Fannie Mae - whose fault is it anyway?

Our major financial institutions are dropping like flies -- Merrill Lynch, JP Morgan Chase, Citigroup, Lehman Brothers, Fannie Mae, Freddie Mac -- along with some major collateral damage such as insurer AIG, which was heavily invested in Fannie Mae and Freddie Mac (their stock is now worth pennies) and has suddenly lost its cash reserves.

This is an election year, and Democrats want to win the White House and retain their majority control over Congress, so it is a sure bet that Republicans will be blamed for everything.

Fortunately, for those of us who like to see all of the facts before we make a decision, the Internet allows us to search news stories from the past 5 or 10 or 15 years, and track the financial meltdown from the time it was just a blip on the radar of a few astute folks, to the current market crisis.  Here are some interesting items that have recently been dug up by bloggers:

The three biggest total recipients of political contributions from Fannie Mae and Freddie Mac are: Chris Dodd, Barack Obama, and John Kerry.  All are Democrats.  This list is even more stunning when you consider that Obama has only been in the US Senate less than three years, compared to Dodd (27 years) and Kerry (23 years).  I'm going to guess that Obama's close ties to community organizing and advocacy outfits like ACORN, with their longstanding support for affordable housing, made Obama the most attractive member of the Senate in terms of supporting anything that Fannie and Freddie wanted.  And get this -- Congressional Democrats want to give ACORN and other advocacy groups money from Fannie and Freddie's coffers in the form of an "Affordable Housing Trust Fund."

Near the end of July, John McCain directly addressed the ill fortunes of Fannie Mae and Freddie Mac, and pushed for stronger regulation of both those entities.  This is before the bottom fell out of Fannie and Freddie.  At that time, Barack Obama had yet to make a statement about the solvency of Fannie and Freddie, or to propose a solution to the problem.

Whose policies led to the credit crisis?  Five years ago, the Bush Administration outlined the oversight problems at Fannie Mae and Freddie Mac and proposed much tighter government regulation of them, specifically a new federal oversight agency.  Speaking for the Democrats, Congressman Barney Frank said, "These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis.  The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."  In other words, in 2003, Democrats believed that more regulation was a bad idea, because it would put a damper on their expanded affordable housing programs.  The "free market" had nothing to do with Bush's proposal or the Democrats' opposition to it.

The Clinton Administration pushed for an aggressive expansion of community development and affordable housing funds, luring banks into providing these loans with guarantees that Fannie Mae and Freddie Mac would be underwriting them.  Two long-time Clinton cronies, Franklin Raines and Jamie Gorelick (of pre-9/11 law enforcement "wall" fame) together raided Fannie Mae for over $100 million in compensation, while their financial incompetence and accounting shenanigans cost the company billions.

Here's Robert B. Reich, former Clinton Administration Secretary of Labor, on MSNBC last night (transcript from RushLimbaugh.com):

REICH: In the latter years of the Clinton administration -- when I was not there any longer, I should add -- there was an attempt by Alan Greenspan and Bob Rubin and a few others to deregulate financial markets, and they did.  They split commercial banking off from investment banking.  And many people say, "Well, that was the beginning of the problem," and then, of course, in 2003-2004, Alan Greenspan reduced short-term interest rates to the point where every single bank wanted to lend money.  I mean, if you could stand up straight you could get a bank loan because there was so much pressure to get that money out the door.  Money was so cheap.  So, yes, there is some responsibility on Democrats, some responsibility on Alan Greenspan and the Fed.

This Washington Post editorial sheds a stunning amount of light on the additional 2005 attempt by Republicans to shore up Fannie Mae and Freddie Mac with additional oversight and regulation, and the successful efforts of Fannie/Freddie lobbyists and their Democrat acolytes to defeat those reforms.  To wit:

President Bush was receptive to reform. He withheld nominees for Fannie and Freddie's boards -- a presidential privilege. While it would have been valuable politically to use such positions to reward supporters, the president put good policy above good politics.

In subsequent years, officials at Treasury and the Council of Economic Advisers (especially Chairmen Greg Mankiw and Harvey Rosen) pressed for the following: Requiring Fannie and Freddie to submit to regulations of the Securities and Exchange Commission; to adopt financial accounting standards; to follow bank standards for capital requirements; to shrink their portfolios of assets from risky levels; and empowering regulators such as the Office of Federal Housing Oversight to monitor the firms.

The administration did not accept half-measures. In 2005, Republican Mike Oxley, then chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddie's lobbyists set out to weaken it. The bill was rendered so toothless that [Andrew] Card called Oxley the night before markup and promised to oppose it. Oxley pulled the bill instead.

During this period, Sen. Richard Shelby led a small group of legislators favoring reform, including fellow Republican Sens. John Sununu, Chuck Hagel and Elizabeth Dole. Meanwhile, Dodd -- who along with Democratic Sens. John Kerry, Barack Obama and Hillary Clinton were the top four recipients of Fannie and Freddie campaign contributions from 1988 to 2008 -- actively opposed such measures and further weakened existing regulation.

The story is certainly complicated, but much of the evidence suggested that it was Democrats, not Republicans, who opposed mortgage lending reforms and additional regulation of Fannie Mae and Freddie Mac.  Their opposition was linked directly to their support for "affordable housing" (a prominent civil rights/racial issue) and the lobbying dollars that they recieved from Fannie and Freddie.  Money definitely talked, and it was Democrats who were listening.

ADDED: Linked by JayTea at Wizbang.  Thanks buddy, and welcome WizBangers!

MORE:  Here's a link to a video of Daniel Mudd (son of CBS newsman Roger Mudd), CEO of Fannie Mae (he succeeded Franklin Raines) addressing the Congressional Black Caucus in 2005 and telling them, "In many ways I want to tell you today you are also the conscience of Fannie Mae."  Ouch.  Apparently Fannie Mae's conscience failed it, and big time.

One of the aspects of the Fannie/Freddie fiasco that has not been widely explored is the relationship between low-income housing and civil rights political activism. The sad truth is that Fannie/Freddie reform meant that Republicans would have to butt heads with the racial activists of the CBC.  And you know what that means -- if evil white Republicans question or oppose the CBC, they are "racists."

...

Even though Barack Obama has made a big deal out refusing to take "corporate" donations during this election, he has scooped up millions of dollars in individual campaign contributions from officers, executives, and "bundlers" with deep ties to Lehman Brothers, Merrill Lynch, Goldman-Sachs, and other deep-pocket financial institutions.  And here's much more from Matthew Cooper, writing for Portfolio.com, who investigates more individual contributions and lobbying money that Obama has accepted. 

For those who still don't get it, this is not about tit-for-tat between McCain and Obama lobbyists.  It is about the fact that Obama was supposed to be an agent of change, a "community" man completely disconnected from corporate deep pockets, looking out for the little guy and doing what is right, as opposed to what corporate benefactors pay him to do.  So far, such independence seems to be, to use Bill Clinton's phrase, only a fairy tale.

Also, the Los Angeles Times says that Obama has effectively "voted present" with respect to recent economic crises, by refusing to either endorse or disapprove of last week's government's bailouts and management takeovers, and for refusing to discuss any details of his economic plan. 

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