This week in O'Club, many wingnuts and McCain himself are attempting to push a new narrative, based on this 2003 NYT story:
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63Specifically, OC right wingers are pointing out this line from Barney Frank:
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''Then, they usually follow that up with some story about how Frank is gay, and had some relationship with somebody at Freddie Mac, and ain't he bad, gays are bad, etc etc.
But what's the real story? In 2003, housing prices were high. I know, because I both sold a house and a year later bought another in a different part of the country. My loan was bought by countrywide, who later sold it to Citibank. Interest rates were low, I managed to secure 4.5 on a 30yr fixed with 20% down, a loan I hold to this day.
It's true, and I will not deny, that Freddie Mac and Fannie Mae used their benefactors, homebuilders and financiers, to push Democratic leaders for favorable terms. If you look again, at the NYT story, and read it closely, at that point in the game Freddie Mac and Fannie Mae were accepting new regulatory oversight provisions from the Senate banking commitee, headed up by a Republican. That legislation failed, despite the Republicans holding the house and senate prior to the 2004 election and the disasterous 2006 election.
And many, including the American Enterprise Institute, perhaps the one think tank most closely linked to Bush and Cheney and Wolfowitz and the current crew, wrote quite clearly that a "super-regulator" wasn't going to solve the issue and that was the growing size of these two institutions.
In FACT, the AEI, which has to be the MOST conservative, or at least the most Republican institute there is - quite clearly states in 2005 that Fannie and Freddie needed to be broken apart. That no regulation would adequately give the transparency needed, because these are private institutions - and so the ONLY thing that was going to work was breaking apart the holdings and dispersing them across other private banks. Here is the paper, which gives a very good accounting of the history:
http://www.aei.org/publications/pubID.22514/pub_detail.aspFinally, after working on the issue in much of 2006, in 2007 the house pushed up H.R. 1427, the Federal Housing Finance Reform Act of 2007. The Senate Banking Committee (led by Democrats) took it up and reviewed it. It never left the Senate. However, by the AEI's own admission, provisions in the act which included a strong independant regulator, would have done little good. So, if anything, the Democratic House Finance group can claim they TRIED with H.R. 1427, but the Senate let it die.
So - what if the AEI was followed, and in 2005 or 2006, when the House was working on H.R. 1427 - if instead Fannie and Freddie were forced apart by legislation? The debt that they were holding would have been "credit swapped". A central regulation group would have had to try and sell the less profitable loans by force or simply do what they are doing now, which is to eat them with taxpayer money.
In short, I will say/admit/whathaveyou that Freddie and Fannie got large and politically powerful, and that they mostly leaned on the Democratic side to try and oppose legislation until about 2005, when it just became politically untenable to do that - mainly due to scandals within the institutions about reported earnings. But the Republicans controlled the House and Senate, AND we had a Republican president, so the fact that legislation finally appeared in the form of H.R. 1427 in 2007, produced from a House that had a Democratic majority due to the 2006 election - makes the argument kinda stupid.
Moreover, I quote the AEI itself saying only the breakup of these institutions had any chance at all of working. That, as we know, didn't happen.
I think this is a complex situation, but there is plenty of video of John McCain saying "there isn't a piece of regulation that I wouldn't like to tear up" all through the early part of this decade. I can produce it via Youtube, although I'm sure you've seen it. And Freddie and Fannie are private institutions, and were not incented by any tax policy or any legislation you can point to, to take on bad debt. How they got to be so large is something you can read up on. But it seems pretty weak to try and blame Pelosi's speech for hurting the GOP's feelings, so that's why they voted against the bailout. And it's equally stupid to point to an era where Republicans controlled everything and say "Dems blocked regulation". The House produced H.R. 1427 in 2007, and it wasn't going to stop the train going off the rails. The housing bubble did that. And that is monetary policy, and that is tied to a strong or weak dollar.
So, there. I know the O.C. was waiting with baited breath for me to weigh in on this. Now I have.
As I said, I work for a big bank's securities wing. Our holdings dropped from $100B to $80B in the last two WEEKS. The days are filled with redemption after redemption. People are buying US T-bills and bonds right now. Some are seeking gold. The rest are sticking it in the matress.
I will be very busy in the weeks to come, so I probably won't be here as much to send out McCain invective. I know how much I will be missed.
I will finish up by saying by mainstream standards, McCain has played the fool in the last few days. His leak on Monday of Romney saying he was the reason the bailout got passed, and then the bailout failed, made him look the fool. The attack ad blaming Obama for the bailout made him look worse. He wants to claim the bailout was because of his leadership, and then he wants to blame Obama for supporting the bailout. He says "now is not the time for partisan politics" and then his attack ad runs 11 minutes later.
What I can say is that a small provision in the revised bailout, initially missed by later caught, states that commercial banks can carry 0% capital reserve against depositors. Think about that.
It should be an interesting few weeks.
