How Bush and the GOP Helped Stoke the Mortgage Bust

I have had a number of Republicans - many of whom are in reality the most concerned only about what they pay in taxes and to Hell with the best interests of the country - try to blame Bill Clinton, Congressional Democrats and many others for the mortgage industry collapse and accompanying credit market melt down. An article in the New York Times that I bookmarked a while back helps reveal the lack of substance of these arguments made by GOP apologists and shows that the Chimperator's policies (which were rubber stamped by the GOP controlled Congress) helped set the stage for the residential mortgage market collapse. Here are some highlights:

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The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, “scared the hell out of everybody.”

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[H]is Treasury secretary, Henry M. Paulson Jr., told him [Bush] that to stave off disaster, he would have to sign off on the biggest government bailout in history. Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in. “How,” he wondered aloud, “did we get here?”

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There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk. But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

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[H]is housing policies and hands-off approach to regulation encouraged lax lending standards. Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. . . . And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

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As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; . . . The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

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For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college. *

But for much of Mr. Bush’s tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers . . . . So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending. . . . And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down.

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The president also leaned on mortgage brokers and lenders to devise their own innovations. “Corporate America,” he said, “has a responsibility to work to make America a compassionate place.” And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment.

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Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more. As for Mr. Bush’s banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.

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The bottom line is that for all the GOP efforts to blame others for the current financial crisis, they and the half-wit Chimperator are largely to blame for the crisis in which the country now finds itself.

Fannie Mae/Freddie Mac Paid McCain Adviser Nearly $2 Million

John McSenile is trying to jump on the change band wagon but the reality is that little has changed with him since the savings and loan debacle days. He and his advisers are still tightly in bed with those that should be regulated to avoid the worse outgrowths of greed and desire to make a quick buck. Now it turns out that one of McCain's advisers received nearly $2 million from the recently nationalized Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say. Had some of those regulations been enacted, perhaps some of the ongoing financial melt down - which will ultimately be paid for by taxpayers - might have been avoided. Oh, and while I an on the subject, do NOT be deceived by those in the GOP who may try to shift blame to the Democrat controlled Congress. As one who has worked in the trenches of the real estate industry, the vast majority of the bad loans now exploding everywhere were made BEFORE the Democrats regained control of Congress in January 2007. This is a REPUBLICAN sponsored fiasco and the GOP needs to have it hung around the party's neck. Here are some highlights from the New York Times:

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Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say. . . . . [L]ast week the McCain campaign stepped up a running battle of guilt by association when it began broadcasting commercials trying to link Mr. Obama directly to the government bailout of the mortgage giants this month. . . .

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Incensed by the advertisements, several current and former executives of the companies came forward to discuss the role that Rick Davis, Mr. McCain’s campaign manager and longtime adviser, played in helping Fannie Mae and Freddie Mac beat back regulatory challenges when he served as president of their advocacy group, the Homeownership Alliance, formed in the summer of 2000.

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“The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again,” said Robert McCarson, a former spokesman for Fannie Mae, who said that while he worked there from 2000 to 2002, Fannie Mae and Freddie Mac together paid Mr. Davis’s firm $35,000 a month. Mr. Davis “didn’t really do anything,” Mr. McCarson, a Democrat, said.

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“They were financed largely, possibly exclusively, by Fannie and Freddie,” said William R. Maloni, a Democrat who is a former head of industry relations for Fannie Mae. “We thought it would be helpful to have someone who was a broadly recognized Republican to be the face of the organization, and that person became Rick Davis.” Mr. Maloni added, “Rick, for that purpose, turned out to be quite good.”

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The federal bailout of the two mortgage giants has become an emblem of what critics say is the outdated or inadequate regulatory system that allowed the financial system to slide into crisis this summer.

Palin Flunks Economics 101

With the U.S. economy nose diving and the residential real estate market in a shambles, one would think that from merely reading newspapers and watching television news coverage the governor of a state would after all have some clue as to what Fannie Mae and Freddie Mac do and how crucial they are to the mortgage market which underpins the housing market. Even more so if that governor has been tapped to be the VP candidate in the presidential election. Not so with hockey mom Sarah Palin, John McSenile's reckless choice for VP on the GOP ticket.

