Gunner wrote:

On Wed, 17 Sep 2008 20:34:55 -0400, john
wrote:


I was really almost getting to like the republican ticket until I did a
little research on the relaxation of the banking laws. Aparently the
law was ammended in 1999 by an attachment to the budget bill. The
attachment was created by Phil Graham. Now you all know who Phil Graham
is, a lobyist for the banking industry and until a few weeks ago the
adviser for John McCain. Phil is also the guy that they wrote about in
this site.
http://www.huffingtonpost.com/2008/0..._n_111857.html

You've heard of mental depression; this is a mental recession," he said,



The Huffington Post is only a **** hair to the Right of Pravda.

Perhaps you may wish to review other data points?

http://www.floppingaces.net/2008/09/...posed-in-2005/

http://www.foxnews.com/story/0,2933,338629,00.html

http://members4.boardhost.com/JohnSh...221523610.html
How Fannie and Freddie weren't reined-in

Posted by Jankdc on 9/15/2008, 4:06 pm

This article is getting deleted on the servers, so I am printing it in
full he

How Fannie and Freddie weren't reined-in
The Washington Post
5:04 AM EST September 15, 2008

Gary Gensler, an undersecretary of the Treasury, went to Capitol Hill
in March 2000 to testify in favor of a bill everyone knew would fail.

Fannie Mae and Freddie Mac were ascendant, giants of the mortgage
finance business and key players in the Clinton administration's drive
to expand homeownership. But Gensler and other Treasury officials
feared the companies had grown so large that, if they stumbled, the
damage to the U.S. economy could be staggering. Few officials had ever
publicly criticized Fannie Mae and Freddie Mac, but Gensler concluded
it was time to urge Congress to rein them in.

"We thought this was a hand-on-the Bible moment," he recalled.

The bill failed.

The companies kept growing, the dangers posed by their scale and
financial practices kept mounting, critics kept warning of the
consequences. Yet across official Washington, those who might have
acted repeatedly failed to do so until it was too late. Last weekend,
the federal government seized control of the two companies to protect
the very mortgage market they were created to lubricate. The cost to
taxpayers could run into the tens of billions of dollars.

As policymakers now set out to decide what role government, and the
two companies, should play in the mortgage business, the failures of
the past two decades offer a cautionary tale.

Blessed with the advantages of a government agency and a private
company at the same time, Fannie Mae and Freddie Mac used their
windfall profits to co-opt the politicians who were supposed to
control them. The companies fought successfully against increased
regulation by cultivating their friends and hounding their enemies.

How Fannie and Freddie weren't reined-in

The agencies that regulated the companies were outmatched: They lacked
the money, the staff, the sophistication and the political support to
serve as an effective check.

But most of all, the companies were protected by the belief widespread
in Washington -- and aggressively promoted by Fannie Mae and Freddie
Mac -- that their success was inseparable from the expansion of
homeownership in America. That conviction was so strong that many
lawmakers and regulators ignored the peril posed to that ideal by the
failure of either company.

Weak regulator
In October 1992, a brief debate unfolded on the floor of the House of
Representatives over a bill to create a new regulator for Fannie Mae
and Freddie Mac. On one side stood Jim Leach, an Iowa Republican
concerned that Congress was "hamstringing" this new regulator at the
behest of the companies.

He warned that the two companies were changing "from being agencies of
the public at large to money machines for the stockholding few."

On the other side stood Barney Frank, a Massachusetts Democrat who
said the companies served a public purpose. They were in the business
of lowering the price of mortgage loans.

Congress chose to create a weak regulator, the Office of Federal
Housing Enterprise Oversight. The agency was required to get its
budget approved by Congress, while agencies that regulated banks set
their own budgets. That gave congressional allies an easy way to exert
pressure.

