John McCain, Phil Gramm and the Republican establishment are acting as if they had nothing to do with the Housing Crisis that led to today’s takeover of Fannie Mae and Freddie Mac. The down payment by taxpayers to clean up this mess is the $100 Billion the government committed to cover future losses. The media is framing this as a politically neutral event and McCain made the following statement this morning.
“It’s hard, it’s tough, but it’s also the classic example of why we need change in Washington. It’s an example of cronyism, special interest, lobbyists. A quasi-governmental organization, where the executives were making hundreds of — hundred some billion dollars a year, while things were going downhill, going to hell in a handbasket,” Mr. McCain said, adding that the two companies need “more regulation, more oversight, more transparency, more of everything, and frankly, a dramatic reduction in what they do.”
One has to admire the balls of a politician like McCain to make such a statement as if he and his inner circle weren’t the “cronies, special interests and lobbyists” who fought “financial regulation and oversight” tooth and nail for the past ten years. One more Big Lie.
Consider the evidence
- 1994-At the behest of the banking industry Phil Gramm, with McCain’s support, killed the Fair Credit Reporting Act
- In 1994, Mr. Gramm single-handedly killed a bill that would have required credit bureaus to quickly fix errors on a person’s credit report. Mr. Gramm called it a “bad bill” that imposed costs on the credit bureaus.”He was very focused on cost to financial institutions and not very focused on costs suffered by consumers,” said Travis Plunkett, legislative director for the Consumer Federation of America
- 1999-The Gramm-Leach-Bliley Act, authored by McCain’s principle economic advisor, Phil Gramm is the law that deregulated banking and allowed the explosion of inancial derivatives that led to the current credit crisis. John McCain voted for the bill.
- 2000-Phil Gramm created the Commodities Future Modernization Act. John McCain voted for the bill
- Gramm slipped an Enron-backed provision into the Commodities Futures Modernization Act that exempted from regulation energy trading on electronic platforms.Then, over the next year, Enron – with Gramm’s wife Wendy serving on its board of directors – worked to create false electricity shortages in California, bilking consumers out of an estimated $40 billion.
- 2004-The SEC voted to require Hedge Funds to simply register with the agency. Gramm and McCain both argued that since hedge fund investors were high net worth individuals, there was no need for such regulation. The SEC order was overturned on a technicality.
In 2002 Gramm left the senate and became Vice Chairman of UBS the Swiss Bank that was a major player in the sub-prime market. Even as the Housing crisis became apparent this year, McCain maintained his anti-regulatory bias. In March at the height of the crisis he made a speech with this rather bizarre assertion.
“In financial institutions, there is no substitute for adequate capital to serve as a buffer against losses. Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.“
McCain now says we need more regulation, but the truth is that he has fought it for 10 years and it’s time for Obama and Biden to call him on that.
28 responses so far ↓
Dan // September 7, 2008 at 1:42 pm |
Considering that McCain was up to his eyebrows in the savings and loan scandal, and barely escaped with his political skin, it’s not surprising that he can speak knowledgeably about powerful insiders gaming the system for their own enrichment. He’s seen that kind of thing close up and from the inside.
Alex Bowles // September 7, 2008 at 2:05 pm |
Must stop reading. Outrage overload approaching.
Government of the people by the people for whom the people are a source of free capitol (and by free, I mean free as in beer).
Ick.
BobbyG // September 7, 2008 at 2:39 pm |
So, a GOP administration is now nationalizing everything in sight, but Obama is the “Socialist”?
Phil Gramm, btw, is nothing but a financial rapist. McCain will elevate him to Treasury Secretary.
Rick Turner // September 7, 2008 at 2:42 pm |
Hmmm, seems to me the time to nationalize industry is when it’s doing really, really well! Oh…that would benefit “the people”, and that’s what’s wrong, isn’t it? This is back to the public risk for private gain thing. I wonder how much dough the top thirty executives at each of those organizations made last year… Capitalists seem to love rewarding failure.
Alex Bowles // September 7, 2008 at 2:45 pm |
I know the executives are loosing their jobs, but when you mismanage something so badly the Feds have to step in, you really can’t say ‘okay, I quit, I’m taking my $40 million (okay $38mm) and going to one of my five homes.
This calls for disgorgement.
Morgan Warstler // September 7, 2008 at 3:09 pm |
guys, i think it is clear, that fannie and freddie, are underwater because:
1. too much leverage.
2. too much lending to credit risks – under the liberal / left guise of promoting home ownership to the less fortunate.
am I wrong here?
