Saturday, September 20, 2008

Who's To Blame?

As the economic crisis deepens amidst a volatile election season, many look back to the reasons the market is experiencing such a downturn. Many point to a lack of regulation of mortgage lenders like Fannie Mae and Freddie Mac. But that just leads to another question...who is responsible for not regulating them?

If one listens to the rhetoric being spewed by Sen. Obama, one would think it was Republicans, not Democrats who are in the hip pocket of the Fannie Mae/Freddie Mac crowd. Unfortunately, even people not that good at research can perform a simple Google search to find the real answer...That Sen. Obama was actually the one being described as "family" by the CEO of Fannie Mae, not McCain. 



Furthermore, Obama is #2 in contributions from FNMA ($126, 349), despite being in Congress less than 1/2 of one Senate term. The #1 spot goes to Democrat Chris Dodd ($165,400). Furthermore, Obama took $6,000 from FNMA PACs, McCain took zero. McCains total contributions from FNMA were $21, 550. McCain ranks 53rd in FNMA contributions.


Obama's spokesman David Plouffe said on March 27, 2008 that "If we're really going to crack down on the practices that caused the credit and housing crises, we're going to need a leader who doesn't owe the industry any favors." It appears Plouffe was not talking about his own candidate, Sen. Obama. Take a look at the following campaign contribution stats, taken from Congressional Quarterly and the Center for Responsive Politics:

$370, 500 - Lehman Bros
$5,395 - GMAC
$150, 850 - Credit Suisse First Boston
$11,250 - Countrywide
$9, 052 - Washington Mutual
$161, 850 - Citigroup
$4,600 - CBASS
$170, 050 - Morgan Stanley
$1,150 - Centex
$351, 900 - Goldman Sachs
Total $$ from Top Subprime Mortgage Companies
$ 1, 180, 103

Two of Obama's top advisers, Franklin Raines and Jim Johnson, are former CEOs of FNMA as well. (Raines succeeded Johnson.)


Furthermore, McCain sponsored legislation in 2005 (The Federal Enterprise Housing Regulatory Reform Act) which called for additional/more regulations for FNMA. The bills sponsors (all Republicans) were John Sununu, Elizabeth Dole, John McCain, and Chuck Hagel. The bill was blocked by Democrats. http://thomas.loc.gov/cgi-bin/bdquery/z?d109:SN00190:@@@X

McCain's comments at the time:

FEDERAL HOUSING ENTERPRISE REGULATORY REFORM ACT OF 2005 The United States Senate May 25, 2006 Section 16 Record Text Sen. John McCain [R-AZ]:”Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation.”

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