Proposed during the 109th Congress, the bill could have reigned in Fannie Mae and Freddie Mac, government sponsored lending institutions for the poor, before they had led the entire lending industry to ruin. And while Senator Barack Obama is benefiting in the polls from a public perception that Republicans are the villains, facts show the real actions that led to this debacle are almost exclusively owned by Democrats, who are now leading efforts to repair what they helped to ruin.
Fannie Mae and Freddie Mac are at the heart of this crisis. As government-sponsored lending institutions, the Clinton administration turned a Carter program in 1995 into a program to buy votes by giving homes to Americans who otherwise couldn’t afford them. With these loans pouring into the competitive private lending market, other private lenders fought to compete with the giveaways, with the more greedy and unscrupulous leaders of these lenders even eclipsing Fannie and Freddie in risky loans. And while the government used Fannie and Freddie to buy up this risky debt to keep the “vote buying” dollars flowing to more and more Americans who could never repay it, the time bomb was ticking to a lending meltdown.
In 2003, 5 years ago, Republicans took control of the Senate. On July 31, 2003, in the 108th Congress, recognizing the dangers in Fannie and Freddie, and after hearings where Fannie and Freddie were taken to the carpet for improper practices, Senators John Sununu (R-NH), Chuck Hagel (R-NE) and Elizabeth Dole (R-NC) introduced legislation to strengthen and improve the oversight of Fannie Mae and Freddie Mac. Trent Lott and John McCain were co-sponsors. This bill (S. 1508) passed the Senate Banking Committee, with Democrats opposing. With the opposition by Democrats, traditionally seen as evidence that a bill will never pass the 60-vote cloture rule for a floor vote, the bill died in the 108th Congress.
On January 26, 2005, hoping for a different result in the new congress, Sununu, Hagel, and Dole re-introduced legislation (S. 190) to improve oversight of Fannie Mae and Freddie Mac. The bill incorporated many provisions of the Sununu, Hagel, Dole legislation from the prior congress. It passed out of the Committee on another party-line vote of 11 – 9 on July 28, 2005. But again, without a single Democrat vote, the bill was doomed if brought to the floor for the critical 60-vote cloture. Only 41 Democrat votes would doom it. In a growing negative atmosphere created by the left based on the war in Iraq and Afghanistan, a fight over an unreported crisis brewing in Fannie Mae and Freddie Mac was likely considered futile. Again the bill was not scheduled to go to the floor where Democrats would certainly have defeated it by voting against cloture and prevented an up or down vote.
In May 2006, John McCain signed on as a co-sponsor of the stalled bill, in the hopes of gathering more co-sponsors and getting a vote in the 109th Congress before the bill would die. McCain would state, “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.” The bill did not obtain any of the necessary support from the Democrats, and once again, the bill died when the 109th Congress ended.
On March 14, 2006, Sununu and Hagel (R-NE) introduced an amendment to the Lobbying Reform Bill that would review the lobbying activities of GSE’s such as Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac were becoming powerful lobbyists, funneling huge amounts of campaign money to Senate leaders, including Chris Dodd, Barack Obama and Hillary Clinton. Of the top 25 recipients, 18 were Democrats with top Democrats exceeded 6-figure contributions from these federally-backed and controlled institutions. The amendment would have directed the Government Accountability Office (GAO) to study the lobbying activities of GSEs to determine whether these activities further their statutory housing mission. The amendment would also require the Secretary of Housing and Urban Affairs (HUD) to conduct annual audits of the Fannie Mae and Freddie Mac Foundations. The Amendment was defeated along party lines.
On April 12, 2007, Sununu, Hagel, Dole, and Senator Mel Martinez (R-FL) re-introduced legislation (S. 1100) to improve oversight of GSE’s. The major reforms in their bill were included in final legislation passed the Senate on July 26, 2008 and was signed into law on July 30, 2008. But it was too late, with the lending industry already beginning to fall, led by Fannie Mae and Freddie Mac.
McCain's specific comments, on May 25, 2006:
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.
Let's here Democrats refute the words and actions of Democrats here:
7 comments:
I found this on a blog called NorthwestLaw.
S. 190: It Has Attained Myth Status
McCain spent months during the nomination process trying to convince us he was against all government regulation. “I’m always for less regulation,” Wall Street Journal quotes him saying six months ago. He added: “I’d like to see a lot of the unnecessary government regulations eliminated.” He now is now suggesting that he has been championing legislation that would have created regulations sufficient to have avoided the present crisis. I have not seen McCain explicitly make such a far-fetched claim, but certainly many of his supporters seem to believe this.
McCain has pointed to his sponsorship of S. 190 in 2005 to show that he is not as hard line as he presented himself earlier. His supplicants seem to have picked up this ball and run right out of the stadium with it.
Some people have actually claimed that the present crisis would have been averted if “McCain’s bill” had passed. We have to stop right there. McCain did not even believe that the scope of the bill could have such an effect when he endorsed it. The bill was written in response to an accounting scandal that rocked Freddie Mack and Fannie Mae. In the best of all circumstances the bill would have helped avert (this is hotly contested) the bailout of Fannie Mae and Freddie Mack, but that had happened before the current crisis.
In his speech in which he announced his sponsorship a year a a quarter after the bill was introduced, he said”
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.
