Who caused the sub-prime mess?

By John K. Mooney

It is a bigger mess than you think!

The Community Reinvestment Act which was signed into law in 1977 by President Jimmy Carter, was a good idea which was to increase home ownership by loosening the requirements for low income people to get these mortgages, but when you carry an idea to an extreme you tend to end up with a mess. In 1993 Past President Bill Clinton extensively re-wrote Fannie Mae and Freddie Mac rules, turning the quasi-private mortgage funding firms into semi-nationalized monopoles dispening cash and loans into large Democratic voting blocks and handing favors, jobs, and campaign contributions to political allies. In 1992 Jim Leach warned of the danger that Fannie Mae and Freddie Mac were changing from being an agency of the public at large to a money machine, for the principals and the stockholders. Dispite warnings, in 1994 Past President Clinton unveiled his National Home-ownership Strategy which broadened the C.R.A. in ways Congress never intended. In 1995 when Congress was about to change from Democratic majority to a Republican majority, Past President Clinton ordered Robert Ruben in the Treasury Department to re-write the rules forcing the banks to satisfy quotes for sub-prime mortgage and minority loans to get a satisfactory C.P.A. rating. The rating was key to expansion or mergers for banks. Loans were beginning to be made on the basis of race. During the period from 1997 to 1999, Past President Clinton by passed the Republicans, and enlisted Secretary of Housing and Urban Development Andrew Cuomo to allow Freddie Mac and Fannie Mae to get into sub-prime market in a big way. Andrew Cuomo, now Attorney General for New York, re-wrote the rules as Past President Clinton requested. Led by Senator Chris Dodd and Congressman Barney Frank doubled down the risk by easing the capital limits and allowing Fannie Mae and Freddie Mac to hold capital to just 2.5 percent of the outstanding loans to back their investments verse ten percent for all banks. Since Fannie Mae and Freddie Mac could borrow at lower rates than banks, their enterprise expanded. The Republicans in Congress in 2001 tried repeatedly to bring fiscal sanity to Fannie Mae and Freddie Mac, but the Democrats in Congress blocked any attempt to reform, especially Congressman Barney Frank and Senator Chris Dodd, who now run key banking committees and was a large beneficiaries of campaign contributions from the mortgage giants. In 2003 President George Bush purposed what the New York Times called "the most significant regulatory overhaul in housing finance industry since the savings and loan crisis a decade ago. Even after discovering a scheme by Fannie Mae and Freddie Mac to overstate earning by $10.6 billion to boost their bonuses, the Democratic Congressman Barney Frank and Senator Chris Dodd killed the reform. In 2004 the Republican Congressmen tried to increase the regulations on Fannie Mae and Freddie Mac, but the Democratic Congress stopped them. Federal Reserve Chairman Alan Greenspan warned Congress in 2005: "We are placing the total financial system at substantial risk". Senator John McCain, with two other people, sponsored a Fannie Mae and Freddie Mac reform bill and said if Congress does not act, American taxpayers will continue to be exposed to enormous risk that Fannie Mae and Freddie Mac pose the housing market, the overall financial system, and the economy as a whole". Senator Harry Reid accused the Republican of trying to cripple the ability of Fannie Mae and Freddie Mac to carry their mission of expanding homeownership. The bill went no where. In 2006 Senator John McCain tried to increase the regulations on Fannie Mae and Freddie Mac, but again the Democrats in Congress and the Senate stopped him. In 2007 President George Bush tried to increase the regulations on Fannie Mae and Freddie Mac, but the Democrats members in Congress and the Senate stopped him. By 2007 Fannie Mae and Frddie Mac owned or guaranteed over half of the $12 Trillion United States mortgage market. The mortgage giants whose executive suites were top heavy with former Democrats official have been working with the Wall Street to repackage the bad loans and sell them to investors. As the housing market fell in 2007, sub-prime morgage suffered major losses. The crisis was on: through it was 15 years in the making.

Fannie Mae and Feddie Mac in 2005 gave Senator Chris Dodd $165,400, Junior Senator Barack Hussein Obama $126,349, and Senator John Kerry $111,000 in campaign conribution. These Senators also sit and vote on issues effecting the management of Fannie Mae and Freddie Mac. We have an ethical problem here!

ACORN and Barack Hussein Obama as their attorney sued Citibank under C.R.A. to force them to make these sub-prime loans. See FH-IL-0011-7500/ FH-IL-0011-7501/ FH-IL-0011-9000. In 2008 Senator John McCain has repeatedly called for reforming the behemoths. President George Bush urged reform 17 times. Fannie Mae and Freddie Mac were created by the Democrats, regulated by the Democrats, and largely run by the Democrats, and protected by the Democrats.

On 11 May 2010 the Wall Street Journal reported that Fannie Mae asked the U.S. Government for an additional $8.4 billion in aid after posting a $11.5 billion net loss for the first quarter. The quarter mark the 11th consecutive loss for the Washington-based firm. The company has now racked up losses of nearly $145 billion, or nearly double its profit for the previous 35 years.

"Everyone's is trying to sweep it under the rug, but there's a very large embedded loss that hasn't been fully realized yet", said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. Someone going to have to write a check, and it's very large!"