With the announcement of late that the government plans on suing many of the big banks and mortgage companies that lost so much in the housing market crash do to their deep involvement with risky loans, and with the seeming prevalent view among some that the fault also points back to the Bush administration, I think the truth needs to out here.
Quite frankly a lot of people made a lot of money during the housing boom. Average people… even some that would have been viewed as ‘poor’ made money and moved up the economic ladder by buying and selling as property values increased. The banks weren’t all that much at risk, for if a loan defaulted and property went into foreclosure the seemingly ever increasing value of property mitigated most of, sometimes even all of that loss. Besides, if you found yourself in the position that you couldn’t make those payments you could fairly quickly put your house on the market and unload it. Often making some money in the process… that is as long as those property values were going up.
Nothing is forever. We’ve all heard the old saw “What goes up must come down.”
This program of pushing loans for people that didn’t really qualify for them didn’t start under the Bush administration. It all started beforehand with groups advocating for the poor and disadvantaged working to end what many viewed as discrimination in the marketplace. A noble enough cause one would think, but flawed from the outset.
Many banks easily saw the fly in the ointment with giving loans to people that couldn’t really afford those loans, but under cries of racism and threat of extremely costly litigation many of those banks and mortgage companies caved and began making those loans. Even our current President Obama was a party to lawsuits forcing the industry to make these loans… loans anyone should have been able to see would do those poor and disadvantaged more harm than good.
To mitigate the risks these institutions did face they bundled many of them together in ‘packages’ and sold them to other institutions willing to take those risks. After all, property values were increasing. It seemed to be a good investment… as long as property values kept going up.
Now those same poor and disadvantaged those groups thought they were helping are finding themselves on the losing end of the high risk loan debacle. They were set up to fail, for getting a loan doesn’t automatically make one able to make the payment. Many will find themselves far worse off than they were in the beginning, thanks to this “affordable housing” scheme.
As I was saying in the beginning a lot of people want to place the blame for the current problems we face on George Bush and the republicans. I was reading through the comments on one of the articles on the plan of the government to sue and noticed many seem to think that the Bush administration failed to seek or somehow blocked regulation of the loan industry and didn’t give good oversight to Fannie Mae and Freddie Mac and somehow just blindly allowed the system to fail. Not so. Not by a longshot.
[The following information comes from an article a couple of years ago I believe was in The American Thinker. If you don’t believe it you can always look it up for yourself. In light of the pointed fingers I present it here again.]
For many years the President Bush and his Administration not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties.
We’ll start here in the year 2000, prior to the election of George W. Bush…
March: Rep. Richard Baker (R-Louisiana) proposed a bill to reform Fannie and Freddie’s oversight in a House Subcommittee on Capital Markets.
Rep. [Barney] Frank (D-Massachusetts) dismissed the idea, saying concerns about the two were “overblown” and that there was “no federal liability there whatsoever.”
April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”
May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)
July: Sens. Chuck Hagel (R-Nebraska), Elizabeth Dole (R-North Carolina) and John Sununu (R-New Hampshire) introduced legislation to address Regulation of Fannie Mae and Freddie Mac. The bill was blocked by Democrats.
September: In an interview with Ron Insana for CNN Money, Rep. Baker warned, “I have concerns that if appropriate resources aren’t allocated for internal risk management…if something doesn’t work out the way they predict, the American taxpayer could be called on to pay off the debt in some sort of bailout.”
The New York Times reports that the [Bush] Administration recommended “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.”
Rep. Barney Frank (D-Massachusetts): “I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. . . . I do not think at this point there is a problem with a threat to the Treasury. . . . I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.
February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)
June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform
October: Rep. Baker again warned about the coming crisis in the Wall Street Journal: “Then there’s the lesson of a company, Frankenstein-like, seemingly grown so powerful that it can intimidate and arrogantly flout all accountability to the very government that created it.”
In a subcommittee testimony, Democrats vehemently reject regulation of Fannie Mae in the face of dire warning of a Fannie Mae oversight report.
Rep. Barney Frank (D-Massachusetts): “Uh, I, this, you, you, you seem to me saying, ‘Well, these are in areas which could raise safety and soundness problems.’ I don’t see anything in your report that raises safety and soundness problems.” And “But I have seen nothing in here that suggests that the safety and soundness are at issue, and I think it serves us badly to raise safety and soundness as kind of a general shibboleth when it does not seem to me to be an issue.”
April: Treasury Secretary John Snow repeats his call for GSE reform,
May: After years of Democrats blocking the legislation, Sens. Hagel, Sununu, Dole and McCain write a letter to Majority Leader William Frist and Chairman Richard Shelby expressly demanding that GSE regulatory reform be “enacted this year” to avoid “the enormous risk that Fannie Mae and Freddie Mac pose to the Housing market, the overall financial system, and the economy as a whole.”
April: In “A Nightmare Grows Darker,” the New York Times writes that the “democratization of credit” is “turning the American dream of homeownership into a nightmare for many borrowers.” The “newfangled mortgage loans” called “affordability loans” “represent 60 percent of foreclosures.”
August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two in situations. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07)
December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly.
February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.”
March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac.
April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac.
May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.
President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.
As you can plainly see Bush tried to prevent all this turmoil and grief. All to no avail. Don’t believe it? Google it. The democrats pushed these troubles upon us, and even our current President was an advocate of these destined to fail loans which lie at the root of it all.
But not Bush.
Not. His. Fault.