So who's to blame for this mess?

[Rhett N. Cochran]

OK, I just posted a blog during which I reveal my uncertainty over what I'll do with my votes in one week.

The discussion which followed, as I'm sure will be the case here, devolved and got off point with one of the participants trying to lay the current state of our economy firmly at the desk of one George W. Bush. Why not? He's a lame duck. He's an easy target. He's personally caused every other tragedy known to man, so why not this one too?

I won't defend Bush on areas where I believed he's erred, but on this one, the facts just don't support that claim. The short answer is that there is plenty of blame to go around. A closer look reveals that some of the Democrats doing most of the squawking have been in Fannie Mae and Freddie Mac's pockets for awhile.

To find the roots of this problem, you have to go back to Clinton term #2. Remember, he wasn't nearly as popular then as in his first term and the Democrats were out of power in the Congress. Republicans had taken control. So here we are at the end of Clinton's presidency and Congress presents to him Congress passed the Commodity Futures Modernization Act of 2000. Clinton signed it into law. Here's the story from 60 Minutes.


Watch CBS Videos Online OK, so there's the dope on the credit swaps. But that doesn't tell the whole story. Certainly, Bush must have screwed up Fannie Mae and Freddie Mac, right? I mean... this is BUSH we're talking about. Oliver Stone just did a whole movie about him so he MUST be at fault.

Nope. Not so much. Bush actually has called for reform of Fannie and Freddie since the early days of his presidency dating back to April of 2001. In fact, he called for reform 17 times in 2008 ALONE! BEFORE the collapse.

So why didn't the Dems take him up on it? You'd think they'd be only too happy to regulate, right? Turns out many of them were in the pocket of these two out of control GSEs. Check this handy little graphic out:

See any familiar names? Barney Frank and Nancy Pelosi are #16 and #22 on this list. Barack Obama is THIRD! Look at the amount and then remember that he's only been in office for a couple of years. Bear in mind that he's only had ONE Senatorial campaign. That's a LOT of money for one campaign. Related article

Listen, there's plenty of things to blame on Bush. But the facts show that this crisis ain't one of 'em. Clinton-era Republicans did start us down the path of deregulation. At the time, it seemed like the right thing to do. Of course hindsight is 20/20, but remember that the most powerful Democrats. In fact the Bush White House issued warning after warning about this brewing situation and BEGGED for Congress to act. His words fell on deaf ears. But why would they listen? Pelosi, Frank, Hillary Clinton, Obama, John Kerry, and others were all getting their pockets lined. Besides, they could always blame Bush and figure the American public would just buy it.

[Rhett N. Cochran]

First off, I hate non-apology apologies. I don't want or need any apologies, but don't give me this "I apologize if YOU think" garbage. It actually insults me. It may be unintentional but that's what it does. You did get off on a couple of tangents but you were by no means the only one.

I've never said that Fannie and Freddie were THE root cause of this crisis. I believe the first culprit that I pointed out was the Commodity Futures Modernization Act of 2000 which was introduced and passed by Republicans and signed by Clinton. I brought Fannie and Freddie into the mix because they've been a symptom of a larger problem: facilitating the lending of mortgages to people who, frankly, can't afford to pay them and the general laissez faire attitude Washington has taken with the banking industry over the last 10-15 years leading to the (now evident) over deregulation of the financial industry. Were they the only ones? No, and I never said they were.

I'm not really sure what McCain's relationship to Doug Goodyear has to do with anything. Obama supporters probably don't want to get too deep into the whole "guilt by association" thing.

Wanna hear something that will really blow your mind? I think the ones who are REALLY to blame here are John and Mary Public who took out mortgages that they never could afford to pay back!

OK, I think this train is sufficiently derailed. Now I'M starting to get off on tangents.

Who wants pie?

