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: October 10, 2008   Vol. 3 2- Issue 19

Nailing Jell-O To The Wall- A History Lesson

Barack Obama wants to be president and increase the size of government. He claims the private sector is the wrong way to go. Government knows best. Here is a history lesson that will tell you why he is wrong. Sgt. Joe Friday of the dragnet day's always said, "Just the fact's mame, just the facts." Here they are:

1977: Pres. Jimmy Carter signs the Community Reinvestment Act into Law. The law pressured financial institutions to extend home loans to those who would otherwise not qualify. The principle was home ownership would improve poor and crime-ridden communities and neighborhoods in terms of crime, investment, jobs, etc. It did not work.

The reason the government became so intensely involved in the housing market because it was what Bill Clinton wanted. Where has he been the past few weeks?

1992: Congressional representative Jim Leach (R-IO) warned of the danger that Fannie and Freddie were changing from being agencies of the public at large to a money machine for the principals and its few stockholders.

1993: Pres. Clinton broadly rewrote Fannie Mae and Freddie Mac's rules turning the quasi-private mortgage-funding firms into semi-nationalized monopolies dispensing cash and loans to large Democratic voting blocks and handing favors, jobs and contributions to political allies. This potent mix led inevitably to corruption and now the collapse of Freddie and Fannie.

1994: Despite all the warnings, Clinton unveiled his National Home-Ownership Strategy, which broadened the Community Reinvestment Act in ways congress never intended.

1995: Congress was about to change from a Democrat majority to Republican one, Clinton ordered Robert Rubin Sect. of the Treasury to rewrite the rules. Rubin reworked the rules, which forced banks to satisfy quotas for sub-prime and minority loans to get a satisfactory CRA rating. The rating was the key to the expansion and mergers for banks. Loans started to be originated based on race.

1997 - 1999: Clinton, bypassing Republicans, enlists Andrew Cuomo, Sect. of HUD to allow Freddie and Fannie to get into the sub-prime market. With Rep. Barney Frank and Sen. Chris Dodd taking the lead, congress doubled down on the risk by reducing the capital limits. This allowed them to hold just 2.5% of capital to back their investments vs. ten-percent for banks. Since they could borrow at lower rates than banks, their enterprises boomed.

With incentives in place, banks poured billions of dollars in loans into poor communities, repeatedly followed by no money down and no verification of income.

Worse still was the cronyism: Fannie and Freddie became home to out-of work-politicians and Clinton Democrats. At least 384 politicians got big campaign donations from Fannie and Freddie. Over $200 million was spent on lobbying and political activities. During the 1990's Fannie and Freddie enjoyed a subsidy of as much as $182 Billion. Most of these funds went to principals and shareholders, not the unfortunate borrowers as claimed.

Was it successful? Minorities, which made up 49% of the over twelve-million new homeowners, have had their loans go bad. This led to a reduction in minority homeownership as interest rates dropped.

1999: , Lawrence Summers, New Sect of the Treasury, became concerned at Fannie and Freddie's extremes. Congress held hearings the following year but nothing was done because Fannie and Freddie had donated millions to key congressional representatives and radical groups, ensuring no meaningful changes would take place. "We manage our political risk with the same intensity that we manage our credit and interest rate risks," Fannie CEO Franklin Raines, a former Clinton official and current Barack Obama advisor, bragged to investors in 1999.

2000: Treasury Sect. Summers sent Undersecretary Gary Gensler to Congress seeking an end to the "special status". Democrats raised an uproar as did Fannie and Freddie, headed by politically connected CEO's who knew how to reward and punish. "We think that the statements evidence a contempt for the nation's housing and mortgage markets" Freddie spokesperson Sharon McHale said. It was the last chance during the Clinton era for reform.

2001: Republicans try repeatedly to bring fiscal sanity to Fannie and Freddie but Democrats blocked any attempt at reform; especially Rep. Barney Frank and Sen. Chris Dodd who now run key banking committees and were huge beneficiaries of campaign contributions from the mortgage giants.

2003: Bush proposes what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago". Even after discovering a scheme by Fannie and Freddie to overstate earnings by $10.6 billion to boost their bonuses, the Democrats killed the reform.

2005: Fed chair Alan Greenspan warned Congress: "We are placing the total financial system at substantial risk". Sen. McCain, with two others, sponsored a Fannie/Freddie reform bill and said, "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". Sen. Harry Reid accused the GOP of trying to "cripple the ability of Fannie and Freddie to carry out their mission of expanding homeownership" The bill went nowhere.

2007: By now Fannie and Freddie own or guarantee over one-half of the $12 trillion, (that is trillion with a T) US mortgage market. The mortgage giants, whose elaborate executive offices were top-heavy with former Democratic officials, had been working with Wall St. to repackage the bad loans and sell them to investors. As the housing market fell in 2007, subprime mortgage portfolios suffered major losses. The crisis was taking form; it was 15 years in the making.

2008: McCain has repeatedly called for reforming the behemoths; President Bush urged reform 17 times. Still the media have repeated Democrats' talking points about this being a "Republican" disaster. A few Republicans are complicit but Fannie and Freddie were created by Democrats, regulated by Democrats, largely run by Democrats and protected by Democrats. That is why taxpayers are now being asked for $700 billion!

Remember the saying, "I'm from the government, I am here to help you."

And, That's the facts Joe.

And, that is my opinion.

Michael Solomon

Author of "Where Did My America Go?"

 

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