The article is "How the Democrats Created the Financial Crisis" by Kevin Hassett. According to the article Democrats are all at fault because they supported Fannie and Freddie and the Republicans tried to "regulate" them. In fact, this guy says, John McCain supported the regulatory attempt.
Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.
And he puts the turning point at 2005. Remember that. 2005.
Now this is hardly my area of expertise, and this fellow Hassett is a director of economic-policy studies at the American Enterprise Institute, and a Bloomberg News columnist. Who am I to even take him on? But he has an axe to grind, since he is an adviser to Senator John McCain in this election.
Definitely not my area of expertise, but pretty quickly I find a bit of a primer and send it back to DP to give the other side of the equation:
An excellent review of Fannie Mae, short-selling and government economic regulation in "Shorts and Fannies: A brief History" by Robert Kuttner, July 22, 2008, American Prospect (web only).
And this also from the American Prospect (web only) to counter the charge and spread the blame around a bit: "The Conservative Origins of the Subprime Mortgage Crisis," by John Atlas and Peter Dreier.
Third, an article in which a famous Dem calls for regulation at a time well before the pivotal point in Hassett's article: "Getting Tough with Fannie" by Robert Reich, September 29 2004 (web only). Note the date on this one--before the crucial date of 2005.
I'm pressed for time with another project, but refer him to indexes in American Prospect, the Center for American Progress, The Nation, the Progressive Magazine, and I'm sure that Paul Krugman at the NYT would have something on this. I mean not my area of expertise, but I know immediately from reading the Hassett article that he's being disingenuous and therefore not giving the full truth.As I read, I get more and more annoyed. Even I know the guy is hyperbolating.
First, though Hassett talks about the bill to regulate Fannie and Freddie getting hung up in committee, but he doesn't give a breakdown of who was on the committee that voted the legislation down. He lists no names at all, no votes. Disingenuousness Number One is obvious: in 2005 the Republicans were still in control of congress, which means THEY ran the committee. Greenspan testified in 2005 to Congress, so why didn't the Republican-dominated Congress take some action? Further, if Greenspan thought they were out of line, where in the hell were the Republican-apointed regulators to get in there and kick ass? Nowhere, of course. The regulators were deregulating or not enforcing just as Bush/Cheney et al wanted them to do.
Now Disingenuousness Number Two from Hassett when he refers to the bill to regulate Fannie and Freddie:
But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.
Republicans, "tied in knots" by the minority Democrats? Yeah, right, the Republicans were in charge but they really weren't in charge! They had the majority. Note the slippery comment in Hassett's next Paragraph: "The Democrats and the few Republicans who oppose portfolio limitations . . " So who were these few Republicans? Again, the Republicans were in sharge, so why couldn't the Republicans-in-charge of Congress even bring it to the floor? Hassett sounds factual, but deep down he's not fessing up to the real truth. I hate to suggest that this same kind of omission operates all the time in Republican circles, but then on the other hand, it usually does.
The only conclusion to draw is that the Republicans didn't want to reform it. Here's a quote from an article reguarding regulation of GSEs (Government Sponsored Enterprises--to which Fannie and Freddie belong) in March of 2006, which, notice, is SEVEN months BEFORE the 2006 election, so the Republicans are STILL in charge:
The House passed a GSE reform bill, the Federal Housing Finance Reform Act of 2005 (H.R. 1461), in November. However, the Senate's reform bill--the Federal Housing Enterprise Regulatory Reform Act of 2005 (S. 190)--has been bogged down since it moved out of committee along a strict party-line vote over the issue of GSE mortgage portfolios (see Mortgage Banking, September 2005, p. 8; and December 2005, p. 10). Among other things, H.R. 1461 would give the new regulator the authority to set a clear definition of the secondary mortgage market and of mortgage loan origination, effectively establishing a "bright line" between the primary and secondary mortgage markets, which the Mortgage Bankers Association (MBA) supports. Despite the committee's fulsome intended agenda, the work accomplished last year by the committee gives GSE reform a "leg up," making the chances of moving a bill good, according to Banking Committee Communications Director Andrew Gray. Senator Shelby thinks the environment is right for moving a bill," Gray told Mortgage Banking. [My bold]
IT MOVED OUT OF COMMITTTEE. So in other words the Republicans got their way. So why couldn't the Republicans move it onto the floor of the Senate or through a conference committee and onto the President's desk for signature? I notice in the link in Hassett's article that
1) The bill had only two co-sponsors when introduced right at the beginning of the congresssional session in 2005 and that
2) it took McCain a full 16 months to sign on to the bill--just about the time that it was going down the crapper, and two months after the news clip info above.
