Capitalism worked well until the government began to limit free markets by forcing the Government Sponsored Enterprises called Fannie Mae and Freddie Mac to make loans to those not worthy of receiving home mortgages (subprime mortgages).
The markets did fine until these actions were undertaken by Democratic administrations.
Here is a list of key events:
-- The Community Redevelopment Act (CRA) was passed in 1977 under the Carter Administration. This act led to the government's involvement in the subprime mortgages. It compelled banks to make loans to low-income borrowers. Supporters argued banks were making loans based on purely economic criteria.
The original lobbyists for the CRA were the hardcore leftists who supported the Carter Administration. They were rewarded with programs like the CRA. These included various "neighborhood organizations," such as ACORN (Association of Community Organizations for Reform Now).
-- In 1992, oversight was pursued for Fannie and Freddie by Jim Leach. These GSEs were blessed with the advantages of a government agency and a private company. Fannie and Freddie used their windfall profits to co-opt our politicians, who were supposed to control them, with a stream of political cash to feed their supporters which have already distributed roughly $4 million to congressional members. Nearly half of the senators have received funds and most of the money is directed to incumbents. Fannie gave $10,000 to Speaker Nancy Pelosi, $10,000 to third-ranking House Democrat Rahm Emanuel, $5,000 to Barney Frank, $10,000 to Republican House whip Roy Blunt, $8,500 to Majority Leader Steny Hoyer and $7,500 to Minority Leader John Boehner and... you get the picture.
-- In 1995, the Clinton Administration strengthened CRA. The implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet low income needs. Clinton fostered the concept of the subprime loan. In other words, a bank product was created to make loans to those who were not able to repay, and to bundle these into marketable securities.
-- In 1998, Fannie and Freddie officers cooked the books in order to maximize bonuses: James A. Johnson, chairman and CEO, $966,000 salary, $1,932,000 bonus; Franklin D. Raines, chairman and CEO-designate, $526,154 salary, $1,109,589 bonus; Lawrence M. Small, president and COO, $783,839 salary, $1,108,259 bonus; Jamie Gorelick, vice-chairman, $567,000 salary, $779,625 bonus; J. Timothy Howard, EVP and CFO, $395,000 salary, $493,750 bonus; Robert J. Levin, EVP, Housing and Community Development, $395,000 salary, $493,750 bonus.
-- In 2001, the Bush Adminstration tried to raise a red flag about Fannie and Freddie.
-- In 2003, Freddie Mac admitted it understated $5 billion of earnings and was fined $125 million.
-- In 2003, Sen. Christopher Dodd, Connecticut Democrat and chairman of the Banking Committee, and Sen. Kent Conrad, North Dakota Democrat, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide's "V.I.P." program in 2003 and 2004, according to company documents and emails and a former employee.
-- In 2004, chief executive Richard F. Syron received a memo from Freddie Mac's chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.
-- In 2004, an accounting scandal emerged at Fannie Mae, resulting $6.3 billion restated earnings.
-- In 2004, both companies were ordered to raise their core capital level by 30 percent, limiting their ability to purchase mortgages.
-- In 2004 at a House committee hearing, Barney Frank said "...safety and soundness is not an issue." Maxine Waters said, "Franklin Raines has done a wonderful job."
-- In 2005, 19 Republicans sign on to radically revise Fannie and Freddie, demanding oversight.
-- In 2005, a Republican reform passed the Senate Banking Committee on a party-line vote, only to be blocked by Democrats from passing the full Senate.
-- In 2006, John McCain spoke on the Senate floor concerning the need to reform Fannie and Freddie.
-- In 2006, top executives at Fannie Mae were accused of manipulating the company's books to maximize their bonuses.
-- In 2007, Freddie Mac Chairman and Chief Executive Richard Syron pocketed nearly $19.8 million in compensation last year, while the company's stock lost half its value in 2007.
-- In 2007, subprime mortgages triggered the current financial market crisis. Foreclosures in the subprime housing market (i.e., mortgage holders with poor credit ratings) is the direct result of 12 years of government policy that has forced banks to make bad loans to un-creditworthy borrowers.
-- In March 2008, both companies were given permission to add $200 billion into the mortgage market.
n In July 2008, Congress authorized the Treasury Department to provide equity to Fannie and Freddie.
-- In August 2008, shares of FNM and FRE plummeted amid rumors that the two companies may need to be rescued by the government. Stocks rebounded after the Treasury denied it planned to provide capital to the companies.
-- In September 2008, both Fannie and Freddie were taken over by the government with top management dismissed.
Recipients of Fannie and Freddie Campaign Contributions, 1989 to 2008. (Note: Barack Obama is the number two recipient at $126,349, but was only been in the Senate for the last three years. The only names not on this list are Sarah Palin's and Bill Shuster's.)
Christopher Dodd, D, $165,400; Barack Obama, D, $126,349; Robert Bennett, R, $107,999; Spencer Bachus, R, $103,300; Roy Blunt, R, $96,950; Paul Kanjorski, D, $96,000; Christopher Bond, R, $95,400; Richard Shelby, R, $80,000; Jack Reed, D, $78,250; Harry Reid, D, $77,000; and Hillary Clinton, D, $76,050.
This list continues, listing 353 names. Total contributions to Congress was $4,844,572.
Solutions:
1. GSE executives and senior staff should be prosecuted for fraud in order to get larger bonuses?
2. GSEs should be barred from lobbying the congress?
3. GSEs should be barred from making political contributions?
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