He does in his concluding sentence allude to problems for the economy if effective regulations are not implemented but this was not the focus of the speech at all.
At this point in time some form of the bill was on the floor of the Senate and it was capable of being voted on but it was entirely ignored had would never be voted on. An amended form of the bill came out of the committee but to my knowledge there is no record of the bill as was when it emerged from the committee. There is only the notation that it was changed. Significantly omitted from McCain’s four minute speech is any encouragement that it be voted on, whatever it was.
Many people say that the Democrats filibustered this bill to prevent the Republicans from passing it. There is simply no record of that at all. Others say that it was the threat of a Democratic filibuster that prevented the bill’s passage and I have been unable to turn up any hint of that either.
The truth is that a significant number of Republicans opposed the bill. The American Enterprise Institute was against it. It is hard to imagine that this opposition was not reflected in the attitude of the majority of Republican senators. Furthermore one of the most prominent lobbying groups for deregulation was opposed to it. In this light it is easy to see why no Republicans were championing the bill at all. Nor to my knowledge were any Democrats in the Republican-controlled senate.
Because the bill was fated to wither on the legislative vine and die unvoted upon in a few months, McCain's vote was entirely safe.
He could create the appearance of a record without doing anything or even voting against the Republican “base.” The proof of the political purpose of his sponsorship, as opposed to substantive support, is that the bill was reintroduced in 2007 without McCain sponsorship or support.
The sole remaining deviation from McCain’s record of voting to deregulate Wall Street and the financial community was with respect to the Sarbanes-Onley bill, which in the wake of corporate accounting scandals required enhanced reporting. After passage this fell on harsh criticism from corporate executives and McCain said that he regretted voting for it.
Other than these two minor deviations, I believe that McCain until now has been an ardent proponent of deregulation.
This is what happens when someone applies speculation to achieve a conclusion they wanted to achieve from the start. So many things here are wrong. First, arguing that a person generally opposes over-regulation is not an argument that a person opposes a specific regulation. Yes, even Republicans know that certain regulation is necessary.
Once introduced in the 109th Congress the bill was not "dead" until the end of that congress.
The bill received a standard designation when the Banking Committee stalled it. The designation says simply that the committee supported it, but that it wasn't going to be moved to the floor for debate.
The bill would not have been in its present form if amendments and debate had occurred in advance of a floor vote.
No bill in the Senate can be voted on unless it passes a cloture vote. Cloture is the requirement for the bill to receive 60 votes to end debate before it can be voted on. With no chance of cloture, advancing a bill for debate is a waste of everyone's time if it is clear that one party will unanimously oppose it.
There is not a single bill of substance in the US Senate that doesn't require Democrats to vote to end debate BEFORE it can be voted on. There is not a bill that doesn't require Republican support to advance to the floor for a vote.
Democrats have been in lockstep in opposition of Fannie and Freddie reform. Why, because they see these programs as a means to buy votes of poor folks who they have been giving money to.
The paragraph describing the history of the bill itself indicates that the author either doesn't understand how the senate works, or was determined to imply facts that were not true.
It was not McCain's bill. It was John Sinunu's bill. McCain never voted on it, but simply signed on as a co-sponcer, long before it was on anyone's campaign radar map.
Obama supporters can say anything they want and rewrite history all they like, but that does not change the fact that Obama, in his very short senate career, was a defender of Fannie and Freddie and a huge recipient of their lobbying cash.
BTW- Posting a long and anonymous essay with someone's spin on a topic is not appreciated. If anything is true these days, the ability to find, copy and paste any view of any issue is not very challenging. I spent a good number of hours researching my post and an anonymous poster's politically motivated speculation doesn't advance a discussion.
I am sickened about what has happened to our financial markets. I've known about the causes of the catrastrophe since September, and tried to educate as many people as I could...all to no, or little, avail. Now I understand that Freddie mac paid $400K to Newt Gingrich to lobby congressional republicans to kill this Bill and it sickens me even more. Sure, the Democrats were on the dole by the GSE's to a far greater degree then GOP members, but still, it saddens me that Newt would ever do something so insidiously preposterous. Now, we have Barack to try to fix what his own Party brought upon the American taxpayer, and i can only imagine that if corruption charges are ever brought against Franklin Raines, Jim Johnson, Chris Dodd, Barney Frank, Melvin Watts, Maxine Waters, Gregory Meeks and Jamie Gorelick, that Obama will issue pardons to these criminals. It's time to throw them all out and revive congress with new, fresh blood...Congress needs a transfusion BIG TIME. God help us.
Regulating private enterprise, and setting your own rules for government sponsored enterprises are not the same thing. Opposing regulation is largely consistent with S190.
Don't forget the scale of the securitizations that Fannie and Freddie sold around the world either. Although the George bush bailout for these came at the beginning, it is almost certainly their delinquency that has been a primary cause of problems in every country of the Globe
What a stellar and in-depth post! Thank you for putting together such an informative time-line as it pertains to the regulation of GSE's. Your work will help us, as a nation, learn from the mistakes of the past...which, broadly speaking, is electing democrats.
Feel free to visit my website where I made a similar post and cited this excellent post.
www.GarrettMyler.com
This is an outstanding piece of work. You would think an investigative reporter would aspire to write this way. Well, if America really had any of those.
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