So here's a questions for Mr. Hassett: where was Senator McCain all those months? And where were the other Republicans who were so hot to trot for keeping the Democrats from resisting the reform? Where was their co-sponsorship? Remember, this is Hassett's own link to the bill's sponsors:
COSPONSORS (3), ALPHABETICAL [followed by Cosponsors withdrawn]: (Sort: by date)Sen Dole, Elizabeth [NC] - 1/26/2005 Sen McCain, John [AZ] - 5/25/2006 Sen Sununu, John E. [NH] - 1/26/2005.
As for GREENSPAN, whose profligate interest rate lowering was being done year after year after year because he knew that the only thing to keep the economy going was to make money easier to borrow in order to continue inflating the housing bubble and have all that bubble refinance money and second mortgage to keep the economy going, well, Greenspan was just covering his ass in this congressional testimony.
Never forget, mes amis progressives: Greenspan under Reagan successfully proposed and engineered increasing the FICA tax on Social Security and stepping it up into the nineties, at which point if it had continued commensurate with inflation and cost of living and wasn't capped at $96,000 per year to give the rich guys a tax break, some surplus would have continued; however, after Clinton left office--recall Al Gore talking about lock boxing the social security funds in 1999?--the social security surplus was raided and spent by Reagan and Bush One, and Clinton, and Bush Two.
And of course, historically, in the late eighties and nineties, the big push to make Fannie Mae and Freddie Mac into stock companies for the second mortgage market was on. Fannie became a GSE in order to lower the debt on the books under "Guns and Butter" Lyndon Johnson, Freddie later on. Rather than staying non-profit, they became a big profit "free market" in the best of all worlds: buying up all that securitized mortgage flop doodle and selling it to investors worldwide and the execs taking their big salaries; and everyone knew that if the two entities went down, the government would rescue them.
Privatization of profit and socialization of risk indeed. What do you think Bush et al were telling the Chinese and the Saudis and Kuwaitis to buy when they got annoyed that the ROI (return on investment) was so low on US Treasury bonds and they were trying to invest the dollars they had accumulated? Why, let's have you buy Fannie Mae and Freddie Mac. From an article titled "Us Taxpayer Bailout of China Over Fannie Mae" July 11, 2008:
The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury's most recent "Report on Foreign Portfolio Holdings of U.S. Securities."
That is to say, the Chinese actually loan us most of the money we use to then buy our war material or other cash expenditures. The recent tax rebate incentive package meant to stimulate the U.S. economy (by getting us all to run out and buy $600 worth of Chinese crap at Walmart), was financed by, guess who? The Chinese!
China does not loan the U.S. money the way a bank loans money to an individual person. Instead, what China does is buy up U.S. debt in the form of mortgage-backed securities. China does this, not because China loves us so very much, but because, until recently, U.S. mortgage-backed securities were a great investment. The entire world widely assumed (until very recently) that U.S. homes only ever appreciate in value. Mortgage backed securities were a safe bet, and China made money buying them.
The fact that Chinese investment also allowed the U.S. financial system to function so that banks could extend credit to U.S. citizens and factories who then could buy up Chinese products by the ton, thus making a perfect economic circle, was frosting on the Chinese cake.Found in "What does China Have to Do with the Fannie Freddie Bailout?"