Jon Taplin // September 7, 2008 at 3:16 pm |
Fannie and Freddie are not in the loan business. They are in the securitizing business. The greed heads were the mortgage brokers and the small banks that made the loans and then sold the paper to Fannie and Freddie. You can’t blame that on a political agenda other than George Bush’s and Tom Delay’s”Ownership Society”. It was pigs at the trough and a bunch of them were at that convention in St Paul.
john // September 7, 2008 at 3:33 pm |
i am having a hard time finding a roll call vote for the CFMA. can anyone help out? was it a voice vote?
BobbyG // September 7, 2008 at 3:45 pm |
@Jon -
“Securitizing” is just a fancy word for foisting the portfolio risk off onto others.
Patrick // September 7, 2008 at 4:34 pm |
Re: Alex Bowles’ “outrage overload.” I’ve already given up reading the editorial and op-ed pages of my local and state newspapers, and am barely able to glance at the NY Times and WashPo web pages. CNN is a non-starter. Anybody have ideas for a (relatively) unbiased, professional (in the Ed Murrow sense) news source online? I get my full minimum daily allowance of outrage right here.
Rick Turner // September 7, 2008 at 4:53 pm |
So how about we nationalize the oil companies right now, and use that dough to prop up the mortgage industry. Oh, limit executive compensation to something under a million a year. That’s enough to live well on, is it not? Why are we always propping up the screw-ups like the auto industry and the drug pushers…Oh, I meant credit pushers. Yeah, I agree that credit got too easy, but aren’t leaders supposed to lead and not lead into the quicksand? Where were they during all this? Oh, yeah, they were salting away the dough. Our Texas friends again…
Sid Ragusa // September 7, 2008 at 6:23 pm |
What would happen if the government, instead of selling oil and gas leases, did the drilling themselves on the public land they/we own? Couldn’t we easily use contractors for this and keep the profits to help pay off national debt. Oh, I can hear the hoary refrain already: “That’s nationalization! That’s communism!” That’s not how the free market works!” I’m of the opinion that the goal of capitalism is to wipe out all of your competition and take over the market, which we’ve seen before in this country by private enterprise creating monopolies that had to be regulated by the government because of how they operated; not in the best interest of the public. But it is such a divisive issue that it can’t be even contemplated in the current presidential election season.
Seth // September 7, 2008 at 11:13 pm |
Patrick:
Somebody in an earlier thread posted a link to ProPublica. I signed up for a daily news blast. So far, it looks promising, but it will take me a while to “calibrate” this particular news filter.
Morgan Warstler // September 7, 2008 at 11:20 pm |
Again, I think the issue with Fannie and Freddie is that they had the support of liberals in Congress that wanted to see riskier loans written to people less likely to be able to pay their bills, right?
I’m not laying all the world’s blame on them, I’m saying obviously it was a factor, and that emotionally laudable, but fiscally silly effort is now officially over, right?
No Rick, I don’t think we have to do that, BUT we can let Sarahcuda negotiate with Big Oil on the fees being paid on all kinds of new drilling, apparently she’s pretty good on that front.
Obama should say that even if he is elected, he’s going to let her be the energy czarina. That’d be fun.
Jon Taplin // September 8, 2008 at 6:49 am |
Morgan-For someone who pretends to know a lot, you sure are pretty clueless in the economic realm. Fannie and Freddie were prohibited by law from buying sub prime mortgages.
I’m happy, that like the rest of the right wing base, you are so thrilled with Sarah Palin. Her celebrity is still not going to bring in Independents or Democrats who are not so thrilled with the thought of having a book-burner a heartbeat away from the Presidency. According to the actuarial tables, John McCain has a 1 in 6 chance of croaking in the next 8 years. You know I go to church every Sunday, but the thought of a fundamentalist like Palin as President fills me with dread.
Morgan Warstler // September 8, 2008 at 7:28 am |
Well Jon, I only know what I read:
“[Andrew Cuomo] turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded “kickbacks” to brokers that have fueled the sale of overpriced and unsupportable loans. ”
http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/
“Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.”
http://hispanicpundit.com/2008/09/08/blame-freddie-mac-and-fannie-mae-on-the-democrats/
“The ties between the Fannie Mae debacle and the Democratic party are much more intimate than that. Senior Democrats chosen for their political connections – James Johnson, Franklin Raines, Jamie Gorelick – took tens of millions of dollars in compensation out of the company. The ties between the Obama campaign and Fannie Mae are especially intimate: not only did Johnson head Obama’s veep-vetting operation, but we learn in this Washington Post article that the campaign that Raines is advising Obama on the mortgage crisis! Well, he should know. Let’s just hope the Obama operation is able to keep Raines away from the accounting side of things. Even the amazing Obama fundraising operation could not afford that!
More seriously: Here is potentially the largest financial disaster in American history. The American taxpayer stands to lose billions; Democratic insiders have extracted tens of millions. If Enron was a party scandal … what is this?”
