Wednesday, September 17, 2008

Clear as Mud

This whole financial crisis stuff had my head spinning yesterday - I was trying to figure it all out - how it started, what it means, etc. And I first came across these Democratic soundbites:

“The turmoil on Wall Street is further evidence that Republican economic policies have failed. During eight years of control in Washington, Republicans put in to practice their belief that markets should be allowed unfettered freedom and drastically weakened oversight,” House Majority Leader Steny Hoyer, D-Md., said in a statement.

“In the midst of a dire economic situation, President Bush this morning characterized recent market developments as an ‘adjustment’ that can be painful for investors and employees of the firms, while Senator McCain said the ‘fundamentals of our economy are strong,’” Pelosi said.

“President Bush, Senator McCain, and their Republican Party are out of touch and apparently ill-equipped to get our economy back on track.”

“I certainly don’t fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to,” Obama said, adding, “It’s a philosophy we’ve had for the last eight years - one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.”

But then I saw this, as stated by the NY Times in September 2003:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Wait. So it there was a proposal for tighter regulations, what happened?

Among the groups denouncing the proposal were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”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.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Well, now, I haven't heard this part of it on CNN....

The fraudulent accounting that allowed Enron executives to enrich themselves and led the company to bankruptcy and the loss of $68 billion in employee and investor assets is dwarfed by that at Fannie Mae and Freddie Mac whose loses to investors will top $103 billion. Fannie Mae’s accounting fraud was $11 billion, 19 times larger than Enron’s $567 million accounting restatement.

Both Franklin Raines and James Johnson, CEO’s of Fannie Mae, who played key roles in previous Democrat administrations were fired, but later went to work for the Obama campaign. Clinton Deputy Attorney General Jamie Gorelick also was a highly paid executive at Fannie Mae but left to join the 9/11 Commission (she was chiefly responsible for the wall that prevented law enforcement and intelligence agencies from sharing information). Gorelick is considered as a possible Attorney General in an Obama Administration.

News organizations which ran daily stories linking the Bush Administration to Enron executives have been nearly silent on the direct, long term political connections between the Fannie Mae disaster and Democrats.

Both Fannie Mae and Freddie Mac used $174 million, to pay for lobbyists to insulate them from the tightened regulation and oversight that might have avoided this crisis. And it won’t surprise many readers to learn that Obama received over $126,000 in campaign contributions since first running for the Senate in 2004. Obama ranked #2 on the list which includes mostly Democrats. By comparison, McCain received $21,550. Other top Democrats on Fannie Mae’s money list include Senator Chris Dodd, who received a favroable loan from a related mortgage company, John Kerry, Hillary Clinton, Harry Reid and Nancy Pelosi.

Now, I'm no financial analyst, and I am just starting to weed my way through all of this. But this information makes me wonder why, if the largest financial crisis in the United States was triggered by the Democrats and actually rooted in the Clinton administration (though good intentioned to help low income families obtain housing, but poorly executed), why do they keep pointing the finger at Bush and the Republicans? Moreover, how come no one is really talking about this part of it?

Wouldn't Obama, then, be "more of the same?"

25 comments:

Anonymous said...

DID YOU NOT LEARN YOUR LESSON?!!!

I read the first sentence and knew it was going to be a policital post. Am I right?

Im waiting to read the comments. The market is down 500 and my husband has frozen the accounts which means I can only buy food.

This is a shit show ladies and gents....

Spandex King said...

That's what happens when government gets involved. And the funny part is that people honestly believe that government will fix the health care crisis. What a joke!
I figure with the market adjustment of this week I can now retire when I'm 95.

Spandex King said...

By the way, the only health care crises that I have is that I have health insurance and still can't afford the doctor. In Wi you have to have medical assistance to visit the doctor unless your one step from dying!

Andra Sue said...

Here's the thing--I don't believe for one second that government (democrats *or* republicans) is responsible for the housing crisis or resulting credit crunch and downfall of Fannie/Freddie. It's greedy corporate types and bankers. Did you listen to that NPR piece I sent you the link to? It really explains the whole thing in everyday financial (not political) terms. I'd highly recommend you listen to that--it will help you wade through the political bullshit much better.

Andra Sue said...

Oh, and don't forget, I *am* a financial analyst and I also work in the real estate industry, so I feel like I can give a somewhat intelligent opinion on this stuff. Can't say that it's right, but at least it's well thought out. Hah. :)

Eric said...

If you axe me, the government is already WAY to involved in businesses. Let them run themselves....live or die.

21stCenturyMom said...

I don't know about your last question but what I have to wonder is why it is that the Republican party - the 'less government is better' party pretty much ALWAYS proposes a new agency when something goes wrong. Do you really think more government is the problem? I don't. I'm sure there is all sorts of collusion and graft and money crap on both sides of the aisle. Another agency to oversee some other agencies who never did a good job of overseeing what they were supposed to oversee is not a solution. At best it is a bandaid. Re-read this:

Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

And last but not least - where do you supposed the salaries to run this new agency come from. Your tax dollars - that's where. So no new taxes, just more agencies? I don't think so.

M said...