"Fannie Mae's lobbyists worked to insure that [the] agency was poorly
funded and its budget remained subject to approval in the annual
appropriations process," OFHEO said more than a decade later in a
report on Fannie Mae. "The goal of senior management was
straightforward: to force OFHEO to rely on the [Fannie] for
information and expertise to the degree that Fannie Mae would
essentially regulate itself."

Congress also wanted to free up money for Fannie Mae and Freddie Mac
to buy mortgage loans and specified that the pair would be required to
keep a much smaller share of their funds on hand than other financial
institutions. Where banks that held $100 could spend $90 buying
mortgage loans, Fannie Mae and Freddie Mac could spend $97.50 buying
loans.

Finally, Congress ordered that the companies be required to keep more
capital as a cushion against losses if they invested in riskier
securities. But the rule was never set during the Clinton
administration, which came to office that winter, and was only put in
place nine years later.

The Clinton administration wanted to expand the share of Americans who
owned homes, which had stagnated below 65 percent throughout the
1980s. Encouraging the growth of the two companies was a key part of
that plan.

"We began to stress homeownership as an explicit goal for this period
of American history," said Henry Cisneros, then Secretary of Housing
and Urban Development. "Fannie and Freddie became part of that
equation."

The result was a period of unrestrained growth for the companies. They
had pioneered the business of selling bundled mortgage loans to
investors and now, as demand from investors soared, so did their
profits.

Signal moment
Near the end of the Clinton administration, some of its officials had
concluded the companies were so large that their sheer size posed a
risk to the financial system.

In the fall of 1999, Treasury Secretary Lawrence Summers issued a
warning, saying, "Debates about systemic risk should also now include
government-sponsored enterprises, which are large and growing
rapidly."

It was a signal moment. An administration official had said in public
that Fannie Mae and Freddie Mac could be a hazard.

The next spring, seeking to limit the companies' growth, Treasury
official Gensler testified before Congress in favor of a bill that
would have suspended the Treasury's right to buy $2.25 billion of each
company's debt -- basically, a $4.5 billion lifeline for the
companies.

How Fannie and Freddie weren't reined-in

A Fannie Mae spokesman announced that Gensler's remarks had just cost
206,000 Americans the chance to buy a home because the market now saw
the companies as a riskier investment.

The Treasury Department folded in the face of public pressure.

There was an emerging consensus among politicians and even critics of
the two companies that Fannie Mae might be right. The companies
increasingly were seen as the engine of the housing boom. They were
increasingly impervious to calls for even modest reforms.

As early as 1996, the Congressional Budget Office had reported that
the two companies were using government support to goose profits,
rather than reducing mortgage rates as much as possible.

But the report concluded that severing government ties with Fannie Mae
and Freddie Mac would harm the housing market. In unusually colorful
language, the budget office wrote, "Once one agrees to share a canoe
with a bear, it is hard to get him out without obtaining his agreement
or getting wet."

'Big, fat gap'
Fannie Mae and Freddie Mac enjoyed the nearest thing to a license to
print money. The companies borrowed money at below-market interest
rates based on the perception that the government guaranteed
repayment, and then they used the money to buy mortgages that paid
market interest rates. Federal Reserve Chairman Alan Greenspan called
the difference between the interest rates a "big, fat gap." The budget
office study found that it was worth $3.9 billion in 1995. By 2004,
the office would estimate it was worth $20 billion.

As a result, the great risk to the profitability of Fannie Mae and
Freddie Mac was not the movement of interest rates or defaults by
borrowers, the concerns of a normal financial institution. Fannie
Mae's risk was political, the concern that the government would end
its special status.

So the companies increasingly used their windfall for a massive
campaign to protect that status.

"We manage our political risk with the same intensity that we manage
our credit and interest rate risks," Fannie Mae chief executive
Franklin Raines said in a 1999 meeting with investors.


So you like to be screwed by your necon buddies but don't like to be
screwed by the leftwingers. I guess the necons have a better lubricant
or leave a bigger piece of chocolate on the pillow.


John