Alex Bowles // September 8, 2008 at 12:36 pm |
Here’s a thought about all the big banks, retirement funds, etc. that were relying on the ‘implicit guarantee’ that the Feds would prop up their investments in FM & FM;
Did any of these shareholders have the slightest intention of sharing any of their gains with the taxpayers? Or were assessing the situation for what it was:
Capital, extracted from the taxpayers under threat of legal sanction, and managed by unaccountable Congresspeople was ‘implicitly’ made available to hedge risks that would never have otherwise been taken, the upsides of which would accrue entirely to private individuals, with a portion kicked back to policymakers like Gramm to assure their continued support. In short, a government backed transfer of wealth to the capitalists.
I know the Republicans like to beat up Democrats about the immorality of ‘wealth-transfer schemes’, and constantly make threats about how this kind of insidious socialism is going to kill the goose laying all the golden eggs, and that people willing to take risks are as, if not more important to the general welfare than those who simply work hard each day.
But what happens when it’s the people working hard who are producing the bulk of the wealth, and the so called capitalists, not having made terribly good investments on their own, just start picking pockets instead?
And what if they decide to continue making bad, or excessively short-term bets with all this stolen money?
Do we really think that, if they deliver the returns they’re anticipating, that they’ll give back what they took, with a fair gain attached for decent measure?
I’m far less savvy about all this that I probably should be, but from where I sit, it looks like Paulson just told all these people who were banking on the captive nature if taxpayers to go fuck themselves, and to do it quickly.
Of course, he’s a financier, and can be expected to use a bit more finesse in making that point, but the essence of it is “you’re idiots at best and criminals at worst for counting on any ‘implicit’ Federal guarantees – and if you’re handling retirement funds, then it’s twice as true”.
From where I sit, this guy is looking pretty heroic.
Now, about the bailout request from Detroit…
Toutatis // September 8, 2008 at 2:02 pm |
The Commodities Futures Modernization Act was drafted as a multi-committee exercise between the House and the Senate. The final product was introduced in the House by several committee chairs and ranking minority members as HR 5660. The drafting of that text was driven hard by the Senate banking committee Chair, Mr. Gramm, hence the attribution to him. HR 5660 was never voted on in any committee or either House of Congress. It was enacted by reference in HR 4577 of the Consolidated Appropriations Act for FY 2001 (which became Public Law 106-554 on 12/21/2000). Section 1 stated:
SECTION 1. (a) The provisions of the following bills of the 106th Congress are hereby enacted into law:
(1) H.R. 5656, as introduced on December 14, 2000.
(2) H.R. 5657, as introduced on December 14, 2000.
(3) H.R. 5658, as introduced on December 14, 2000.
(4) H.R. 5666, as introduced on December 15, 2000, except that the text of H.R. 5666, as so enacted, shall not include section 123 (relating to the enactment of H.R. 4904).
(5) H.R. 5660, as introduced on December 14, 2000.
(6) H.R. 5661, as introduced on December 14, 2000.
(7) H.R. 5662, as introduced on December 14, 2000.
(8) H.R. 5663, as introduced on December 14, 2000.
(9) H.R. 5667, as introduced on December 15, 2000.
(b) In publishing this Act in slip form and in the United States Statutes at Large pursuant to section 112 of title 1, United States Code, the Archivist of the United States shall include after the date of approval at the end appendixes setting forth the texts of the bills referred to in subsection (a) of this section and the text of any other bill enacted into law by reference by reason of the enactment of this Act.
You can find the thread at http://thomas.loc.gov/
Rick Turner // September 8, 2008 at 3:08 pm |
I gotcher Detroit bailout right here buddy. Middle finger of both hands. Anyone who kept stock ownership in the big three deserves what they will get from those companies going belly up. Talk about hubris…
john // September 8, 2008 at 5:27 pm |
thanks for that, Toutatis.
Ken Ballweg // September 8, 2008 at 5:55 pm |
Seth, Thanks for the ProPublica link. Anytime someone refers me to a news site (other than MSM, which is all beholden in my view) I like to follow the money.
For ProPublica it’s
“ProPublica is led by Paul Steiger, the former managing editor of The Wall Street Journal. Stephen Engelberg, a former managing editor of The Oregonian, Portland, Oregon and former investigative editor of The New York Times, is ProPublica’s managing editor.
Lead funding for this effort is being provided by the Sandler Foundation, with Herbert Sandler serving as Chairman of ProPublica; other leading philanthropies also providing important support.”
Sandler is the SF based, “Pinko” (Repub reference I read once) antithesis to the Heritage Foundation. Used to give a lot to PBS/NPR but have cooled on them, perhaps due to their politicalization.
