Archive for the ‘Fannie and Freddie’ Category

WHAT CAUSED THE FINANCIAL CRISIS?

Monday, January 31st, 2011
  • The Wall Street Journal
    • JANUARY 27, 2011

    Congress’s inquiry commission is offering a simplistic narrative that could lead to the wrong policy reforms.

      Today, six members of the Financial Crisis Inquiry Commission—created by the last Congress to investigate the causes of the financial crisis—are releasing their final report. Although the three of us served on the commission, we were unable to support the majority’s conclusions and have issued a dissenting statement.

      In a November 2009 article, Brookings Institution economists Martin Baily and Douglas Elliott describe the three common narratives about the financial crisis. The first argues that the primary cause was government intervention in the housing market. This intervention, principally through Fannie Mae and Freddie Mac, inflated a housing bubble that triggered the crisis. This is the view expressed by one of our co-commissioners in a separate dissent.

      The second narrative blames Wall Street and its influence in Washington. According to this narrative, greedy bankers knowingly manipulated the financial system and politicians in Washington to take advantage of homeowners and mortgage investors alike, intentionally jeopardizing the financial system while enjoying huge personal gains. That’s the view of the six majority commissioners.

      We subscribe to a third narrative—a messier story that emphasizes both global economic forces and failures in U.S. policy and supervision. Though our explanation of the crisis doesn’t fit conveniently into the political order of Washington, we believe that it is far superior to the other two.

      We recognize that the other two narratives have popular appeal: They each blame a clear entity, and thus outline a clear set of reform proposals. Had the government not supported housing subsidies (the first narrative) or had policy makers implemented more restrictive financial regulations (the second) there would have been no calamity.

      Both of these views are incomplete and misleading. The existence of housing bubbles in a number of large countries, each with vastly different systems of housing finance, severely undercuts the thesis that the housing bubble was a phenomenon driven solely by the U.S. government. Likewise, the multitude of financial-firm failures, spanning varied organizational forms and differing regulatory regimes across the U.S. and Europe, makes it implausible that the crisis was the product of a small coterie of Wall Street bankers and their Washington bedfellows.

      We believe the crisis was the product of 10 factors. Only when taken together can they offer a sufficient explanation of what happened: (more…)

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      WHAT CONGRESS SHOULD CUT – DICK ARMEY

      Friday, January 21st, 2011
    • The Wall Street Journal
      • JANUARY 19, 2011

      Let’s scrap the Departments of Commerce and Housing and Urban Development, end farm subsidies, and end urban mass transit grants, for starters.

      The primary economic challenge today is that our government spends too much money it doesn’t have, and it is involved in too many things it cannot do well and shouldn’t do at all. This burden is manifested by a $1.3 trillion annual deficit and a $14 trillion national debt. The more pernicious effects of this fiscal drag are unseen: a debased dollar, massive (and hidden) unfunded liabilities, and a crushing burden on would-be job creators.

      Milton Friedman correctly argued in 1999 that the “real cost of government—the total tax burden—equals what government spends plus the cost to the public of complying with government mandates and regulations and of calculating, paying, and taking measures to avoid taxes.” He added, “Anything that reduces that real cost—lower government spending, elimination of costly regulations on individuals or businesses, simplification of explicit taxes—is a tax reform.”

      Since 2007, Congress has been on an unprecedented spending binge. That means a first and obvious budget-cutting step would be to return discretionary spending to the baseline before things got so out of control. If Congress returned to the baseline before the supposedly “temporary” stimulus bill of 2009, $177 billion per year would be saved, according to calculations by FreedomWorks based on figures from the Office of Management and Budget and the Congressional Budget Office (CBO). If spending went back to the 2007 baseline, the beginning of the first Pelosi Congress, $374 billion would be saved. Over 10 years, that is $748 billion and $1.56 trillion in savings, respectively. (more…)

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      BOOK REVIEW – DECISION POINTS

      Sunday, December 19th, 2010
      Published on The Weekly Standard (www.weeklystandard.com)

      Only Yesterday

      A president remembers what some have forgotten.

      Philip Terzian

      November 22, 2010, Vol. 16, No. 10

      Decision Points
      by George W. Bush
      Crown, 512 pp., $35

      The president left the White House with abysmal approval ratings, and a war which had begun well—enjoying widespread support and historic resonance—but remained unresolved and unpopular. The keen excitement that attended his successor’s arrival only emphasized the rebuke to the president’s party and his policies, and doubts about his fitness for the office that had dogged his two terms.