[John R.(Dick) Troll]

Rhett:
I apologize if you think I went off on a tangent. If I did it's because you apparently missed the point of my earlier post. FANNIE AND FREDDIE ARE NOT TO BLAME FOR THIS MESS. What Congress or Bush or the tooth fairy might have done is not material. The meltdown would still have happend. So if you are looking for a reason you need to look somewhere else. Source: Mortgage Market Statistical Annual- 2008 published by Inside Mortgage Finance.
As for my comments about Republicans on both sides. I direct you to an article in commondreams.org dated October 20,2008. DCI- a Republican consulting firm- was paid $2 million dollars by Freddie Mac to kill legislation that would have regulated Fannie and Freddie 3 years before the gov took over. The founder of DCI is Doug Goodyear. The McCain campaign hired him to run the GOP convention this year.
The stealth payments to DCI began in July 2005, after the Senate Banking Housing and Urban Affairs Commitee sent a bill by Chuck Hagel to the then run GOP Senate. Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist to allow a vote. Unknown to the Senators DCI was undermining support for the bill in a campaign targeting 17 Republican senators according to documents obtained by the Associated Press. The targeted Republicans began hearing from prominent constituents and financial contributors all urging defeat of Hagel's bill because it might harm the housing boom.
DCI was hired by Freddy Mac's chief of staff, Hollis Mcloughlin, who has given 32K to Republicans, 2800 to the McCain campaign and nothing to Democrats-according to the Center for Responsive Politics- a nonpartisan group that tracks money in politics.
You may not like it but I ain't making it up.

[Steve Stuck]

Also no more borrowing from the Social Security trust fund. Money has too stay in the fund.

[Steve Stuck]

Rhett, here is my solution to the current problem.

First, to increase revenue to the federal government, do the following. Cut corporate taxes to 10%. Cut capital gains taxes to 10%. Payroll taxes, let individuals make the decision to take their 6.2% they pay and put it into a private account or even let the individual put 4% of it into private account, 2.2% too the government. The other 6.2% the employer has to match goes to federal government. Income taxes of 8% across the board and no more tax write offs for anybody!!!!

Let banks make their loans without government intrusion. If banks want to make loans to poor people, so be it, but they won't.

Start backing the dollar with gold and silver. Maybe even just gold. Free trade by lifting the hidden taxes we have to keep on our products when sold overseas. This will make us more viable in exporting.

Cut government spending by 25% over a 8-10 year period. No more government aid overseas and that money is used to fund our entitlement programs.

Hope this helps............

[Rhett N. Cochran]

It is quite impossible to keep people on point on these discussions. I don't know why I even try. Seriously, John. How is it that I start a discussion and somehow you try to transform this thing on a referendum on Iraq and the Bush presidency? If you want to do that, then write your own blog on that, but I'm talking specifically about ONE issue and that's the collapse and who I believe laid the groundwork for it.

And as far as you accusations that the Republicans were playing both sides of the aisle, I'd like to see sources. After all, its only fair. I provided them.

[Steve Stuck]

I will always blame consumers on this along with politicians. The problem we have with this economy is very critical. The way to solve it is reform many entitlement programs along with our current tax code. I am personally in favor of a consumption tax, but a flat tax will work as well. Another aspect is cutting government spending. This won't happen with any president we have in the next four years. In fact government will just grow more.

Medicaid, Medicare and Social Security are a $53 Trillion dollar debt by the year 2040. The numbers don't lie Dick. Please visit the Peter G. Peterson Foundation to see the proof for yourself. Former GAO Compcontroller David Walker who has been warning Congress for years on this looming financial problem. Now he works for the foundation.

We can argue about who is too blame, but more spending and creating more money won't solve the issue. Massive inflation will hit this country by 2010. Budget deficits will skyrocket with more government programs created. Do I blame Bush, yes. Do I blame Democrats, yes.

Dick, I know you don't like Bush. But just answer this one question without going into a tangent onto something else. Do you believe the government is financially solvent and we have no debt? If you do, please show me some financial breakdown of how this is true.

[John R.(Dick) Troll]

Ah but now you have touched on the most fatal of all the fatal mistakes that will place W. on the short list of our worst presidents. He has had the amazing ability to choose the wrong place to solve a problem.

Got a problem with terrorism? Don't go to Afghanistan- misdirect your energy to Iraq.
Health care a problem? Squander your political capital on Social Secuirty when the REAL problem is Medicaid.
Don't forget that the most powerful rationale for the Bush tax cuts was because we were running up such large surpluses it was certain that we would wipe out all our accumulated debt. The tax cuts were meant to zero out the budget not to produce huge deficits. Whoops!
Got a loooming housing bubble? Go after Freddie and Fannie- while the non bank banks fleece the universe.