Anon- Would the shit show you are referring to be my blog post or the market fiasco?

I have noticed that recently a bunch of comments are being left as Anonymous. Sometimes people leave their names, sometimes not. But from here on out, this blog will no longer be accepting Anonymous comments.

Grow a pair and leave your name. At least I have the balls to put it out there, whether or not people think its "shit."

A- I do appreciate your opinion as someone-in-the-know, and I appreciate the fact that you understood that I was saying "Hey, I don't know a ton about this, but this is what I am hearing, so help me out." And I would aslo agree with you that this is not soley the gov responsibility - I mean, it wasn't like congressmen were signing the loans. But the part I think I dont understand is why they knowlingly let these companies run amok. Though I do not know for sure, I sispect it has something to do with the lobbying - because for as much shit as the oil companies and Rebublicnas take, the oil companies (as I understand) are only the third largest lobbiest, with the top two being bankers and drug companies.

Joe said...

as i've been reading news about the financial situation, i've done my best to not even bother reading anything not written by an economist, and refuse to read anything that mentions politics at all. anything else is just political hackery. i read a couple interesting articles when i was at work this morning, but of course cannot find them now. it's the only way to attempt to get kind-of unbiased information...

Captain Cactus said...

I believe both parties are to blame for enabling the growth of sub-prime mortgages and securitization that led to the ballooning housing market. You are absolutely right that the Republicans suggested additional regulation that was quashed by the Democrats, which makes the Dems look terrible. However, it was also the Fed, under Republican guidance, that continued slashing interest rates to the point where everyone started trying to get in on the easy money. Neither party has clean hands here.

At the fundamental core though, the issue was not the Republicans or the Democrats, it was irresponsible consumers who took on mortgages that stretched their limits without considering the fact that a 30-year mortgage still requires refinancing in 5 years. People didn't evaluate whether or not they would be able to afford the refinancing at higher interest rates a few years out, they simply saw that they could get their hands on a nice house, with nothing down, right then. While the governments can (and should) be criticized for insufficient regulation and the lending institutions can (and should) be criticized for taking on too much risk, this crisis, at its core, was caused by consumers spending more money than they could actually afford.

And now, the tax dollars of both the irresponsible and, sadly, the responsible consumers, will be paying to bail out the Fannie Maes and AIGs.

M said...

21CM - I will respond, but I want to do it in an informed manner, and like I said, I am just starting to learn about some of this stuff - but the one question I had was: is it then better to use taxpayer dollars to dig out this billion dollar mistake that could have been avoided, or spend a little extra money having people actually try to regulate it? Looks like either way, Joe Taxpayer gets fucked.

Cactus- Totally agreed - I have posted on the irresponsbility of the consumers in this case before. Believe me, I am not one to minimize personal responsibility. The point of the post was to highlight how, in the face of this crisis, there is a ton of finger pointing from the Democrats blaming the Bush administration, while blatently ignoring/lying about their role in it all, which apparently is considerable. And as it was stated, we STILL hear about Enron today and the Rebublican connection, but there has been this odd silence about this one.

No, neither side is without fault - it just sucks that the turmoil is being spun in such a dishonest manner.

Oh, and to Anonymous - forgot to mention this - in regards to your question - didn't I learn my lesson? Yeah, I certainly did - what I learned is that I don't give a fuck if people agree with me or not - I quite enjoy the education my readers are giving me on all of this - I have said from the beginning that I am new to a lot of this - an formerly uniformed citizen trying to muddle my way through this election season. I learned that I don't need to be agreed with all the time, and I certainly don't intend to place my vote in November as an blind follower of the Hope rhetoric. Whatever I vote, I want to be secure in my choice, and I very much appreciate the fact that poeople DO disagree with me, or take the time to help me understand all this mess.

So yeah, I guess I did learn. Am learning. Thanks for asking.

M said...

That should read: "formerly uninformed citizen."

The last time I was uniformed it was in a plaid skirt in my Catholic elementary school.

stronger said...

I agree...it would be total shit to have a husband freezing accounts so you can only buy food. In fact, I'd get so pissed I'd get my own account and my own job so I wouldn't have to be angry at dear Meg for choosing to create another political post (on her own personal blog of all places!?!)so she can sift through the misinformation and misrepresentations and other bullsh*t to make an informed individual choice. So what part of it was shit?

Prin said...

I'm glad you didn't learn your lesson. Yey!

Ignorance breeds in isolation, I say.

You get ideas, air them out and then weigh the feedback. It's a great process, no?

The government is not responsible, imo, but at the same time, when the government is paid to look the other way when bad stuff is happening...

I mean, it happens all the time, I guess, but the naive optimist in me wants to believe somebody in government is prepared to stand up for the little guy sometimes when it gets out of hand.

On another topic, I wish I could buy food.

bbieberitz said...

Most all people in higher government are corrupt in some way. You can't tell me there is one out there that has done things 100% by the book. If there was only a way to get some of the control back to the people, but the only problem power corrupts people and we will never be out of the vicious circle. We just have to put up with it. Bring on the Mob to clean things up ;)

Borsch said...

Just catching up!