      I am referring, of course, to Harry S. Truman, not George W. Bush. And while there is a limit to the parallels that may be drawn between these two distinctly dissimilar men, there are lessons to be drawn from their resemblance as well. Like Bush, Truman was regarded in his time as a lightweight and accidental president: In Truman’s case, succeeding the monumental Franklin Roosevelt; for Bush, winning the presidency while narrowly losing the popular vote. Truman’s bluntness and lack of finesse made FDR seem all the more eloquent; Bush’s plain language and emphatic manner were considered, in certain circles, a national embarrassment.

      And yet in retrospect—and in both cases, the interval was not protracted—what had seemed to be weaknesses were, in fact, strengths, and the long-term significance of their tenures in the White House transcended the political arm-wrestling of their day. At the end of World War II, and the dawn of the Cold War, Truman was obliged to make decisions about the course of American foreign policy which proved both smart and successful. A decade after the end of the Cold War, Bush was called upon to mobilize the nation, on sudden notice, for the protracted struggle against Islamist terror. (more…)

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      THE FANNIE MAE REPUBLICANS

      Wednesday, November 17th, 2010
    • The Wall Street Journal
      • NOVEMBER 16, 2010

      Some born again reformers were once the company’s defenders.

        • A major task for the next Congress will be rewriting the laws governing Fannie Mae and Freddie Mac, and House Republicans have now won a seat at that table. Which makes it all the more important that their seat not be occupied by Members who were once powerful defenders of the toxic mortgage twins.

        These days, everyone—even Barney Frank—claims to want to reform Fannie and Freddie. Most Republicans now sound like these columns did for more than a decade, assailing the companies for their systemic risk to the financial system after taxpayers have had to put up $150 billion, and counting, to maintain them as the walking dead.

        But as the debate over the mortgage giants resumes, the real threshold for GOP leadership ought to be who was right when it counted—that is, who was willing to take on the companies, their Wall Street allies and the housing lobby before the meltdown. The destructive duo were long protected by a bipartisan phalanx of Members, and a core group of Republicans on the House Financial Services Committee were among the guardians. They include Gary Miller of California, Randy Neugebauer of Texas and Spencer Bachus of Alabama.

        Mr. Bachus is worth special mention because he has the seniority to succeed Mr. Frank as Chairman of Financial Services. Yet when other Republicans, including the Bush Administration and Senator Richard Shelby, were trying to reform Fan and Fred during the last decade, Mr. Bachus was on the wrong side of the debate.

        In 2005, other Republicans offered amendments on the House floor to rein in the companies’ mortgage-backed securities portfolios; eliminate their ability to borrow from the Treasury; kill an increase in the size of mortgage loans that the companies could guarantee; and strengthen their capital requirements. Mr. Bachus voted against every one. The bill that passed the House was so weak that the Bush Treasury and Senate Republicans rightly rejected it as worse than nothing.

        Alabama Rep. Spencer Bachus

        1fanniegop

        (more…)

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        VIDEO – DEMOCRATS DEFENDING FANNIE AND FREDDIE – 2004

        Sunday, October 3rd, 2010
        Shocking C Span videos of Democrats fighting off  Republican  efforts to put more regulation on Fannie Mae and Freddie Mac in late 2004

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        A TWO-STEP AGENDA FOR STOPPING OBAMA

        Sunday, October 3rd, 2010

        THE WEEKLY STANDARD

        First, Stop Obama’s Madness

        A two-step plan for the future majority party.

        BY Yuval Levin

        September 20, 2010, Vol. 16, No. 01

        Democrats in Washington, confronting a mammoth tidal wave of angry voters as November approaches, are desperate to change the subject. They know there is little they can say about themselves or their record of governing over the past two years that would not worsen their prospects, so they naturally want to talk about Republicans instead. But they seem uncertain whether the problem with Republicans is that they want to do too little or too much.

        On the one hand, Democratic leaders argue that Republicans are the “party of no,” and lack any ideas to help get the economy moving again. On the other hand, the same Democrats insist that Republicans have concocted a multitude of painful cuts in benefits and services and are working, as President Obama said last month, “to make privatizing Social Security a key part of their legislative agenda if they win a majority in Congress this fall.” So is there a Republican agenda or isn’t there? (more…)

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        THE OBAMA ECONOMIC MALAISE

        Friday, September 10th, 2010
      • The Wall Street Journal
        • SEPTEMBER 7, 2010

        The Obama Economy

        How trillions in fiscal and monetary stimulus produced a 1.6% recovery.

