately held, for profit mortgage finance companies to make loans to people who do not have the income to pay the monthly payments over time. Failure for the banks to do so resulted in withheld approval for expansion, additional audits, SEC investigations and other expensive and threatening government action. How is that even legal? If we were to do that in the private sector, it would be called extortion and we would be put in jail.
On top of that Barney Frank, Rahm Emauel, Freddie Mac and Fannie Mae know the cost to an individual who makes a mortgage they cannot afford, the loss to pension plans owning stock in banks holding the defaulted mortgages, the heartbreak of the disappointed homeowner’s family and the fear of a retiree depending upon the income that bank stock, or that mortgage bond fails to return. They are not ignorant or unaware of these repercussions, and they did it anyway and did it because it bought Democrats votes and lined their pockets.
Once the meltdown hit, the banks, rather than make some kind of reduced payment arrangements on upside down loans, let those homes go empty. Because no one could buy it, the home was eventually trashed and everyone lost. There is also a no small issue of why the banks accepted these blocks of loans containing too many risky loans in the first place, suggesting oversight of what those blocks of loans contained was non-existent which in turn implies financially irresponsible behavior to investors. In the final analysis, however, all that pain of people who lost their homes, investments, and security was well known to Barney Frank, Freddie Mac, Fannie Mae and Rahm Emanuel and they did it anyway.
To hear the reporting of Congressional discussion about Fannie Mae and Freddie Mac accounting irregularities at the time Barney Franks testified to no crisis in the organizations, listen to the C-Span interview re Fannie Mae Investigation: Accounting Irregularities at the Mortgage Company (2004. The pressure from Congress to ignore the recommendations from President Bush to move Freddie and Fannie into the Treasury Department was intense. In a final ironic twist, Rahm Emanuel and Frank Raines, CEO of Freddie Mac and Fannie Mae, cleverly avoided investigations regarding ‘potential malfeasance’ with the cooperation and assistance of President Obama, and Barney Franks continued to serve eventually retiring with honors.
Our world is too complex to allow the kind of legal idiocy reflected in the Clinton-Franks thought process. Clinton, Franks, Emanuel and Raines were ALL aware these agencies needed careful supervision and revised accounting practices. It is covered in Accounting 101, and Barney Franks deliberately fought against it which abetted the ‘potential malfeasance’ of Frank Raines. Why is this important to clarify now? The solutions to this economic meltdown were created in the middle of a huge political free for all with a biased, out to lunch press, a progressive president who had no experience in economics or business management and an adoring public who absolutely felt he could do no wrong. What could possibly go awry there? We have an election in November 2020, where managing the economy will be critical to the survival of our country. We need to elect someone who knows how to do that so we can put food on the table.
We need to re-examine our solutions here before we have another meltdown. Freddie and Fannie are privately held, profit driven mortgage finance companies that are government sponsored with the mandate to achieve affordable housing goals. Clearly the government bailout decries the privately held label and they are in the same business today with what they profess to be tighter controls. Have we heard that before? If you examine the history of Freddie Mac and Fannie Mae, there has not been one administration where this organization is without serious management problems or scandal, often both, in large part because the sponsorship arrangements provide perfect opportunities for outright theft, mismanagement and only Heaven knows what else. The history of this kind of sponsorship proves its lack of wisdom….we need to own it and fix it.
“Facts do not cease to exist because they are ignored.”
~ Aldous Huxley
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