From the desk of author Michael Solomon

Michael Solomon was a 15-year veteran of the New York City Police Department and served  in its drug enforcement division, receiving well over a dozen awards for his excellent service
Date: September 25, 2008   Vol. 3 2- Issue 16

"There's A Hole In The Bucket, Dear Liza, Dear Liza..."

Only it is not a bucket, it is the U.S. economy. It has been said, the only two products you will ever need to fix anything are "Duct Tape" and "WD-40." The bucket has been leaking since designer mortgages [My italics] were invented during the Clinton administration, which allowed low-income families to become homeowners. If you were able to sign your name, you were able to get a loan.

The emphasis was placed on your credit score not your income. If you had a combined income of $30,000, which was inadequate by most loan officer's standards to get an auto loan, it did not matter. Lenders did not verify income, they only looked at FICO scores. As long as your credit score was at least 690 you could probably purchase a $250,000 home.

FNMA and FMAC have been backed by the federal government. They buy mortgage loans from the lenders who originate them. Four-years ago they were both in trouble because of fuzzy accounting practices. FNMA CEO, Franklin Raines, Pres. Clinton's former budget director, was fired. However, he did not leave quietly. It appears that he must have sprayed the hinges on the office door with WD-40 so he would not be heard sneaking out with a $90 million dollar bonus he gave himself for outstanding performance. (?)

FNMA placated Congress by promising to help more poor people buy homes by helping them to get mortgages. This led them to buy riskier and riskier loans from private lenders who did not care because FNMA was going to buy them. This created the chance for everyone to formulate shakier loans.

FNMA and FMAC bought trillions of dollars of these loans. In turn, they then sold them to financial institutions, who purchased them believing that they were safe because the government was behind them. It was only an appearance the government backed them; in fact, they were not. These institutions did not pay attention to the assets they were acquiring or the risks they were taking as they were spread throughout the financial system.

However, in 2005 the Senate Banking Committee, chaired by Republican Richard Shelby, tried to put a stop to these practices by writing strong new regulations. This would have prevented both Fannie and Freddie from further acquiring these bad mortgages. These new regulations would have given the same power to a new regulator that the regulator of the banking authority had.

The vote was split right down the middle on party lines. All the Republicans voted in favor of the new regulation. The Democrats unanimously voted against it. This included the vote of Senate Banking Committee Chairman, Sen. Christopher Dodd (D-CT), who received the largest share of campaign donations FNMA distributed. Next in line, behind Dodd was Barrack Obama, followed by Hillary Clinton.

This occurred in 2005 after the then Fed Chairman, Alan Greenspan, issued a harsh warning to the Senate that both agencies were playing with fire. Greenspan said, "Without further regulations we increase the possibility of insolvency and a major financial crisis. Without restricting the size of FNMA and FMAC we put at risk our ability to provide safe and sound financial markets in the U.S." His prediction was right on the mark.

However, because Democrats blocked them, the new regulations never got the consideration by the full Senate they deserved. They died in committee. That is how we shot a hole in the bucket.

In 2006 Sen. John McCain, once again warned of the impending doom and tried to write legislation to plug the leak. McCain said, "For years I have been concerned with the rules that govern Fannie Mae and Freddie Mac and the shear magnitude of these companies and the role they play in the housing market. The GSE's (Government Sponsored Enterprises) need to be reformed without delay."

Once again, the Democrats ignored the warnings. We missed the opportunity to avoid this meltdown. And, if we think duct tape is going to fix it, we are very much mistaken. We just cannot put a band-aid on it.

Senator Charles Schumer (D-NY) in April, 2005, during the Senate Banking Committee hearings, said, "I think Fannie and Freddie over the years have done and incredibly good job and are an astringent part of making America a part of the best housed people in the world. If you look over the last twenty or whatever years, they have done a very, very, good job."

That was the first time "Chuck," as he is known, caused a disaster in the economy. The second was in June, 2008 when he said Indy Bank probably could not meet its financial obligations. This time he was stupid enough to put it in writing in the form of a letter questioning their solvency and viability. This caused a run on the bank and their failure within a week.

The irony is, Barack Obama who is trying to put the blame on the Bush administration for the mess we are in, is enjoying the company of Franklin Raines as one of his chief advisors. Yes, that is the same Franklin Raines who looted FNMA of $90 million by cooking the books. He cooked them so well; he should be given a guest appearance on Iron Chef America.

Has he forgotten that in 2003 President Bush wanted to regulate Fannie and Freddie? When he asked Congress for regulation, it was Rep. Barney Frank (D-MA) who said, "Freddie and Fannie are fine, there is nothing wrong." Frank then locked it up in committee.

The Washington Post reported Frank, who is openly gay, was involved in a relationship with a Fannie Mae executive, and named Herb Moses as his lover. Frank referred to Moses as his spouse. The Post revealed the two who had split up remained friends. Frank was and remains a stalwart defender of Fannie Mae and Freddie Mac. Both organizations are now under an FBI investigation.

Frank has derailed efforts to regulate the institution, and keeps denying it poses any financial risk. Is he is deaf, dumb and blind? When I looked up the definition of arrogance in the dictionary, it said, Barney Frank, Chuck Schumer and Christopher Dodd.

Sen. McCain has suspended his campaign and returned to Washington to work on the bailout package. Yes folks, he does have a day job; running for President at this moment should be considered an extracurricular activity, something that Barrack Obama clearly wants to continue to enjoy.

If President Bush did not invite both candidates to meet with him, do you really believe Obama would have left the campaign trail? After all, he said he has the ability to walk and chew gum at the same time. Obama wants to continue, shaking hands and kissing babies. He calls himself a leader? Does the name Nero sound familiar?

Warren Buffett labeled the current problem as, "The next Pearl Harbor."

If the Senate and Congress listened to Shelby, McCain and Bush years ago, we wouldn't be in the mess we are in today. Good instincts usually tell you what to do long before your head has figured it out. It is like driving down the road, if you only look over the hood of your car you are bound to hit an obstacle, because you cannot see the road ahead.

Now don't lose control of your senses, what the rescue of Fannie and Freddie really means is, the government is now in the mortgage business. And, since over 98% of all homeowners are paying their mortgage each month and on time the government may actually make a profit with the bailout. When we bailed out the Chrysler Corporation in the seventies, the government actually made a profit. After the automaker paid back the loans the government sold the warrants on the open market.

Here is the real irony. Seven-hundred-billion dollars, isn't that the same amount of money we send to the Saudis and their friends for oil each year.

So where does the blame lie? The French philosopher, Voltaire, once said, "Everyone is guilty of the good they do not do." You decide!

And, that is my opinion.

Michael Solomon

Author of "Where Did My America Go?"


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