        So two months before an election, and 19 months after the mother of all spending programs, President Obama said yesterday he’s rolling out one more plan to stimulate the economy. We’ll discuss the details when they’re released, but the effort itself is a tacit admission that his earlier proposals have flopped. As the autumn economic debate gets underway, it’s important to understand how and why we got here. 

        recession preceded Mr. Obama’s Inaugural by 13 months, according to the National Bureau of Economic Research, and so did the President’s fiscal policy ideas. George W. Bush got there first. In February 2008, he and House Speaker Nancy Pelosi agreed on a $168 billion combination of federal spending and temporary tax rebates that were supposed to maintain growth through the housing market decline that election year.

        Larry Summers, who would later become Mr. Obama’s chief economic adviser, made the case for such a stimulus to boost domestic “demand” in late 2007. Any stimulus, he told the Brookings Institution, should be “timely, targeted and temporary.” Peter Orszag, then at the Congressional Budget Office (CBO) before joining the Obama White House, made the same case.

        The official GDP statistics did show a growth blip in the second quarter of 2008 to 0.6%, but third quarter GDP fell by 4%, and we all know what happened after the financial meltdown. Stimulus I failed.

        Larry Summers

        1economy

        1economy

        Enter Stimulus II, the $814 billion plan that was also supposed to make up for lost private demand. It too was a combination of one-time tax rebates and spending, mostly on social programs like Medicaid rather than on “shovel-ready projects.” Mr. Summers promised this would have a 1.5 “multiplier” effect on GDP growth, and White House economists Christina Romer and Jared Bernstein famously predicted the spending would keep the jobless rate below 8%. (more…)

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        REMEMBERING JANUARY 3, 2007

        Friday, September 10th, 2010

        The day the democrats took over was not January 22nd 2009 it was actually January 3rd 2007 the day the Democrats took over the House of Representatives and the Senate, the start of the 110th Congress. The Democratic Party controlled a majority in both chambers for the first time since the end of the 103rd Congress in 1995.

        For those  who are listening to those propagating the fallacy that everything is “Bush’s Fault”, think about this:

        January 3rd, 2007 was the day the Democrats took over the Senate and the Congress:

        At the time:

        The DOW Jones closed at 12,621.77

        The GDP for the previous quarter was 3.5%

        The Unemployment rate was 4.6%  (more…)

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        TARP AND ITS CONTINUING SAGA OF ECONOMIC WOES

        Tuesday, August 31st, 2010
      • The Wall Street Journal
        • AUGUST 31, 2010

        TARP and the Continuing Problem

        of Toxic Assets

        It was a bold bet that the Treasury and Fed could engineer an economic recovery without allowing the repricing of U.S. housing stock.

        We should have eaten those toxic assets instead of sweeping them under the carpet.

        The Troubled Asset Relief Program (TARP) was a foolish bait and switch. To prevent the 2008 financial crisis from worsening, TARP was originally designed to buy toxic mortgage derivatives weighing down banks and Wall Street, but no one could decide what price to pay for them. Too high and TARP would look like a government handout. But if the Treasury paid what they were worth, which was not much, financial firms would have to take huge write-offs, forcing many of them into insolvency and even nationalization.

        So Treasury Secretary Hank Paulson switched plans, investing TARP funds directly into banks for a piece of equity. The idea was that banks would “earn out” their toxic portfolio—i.e., slowly write them off against the profits gained by the Federal Reserve’s zero interest rate policy. It was a bold bet that the Treasury and Fed could engineer an economic recovery without allowing the bottoming action of a sharp but swift repricing of the U.S. housing stock. It turns out they only bought time, not a recovery, and now we are paying for that mistake. (more…)

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        RUMORS OF A “BACKDOOR STIMULUS”

        Saturday, August 7th, 2010
      • The Wall Street Journal
        • AUGUST 6, 2010

        An Argentinaville Stimulus?

        Wall Street comes to life with rumors of a back-door stimulus.

        • It’s August, so one expects the vapors to fill with humid and overripe rumors. But the ride given yesterday to rumors that the Obama Administration is planning an “August Stimulus Surprise” was remarkable even by the sodden standards of this summer.

        A wire service put out the story that Wall Street was abuzz that the Administration might lower Fannie Mae’s and Freddie Mac’s mortgage refinancing standards or trim mortgage balances for homeowners, thereby putting billions of dollars overnight into the pockets of benefiting consumers, thereby producing a “free stimulus,” estimated by one Morgan Stanley analyst at $46 billion. And this stimulus “spending” would be achieved without a moment spent passing it through the Congressional appropriations process. A “slam dunk stimulus” is how the overheated Morgan Stanley commentator described it.

        0721finreg

        0721finreg

        (more…)

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