1. Paris sucks!
2. I have no idea why/how two people oversleep a hurricane.
3. Don't worry about the poundage...it will work its way out.
4. Hope cheese is ok.
5. What spinnerval Dvd's do you have.
6. Strip clubs suck! I got yelled at one time becuase I didn't pay enough attention to her.

The Young Family said...

Hubby and I have been sorting through this whole fiasco on the financial front as well.

I tend to agree with Cactus on this one, and what you have said too, it is your responsibility as a consumer to know what you are getting into when you purchase a home, or anything etc. Ofcourse on the flip side, where were the regulations so that people didn't get into loans they really couldn't afford??

I am not into the blaming parts of it democrat or republican, probably because I think you can make a case for both sides.

I have to completely laugh when it comes to Enron, I laugh because I worked for a company I dubbed "Little Enron" back in 2000-2001, took all of our money, didn't meet payroll for months, then took the 401k and spent it! Great news. Luckily we ended up with 3 cents on the dollar when all was settled.... atleast I got some of my money back... (if you can't hear the scarcasm - you may need some help!) The kicker, the main head quarters for this place was in Canada.. so last year when I got a check for $900.00 settlement original amount owed ($32,000) yes 6 years in court! they kindly sent it to me in Canadian dollars! At that time it was not a favorable exchange rate....
Funny for the year I worked there, I was never paid in Canadian dollars, hmmm.... they got us good!

Just my two cents for you, or should I say 3 cents for you! (If I didn't have a sense of humor about it now, I would have gone postal) As it seems there has been some serious fall out for the past few days and more coming in the market, I just hope we can stop all the name calling with the political parties, and really get down to the issues... first you have to dig through all the mud, it isn't an easy task.

I thank you for bringing this up, as it is to me a bit confusing trying to figure out what is truly happening, and all the twists and turns to find out why it has happened, and more importantly to prevent it from happening again.

Em

Anonymous said...

Great post!!!
First, what type of trainer do you have?? My wife and I just brought a Blackburn and it is not very good.
Second: I am not a fan of either party, but imagine if Ken Lay worked on Bush's staff?? I just would like fair coverage. Your comments get people talking and looking into issues. That is great!!!!

M said...

Hey Anon - I have the Travel Trac fluid one - I think its made by Performance Bike, or at least its the brand they sell at their store. I got it about three years ago for about 120 bucks, and love it - have had NO problems at all and use it ALL the time.

Alexis said...

I am with Stronger on this one! Thanks for the post, hopefully people will get their heads out of the, err, sand and do their own research. It's amazing what you can find that you don't hear on the news in the US. Always check the BCC too. It's crazy that we can find out the truth there rather than what's spun in the media here in the US.

Alexis

Alexis said...
This comment has been removed by the author.
deb_d said...

Thanks for bringing this to light. Unfortunately, I think everyone's hands are dirty in this one - there people currently working on both campaign's who were involved with Fannie Mae & Freddie Mac. McCain has finally made mention of this in his stump speech, so maybe now it will hit the MSM.

IM Able said...

I'm doing the same as you -- trying to figure out what in the world is going on! NPR has helped me, in fact.

I think, though, the Enron/Fannie's comparison is a bit limited. For those who lost in the downfall of the Fannie's, they lost on an investment that brought with it an assumed risk. With Enron, the loss was a result of illegal and fraudulent activity and those harmed never signed on for that type of risk. So, I think the analogy may be limited.

I heard an interesting quote on NPR, that Michael repeated an hour later to me from a completely independent conversation he had at his office that day. We (as a country) have tended to privative profit and socializing risk. Very interesting...

Anyway, I'm just wading through all of this myself. I fear, though, as it usually is with complex issues, the impact it will have on the election will be based more on perception than fact.

IM Able said...

"privatize profit and socialize risk"

clearly i've had too many fruit pops tonight.

deb_dee said...

ok - I just saw this on Politifact.com:

"On the Freddie and Fannie question it as McCain said: Obama is No. 2 on the list, with $126,349, right after Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, who had $165,400.

But the list requires a few notes of explanation.

Corporations cannot give to candidates so the center's list adds up contributions from Fannie and Freddie employees and their families. Obama has received a lot of money during his presidential campaign, though, and Fannie and Freddie don't make his list of top 20 companies. (The top three companies with employees donating to Obama are Goldman Sachs, University of California, and Citigroup, according to the center.)

The New York Times looked at contributions from Fannie and Freddie's boards of directors and lobbyists, who are technically not employees. That analysis found Fannie and Freddie-related contributors gave $116,000 to John McCain and his related committees, compared with $16,000 to Obama and his related committees.

Nevertheless, the center's information does reflect which candidates are getting the most money from Fannie and Freddie employees. There are other ways to parse the campaign finance numbers, but McCain is correct when he says Obama got the second-most money on a list compiled by a respected, nonpartisan campaign finance watchdog. He would have been more accurate if he would have noted that he was talking about Fannie and Freddie employees. We rate his statement Mostly True."

Here's the whole article:
http://www.politifact.com/truth-o-meter/statements/727/

...and I still can't see the bottom...