And then this: "China's investment in the ailing U.S.: Will Washington's big creditor turn away?" by Edward M. Gomez, a former U.S. diplomat and staff reporter at TIME in the San Francisco Chronicle, September 09 2008:
China is deeply invested in U.S. government debt; as of just over a year ago, "China owned $376 billion of debt issued by U.S. government agencies, principally Fannie and Freddie...." Late last month, China's central bank, the People's Bank of China, announced that "it had slashed its exposure to Fannie and Freddie to $12.67 billion...from $17.3 billion at the end of June."
As the New York Times put it in a news report published late last week that made news in its own right, with other financial-news pages picking up the story, "China's central bank is in a bind. It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of [U.S.] Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac. Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank's tiny capital base. The bank's capital, just $3.2 billion, has not grown during the buying spree...." As a result, now the People's Bank of China needs "an infusion of capital." It cannot just print more money, because that move would provoke inflation. "Instead, the People's Bank of China has begun discussions with [China's] finance ministry on ways to shore up its capital....The central bank's predicament has several repercussions. For one, it makes it less likely that China will allow the yuan to continue rising against the dollar....This could heighten trade tensions with the United States."
Is it any wonder that the stock in Fannie Mae and Freddie Mac have tumbled with that much pulled out? This is the big secret of the Bushies and the McCainiacs. We won't even talk about how Christopher Cox at the SEC has let all the illegal naked short selling go on for years and years because the regulator doesn't believe in regulation. (Wink wink nod nod as Monty Python would say.) And how naked short selling contributed to the plunges in stock of the investment banks that went under. Perhaps McCain can yell at the Chinese and fire them?
The fact of the matter is, for seven and a half years there has been no regulation of the sub prime mortgage-backed securities swindle despite calls from people on the left for reigning it in. So I read Hassett's article through and think about it and it looks reputable, but it's just partisan spin and slander with a veneer of supposed objectivity.
And finally where's this guy Hassett from? the American Enterprise Institute? give me a break. These guys are free market hypocrites of the worst sort. That Hassett is also John McCain's adviser tells you what axe he has to grind. His weaselly references obscures that it was the Republicans in 2005 who were were unable to get the bill onto the floor. Further, catch this bit of slyness: he has a link in his article to the membership of the Senate Banking Committee, but it's to the 2008 Democrats-led committee, not the Republican-dominated committee in 2005. That gives the impression that Chris Dodd (the current Chair) is in charge, when in 2005 it was Richard Shelby (who right now, to give him credit, is one of the few Republicans to think that Paulson is pulling a fast one).
Why didn't Hassett list all the committee members in 2005? If he did, he'd have to fess up to the fact that it was the Republicans who didn't want to reform the GSEs. He'd have to spread the blame on both parties (see quotes above) and therefore his thesis would have leaked like a cheesecloth diaper. This guy is willing to shade the truth for the sake of his argument, and while it appears to be "fact based" it just isn't.
Guys like Hassett are mental, ethical, and economic con men. And he writes for Bloomberg, for chrissake. So who is going to contradict him as his headlines reinforce the preconceptions of all the Capitalist kool-aid drinkers who read headlines only because they took an Evelyn Wood speed-reading course back in the 70s?
Yet, I believe this one article will get a lot of play over the next few days as the McCainiacs push it everywhere and no big media folks will bother to criticize it. Watch--he is the kind of guy NPR will have on in the next two days or so. And since Franklin Raines is black and did his shenanigans, they will try to show that he is Barack Obama's best buddy and thereby smear Obama with guilt by association a la the Reverend Wright template (I think Obama knows Raines, but don't know for sure.
I left that last one for my friend DP to check out. That was about the best I could do. I procrastinated on my pressing project, and by then I was pissed at Republican advisers to John McCain as well. So I went to bed.