I don't mean for a moment to defend their sleazy accounting and managment practices. Or the trough they created for politicians. But when the house is burning don't worry that someone left their socks on the floor. If we are going to wrangle let's at least fixate on the real sources for our problems and not waste our precious energy at the margins.
BTW- did you know that while some Republicans like Chuck Hagel ( and Democrats) were calling for greater scrutiny at Freddie and Fannie- their managers hired a public relations outfit to quietly solicit OTHER Republicans to kill the inquiry? And their efforts were successful. A Repubican sponsored bill was killed by the Republican controlled Senate committee. And that same outfit is now working on the McCain campaign.

[Steve Stuck]

The consumer has much to blame on this. People getting into bad mortgages and home equity loans. People need to start looking at what they make and how much they spend. Banks/lending institutions didn't mind ranking in the money with the false sense Fannie and Freddie would buy up all the bungled loans or some other institution would.

Unfortunately, the solution we have proposed historically does not work. Look back at the great depression in 1930's. We are on the same path of more government and prolonging this mess.

We are not in a Free Market and never have been. If we were, this mess would have never happened and if it did, the effects would be minimal. The government stepped in and let the banks believe they would back them on every loan. History repeats itself around the world. Similar loan crisis happened in Sri Lanka that we could have learned off of, but of course American politicians always believe they can recreate social economic theories and then the economy always bites back.

Suggesting Fannie and Freddie was a minimal effect in this, well, that is your opinion. But if they were such a minimal effect, why are they getting bailed out?

The market and economic results never lies, politicians do.

[Rhett N. Cochran]

Which is all fine and good, but it doesn't change the fact that Congress ignored Bush's pleas both before this was widely thought to be a problem and after it may well have been too late. I have little doubt that in the course of reforming Freddie and Fannie other potential problems, such as these CDS's, may have been addressed as well. But when key Congressional figures turn a blind eye and a deaf ear because they're getting money from that industry, it's something we should all be up in arms about.

[John R.(Dick) Troll]

Rhett:
I understand your frustration. And I agree with you that there's plenty of blame to go around. And while it is undoubtedly true that lack of regulation was a major contributor it is simply a myth that Fannie and Freddie caused the mortgage meltdown.
Freddie and Fanny do not originate mortgages. More than 80% of subprime loans still outstanding were originated from 2004 to 2007. In 2006 the top 10 lenders were a mixture of nonbank lenders such as New Century Financial and aggressive lenders such as Wells Fargo Home Mortgage. Of these top 10 the nonbank lenders have all folded or were merged into banks. In 2006 the top 10 lenders accounted for 60% of ALL subprime loans.
In 2006 securitized mortgages were 81% of all subpriime mortgages. This amounted to 814 billion. Almost none of these were issued by Fannie and Freddie because they were not in the business of purchasing and securitizing mortgages. In 2006 they owned one third of one per cent of the market.

After these mortgage backed securites were issued, investors needed to buy them. At this stage Fannie and Freddie did play a minor role. In a total market of 2.1 trillion dollars Fannie and Freddie owned approx 15%. We now know that other purchasers of these securites included banks, foreign investors around the world, other governments, etc. Note also that Fannie and Freddie made their purchases late in the game- well after the subprime securitization process was underway.
All of the hoopla surrounding Freddie and Fannie surrounded their capitalization requirments for the PRIME mortage market not the subprime market. And toward the end Fannie and Freddie were hampered by their regulations. Traditionally they had been able to offer slightly less attractive rates because of their implicit backing by the US government. But as other lenders got more aggressive Fannie and Freddie were getting by passed. So they pushed for deregulation so they could be more competitive.
It is probably true that Fannie and Freddie could have used better judgment in the mortgage securities that they bought., But the shadow banking industry- totally unregulated and encouraged by Alan Greenspan- was going full speed ahead turning subprime debt into securitized assets. And selling them around the world.
It is this process of securitzation that has always cried out for regulation.