Someone correct me if I’m wrong but I pretty sure Steiger left the WSJ as a result of the Murdoch buy out. Engelberg did good stuff on the Oregonian, and has done time for the NYTs. I’m impressed and going to add it to my morning ritual which starts with the Grey Lady, quick rundown of Google News (a gabillion RSS feeds in one spot), skim the Oregonian for state news, Drudge for my Yellow J fix, and a few others depending on circumstances. That with the Progress Report by Email (another Sandler supported project).
Used to include the LA Times which was a nice check on the NYT coverage, but, sadly, the change is showing. Will be nice to toss in a new source and give it a try.
A // September 9, 2008 at 2:14 am |
http://www.timothysykes.com/wp-content/uploads/2008/09/image001.jpg
Alex Bowles // September 9, 2008 at 11:24 am |
Looks like Paulson is deflecting some blame from the fired management and board by noting that the entire structure of the mortgage giants was an absurdity, and doomed to fail from the very beginning.
Even if Management and the Board had been entirely competent and clear sighted, they were trying to balance forces that no normal business has to contend with. Specifically, they were accountable to the market, as is any publicly listed company, but they were also beholden to Congress, and pressure to meet the goals of social programs run through Housing and Urban Development that were pushing ‘affordable housing’ agendas that were so divorced from economic reality that they may as well have been trying to repeal the law of gravity.
Ergo, the crash.
Within Congress, there seems to be plenty of blame to go around. Both sides of the aisle found that the fundamental distortion allowed by FM&FM meant giveaways for their respective constituents.
Folks savvier that me can say whether I’m oversimplifying, but it seems that the entire purpose of FM & FM was to remove risk from the housing market – for everybody. Lenders could simply securatize mortgages, and pass on their liabilities, which led to a surge in demand that drove up prices at a rate where buyers stopped worrying about declines.
I was thinking earlier about government and religion, and how the church / state divide is really there for their mutual protection. There seems to have been an equally unholy alliance between the market and government that was, in essence, institutionalized in FM & FM.
So like Paulson said, the crash was inevitable from the very beginning. If you accept that economics obey the same principles as every other form of organized life, you could go so far as to say FM & FM represented a crime against nature – and not one that markets, undistorted by reckless government policy agendas, would ever have committed on their own.
Which brings us back to the question of ‘bail out’. That implies this was simply the failure of a big, but still private player, which is obviously not the case.
Unlike, say, Detroit, which really has dug its own grave, the mortgage mess is something we inflicted on ourselves. With this one, disgorgement hits everybody.
Morgan Warstler // September 9, 2008 at 11:53 am |
Uh Oh, Jon, wrong again:
“Morgan-For someone who pretends to know a lot, you sure are pretty clueless in the economic realm. Fannie and Freddie were prohibited by law from buying sub prime mortgages.”
See Alex’s post (thanks Alex). This whole thing is going to come down to, “pressure to support shitty loans.”
Man, you’d think you quit making outlandish comments about me by now.
Note: You should be cheering this total redistribution of wealth, wherein people who couldn’t afford to live in a new house, got to, for a couple years. And now the only people who have to pay for it is… mine and your kids generation, and your grandkids. This is a perfect example of the government FAIL, and now after the fact, Obama has to step up and bite the hand that’s been feeding him. Yeesh.
P. Cross // September 9, 2008 at 1:50 pm |
CRA, created a huge number of potentially bad loans that were so interest sensitive they created a situation where any increase in interest rates released that potential. The Community Reinvestment Act is but another example of how the congress in the name of political correctness has created another unintended consequence in a market. The Law was passed in 1977 then updated in 95′ & 05′
Liberal claims that they are blameless are like a man standing with a smoking gun behind his back saying they went that away as the posse approaches.
I would submit until these loans and securities are for the most part are dealt with, any further interest rate increases will only exacerbate the problem and the FED knows it.
Several years ago a friend in the legislature ask me what I thought they, the legislature should do with a large excess in the general fund. Send 50% back to the people of the state and save the rest. They didn’t but Sarah did. She scares the dejesus out of the left.
Jerry Shugart // September 17, 2008 at 9:13 am |
Why is no one speaking of the fact that John McCain introduced a bill in 2005 to reform Freddie Mac and Fannie Mae?
This was the “Federal Housing Enterprise Regulatory Reform Acts of 2005.”
This bill was defeated by the Democracts.
It is also interesting that no one received more in political contribulations from these two companies than did Senator Obama!
Larry Lane // September 17, 2008 at 7:13 pm |
I’m voting for Obama / Biden – but I’m having trouble reconciling your LGBT senate role call link with the official version, http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=106&session=1&vote=00354 , which shows that Joe Biden voted for the bill and McCain did not vote – what gives?
tj // September 30, 2008 at 3:07 pm |
You know if you go back and look at the history, they (both parties) are culpable in this debacle. I say vote independent and kick all the incumbants out of office. You want change, that will effect change. Anybody read tom clanceys book where Jack Ryan becomes President? Sounds like a good idea Tom