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Perhaps if Ms. Palin spent less time Bible thumping and being lobotomized by her church and more time following real world events she'd have know what these entities do. John McSenile apparently forgot that skills at holding a tent revival and supporting ex-gay programs don't translate into being fit to be VP or potentially president. This woman scares me more with every passing day as do the Kool-Aid drinkers who think she's wonderful. Here are some highlights from the Huffington Post:

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Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend.

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Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."

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Economists and analysts pounced on the misstatement, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration. "You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say."

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How politically significant a "gaffe" it is remains to be seen. The major concern about Palin's position on the ticket is that she lacks the economic and foreign policy wherewithal to serve as vice president. This certainly doesn't help on that front.

Freddie Mac and Fannie Mae Take Over Looms

UPDATED: As Joe Sudbuy at America Blog notes, the plan for Fannie Mae and Freddie Mac in essense constitutes a nationalization of the the secondary mortgage market and isn't it interesting that the plan was announce one day after the last day of the Republican Convention. Or am I too cynical? Here's what Joe said:

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Who would have guessed that Bush was such a fan of euro-socialism? Technically they are saying the two are in "conservatorship" and not "receivership" though as usual, this is mostly parsing to help prevent Bush being associated with the word "nationalize." What an amazing coincidence of timing we saw last night as Bush stepped in after the GOP convention was finished and the weekend was starting for most Americans. It should come as no surprise that McCain and Palin avoided any talk of the economy, because that might be of interest to Americans (and the world, I might add) as we work through the second half of the trillion dollar plus credit crisis. . . . Americans have been on a thirty-plus year decline in real purchasing power and sooner or later, that has to be addressed. It is not sustainable to live on credit as individuals or as a country.

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Both the New York Times and Washington Post are reporting that the federal government is about to take over Fannie Mae and Freddie Mac and place them in conservatorship status. In short, the federal government is being forced to use taxpayer dollars to clean up the mess crated by the Bush/Cheney economic policies which John McCain is poised to continue. Before it is over, the cost of these takeovers to taxpayers will be immense. Losses to investors, including mutual funds and pension funds will likewise be huge. It is mind numbing to me that given the utter disaster the U.S. economy is turning into that anyone rational would be supporting the McCain/Palin ticket. Oh, but I forget - the Christianist base of the GOP is patently NOT rational.

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It is very important to remember that the insanely bad loans that helped launch the real estate market melt down were made back PRIOR TO the Democrats' takeover of control of Congress in January, 2007. Thus, try as they might to blame the debacle on Congress or the Democrats, the Republicans and Bush/Cheney/McCain own this disaster. Worse yet, McCain still doesn't get it in terms of what is happening in the economy or to regular Americans. Why would he when Cindy McCain can wear a $300,000 outfit and jewels for a single evening. Here are some highlights for the New York Times:

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WASHINGTON — Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.

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The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

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It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history. Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.

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In issuing their quarterly financial statements last month, the two companies reported huge losses and predicted that home prices would fall more than previously projected. The debt securities the companies issue to finance their operations are widely owned by mutual funds, pension funds, foreign governments and big companies.

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After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago. With Fannie and Freddie guaranteeing about $5 trillion in mortgage-backed securities, and a big share of those securities held by central banks and investors around the world, Mr. Paulson appears to have decided that the stakes are too high to take any chances.

Paulson Seeks Authority to Shore Up Fannie, Freddie

UPDATE: Here's what is being reported on the Fed's plan to bail out Fannie Mae and Freddie Mac which underscores why McSenile needs to wake the hell up:

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July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers. Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling.

One has to cringe at the thought of John McCain as president when his campaign - or at least up until such time as Phil Graham was shown the door - seems to think the nation's current economic problems are imaginary or the result of a depressed public mood. How anyone could make the remarks that Graham did is mind boggling in light of the emergency efforts to shore up Fannie Mae and Freddie Mac in order to avoid a collapse of the U.S. mortgage market. I continue to believe that until the housing market stabilizes and transactions resume on a normalized level, the economy will continue to head in a downward spiral. Let's hope that McCain has figured out now that the crisis is real. Here are highlights from Bloomberg.com that make it VERY clear that the economic mess is not imaginary:

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July 13 (Bloomberg) -- Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages. Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

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The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

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Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in the firms, and to increase their lines of credit with the department from $2.25 billion each. The temporary authority may be for 18 months, a Treasury official told reporters on a conference call on condition of anonymity. As lenders retreated from the housing market, Washington- based Fannie Mae and McLean, Virginia-based Freddie Mac have grown to account for more than 80 percent of the home loans packaged into securities.

