posted on Oct, 3 2008 @ 09:29 PM
Of all the characteristics of a successful politician, none is more
essential than bare-faced cheek. Never has this been more evident than in
the past fortnight, as senior Democrat members of the US legislature have
sought to lay all the blame for the country's financial crisis on the
executive arm of Government and Wall Street.
Neither of these two institutions is blameless - far from it. Yet when I see
such senior Democrats as Barney Frank, Chairman of the House Financial
Services Committee, and Christopher Dodd, Chairman of the Senate's Banking
Committee, play the part of avenging angels - well, I can only stand in
silent awe at the sheer tight-bottomed nerve of it. These are men with
sphincters of steel.
What is the proximate cause of the collapse of confidence in the world's
banks? Millions of improvident loans to American housebuyers. Which
organisations were on their own responsible for guaranteeing half of this
$12 trillion market? Freddie Mac and Fannie Mae, the so-called Government
Sponsored Enterprises which last month were formally nationalised to prevent
their immediate and catastrophic collapse. Now, who do you think were among
the leading figures blocking all the earlier attempts by President Bush -
and other Republicans - to bring these lending behemoths under greater
regulatory control? Step forward, Barney Frank and Chris Dodd.
In September 2003 the Bush administration launched a measure to bring Fannie
Mae and Freddie Mac under stricter regulatory control, after a report by
outside investigators established that they were not adequately hedging
against risks and that Fannie Mae in particular had scandalously mis-stated
its accounts. In 2006, it was revealed that Fannie Mae had overstated its
earnings - to which its senior executives' bonuses were linked - by a
stunning $9.3billion. Between 1998 and 2003, Fannie Mae's executive
chairman, Franklin Raines, picked up over $90m in bonuses and stock options.
Yet Barney Frank and his chums blocked all Bush's attempts to put a rein on
Raines. During the House Financial Services Committee hearing following
Bush's initiative, Frank declared: "The more people exaggerate a threat of
safety and soundness [at Freddie Mac and Fannie Mae], the more people
conjure up the possibility of serious financial losses to the Treasury which
I do not see. I think we see entities that are fundamentally sound
financially." His colleague on the committee, the California Democrat Maxine
Walters, said: "There were nearly a dozen hearings where we were trying to
fix something that wasn't broke. Mr Chairman, we do not have a crisis at
Freddie Mac and particularly at Fannie Mae under the outstanding leadership
of Mr Franklin Raines."
When Mr Raines himself was challenged by the Republican Christopher Shays,
to the effect that his ratio of capital to assets (that is, mortgages) of 3
per cent was dangerously low, the Fannie Mae boss retorted that "our assets
are so riskless, we could have a capital ratio of under 2 per cent".
Maxine Walters' complaint about previous attempts to bring the great
state-sponsored housing finance bodies under stricter control was partly a
reference to Bill Clinton's efforts. Last week the former President
acknowledged that "responsibility" for the absence of proper regulation
rested "with Democrats who were resisting any efforts of Republicans in
Congress, and earlier when I was President and tried to impose tighter
standards on Fannie Mae and Freddie Mac". Then, as now, members of his own
party saw all such initiatives as unwonted attacks on the chances for
low-earners, and particularly African-Americans, to own their own homes.
From its inception in 1938 Fannie Mae (and later Freddie Mac) was designed
to make housing finance available to "ordinary Americans". This was a noble
aim. In the 1970s another Democrat President, Jimmy Carter, introduced
legislation which demanded that such bodies enhance their lending to