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Debt sold by Fannie Mae and Freddie Mac ``is held by financial institutions around the world,'' Paulson said today. ``Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets.''

U.S. Weighs Takeover of Fannie Mae and Freddie Mac; Families Traumatized

If there was any doubt that the U.S. economy and housing market in particular are in dire straits, the numerous news reports of a possible government takeover of Fannie Mae and Freddie Mac like this one ought to strike terror in the hearts and minds of pretty much everyone. These two federally chartered entities more or less ARE the secondary mortgage market. Were they to fail, the residential mortgage market would largely collapse. If any proof was needed that the GOP/Chimperator mantra of "let the markets regulate themselves" was lunacy, this should be "Exhibit A." Not only are foreclosures causing incredible stress on families as discussed further below, the ripple effect of the housing crash keeps on spreading. No matter who I talk with in businesses relating to residential real estate - other than firms doing foreclosure work - everyone is hurting and seeing their revenues drastically reduced. People need to wake up to the fact that a lack of any rational regulation per the GOP mantra has set the stage for this potential economic disaster. Here are highlights on the Fannie Mae and Freddie Mac mess:

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WASHINGTON — Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

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The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

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Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

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A conservatorship or other rescue operation would be the second time in four months that the Bush administration has stepped in to engineer a rescue to prevent the financial system from collapsing. Last March, it forced the sale of Bear Stearns to JPMorgan Chase to avert a bankruptcy of that venerable investment house. Officials have also been concerned that the difficulties of the two companies, if not fixed, could damage economies worldwide. The securities of Fannie and Freddie are held by numerous overseas financial institutions, central banks and investors.

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The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing market. Even healthy banks are reluctant to tie up scarce capital by offering mortgages to low-risk home buyers without Fannie and Freddie taking the loans off their books.

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As this USA Today story shows, it is not just adults who are being traumatized by the current economic melt down. It is a frightening situation and will scare some children just as during the Great Depression. Here are highlights:

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Shelby and millions of other young people have become the largely overlooked victims of a real estate crisis that's led to record foreclosures, sinking home prices and rising numbers of families straining to pay mortgage bills as adjustable-rate loans grow more costly and home equity shrinks. Children and teenagers are enduring a variety of consequences — forced to move and say goodbye to friends, leaving behind schools and teachers, and losing the ability to take family vacations or take part in summer camps because of the financial strain.

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Some are giving away family pets or suddenly finding themselves in charge of babysitting siblings because parents can no longer afford child care. In the most drastic cases, some wind up living with relatives or even in temporary shelters for the homeless. "This housing crisis is taking away the innocence of our kids," says Phillip Lovell, vice president of education policy for First Focus, a Washington, D.C.-based bipartisan advocacy group focused on families and children.

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Researchers are beginning to study the impact of the current housing crisis on children, and their findings are bleak: An estimated 2 million children will be directly affected by the subprime mortgage crisis as their families lose their homes to foreclosures, according to an April report by First Focus. That number is considered low, the group says, because the study didn't include families who were renters when they were evicted as a result of foreclosures on their buildings, or families who bought homes with prime mortgages.

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More than 300 school districts in the USA have reported a rise in homeless children because of the foreclosure crisis, according to a soon-to-be-released report by the National Association for the Education of Homeless Children and Youth and First Focus. Areas that are absorbing the biggest surges include Michigan, California, Florida, parts of Illinois and the suburbs around Houston. As of April 1, Cleveland schools enrolled more than 2,100 homeless students, a 30% increase from last year.

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In Los Angeles, the school district has lost 8% of its enrollment over the past few years as many families who can't afford to stay in their homes have moved out of the area, says Monica Carazo, a spokeswoman at the Los Angeles Unified School District. A number of high schools had to let teachers go. Before, schools were so crammed, some children didn't even have desks.