Freddie, Fannie and Democrats

Fannie Mae and Freddie Mac were accidents looking for a place to happen. Their collapse was not inevitable, but the way they were managed, as placed to enrich political pals made their end tragically foreseeable.

They were so-called “private” corporations with an implicit government guarantee on their bonds. They were able to borrow money at rates only a few tenths of a percentage point higher than the treasury because of the implicit guarantee. Using “cheap” money the Fannie (and Freddie) bought mortgagees from banks, put them in a package and resold them, making a profit on the difference. Knowing they could sell their mortgages to Fannie and Freddie, banks were willing to lend to anyone who could fog a mirror, knowing that the loans would be off their books by the time the homeowner defaulted. This left Fannie and Freddie with the debris once the housing bubble burst.

While the going was good, they made tons of money, and paid their executives handsomely until something happened: the housing market went south and all those mortgage holders could not pay. For a long time the management played fast and loose with the books, paying themselves multi-million dollar salaries and bonuses with not a care in the world. And why would they? The government would be there to pick up the pieces. Their friends in government gave them the jobs for which they were eminently unqualified. Becoming a Fannie and Freddie executive was a plum handed out by Democrat administrations as a way of making you rich.

Which brings me to Jamie Gorelick, James Johnson and Franklin Raines, Democrat biggies all. Two of them are now close advisors of Barack Obama. Just three of the geniuses who ran Fannie and Freddie into the ground, saddling the taxpayers with billions of dollars in debts while walking away with tens of millions of dollars in salary and bonus.

Here’s the story on Jamie Gorlelick,

It's not often that one person plays key roles in two -- count 'em, two -- trillion-dollar disasters. Welcome, my friends, to the world of well-connected Democrat Jamie Gorelick.

In 2004, observers were "astonished" to discover that a key member of the 9/11 Commission had a fatal conflict-of-interest. Jamie Gorelick had served as a Deputy Attorney General under Bill Clinton from 1994 to 1997.
The result: shortly before 9/11, Gorelick's wall "specifically impeded the investigation into Zacarias Moussaoui", the so-called "20th hijacker."

At the time, an enraged FBI investigator wrote a memo to headquarters which included the sentence, 'Whatever has happened to this -- someday someone will die -- and wall or not -- the public will not understand why we were not more effective..."

Though she had no training or experience in finance, Gorelick was appointed the Vice Chairman of Fannie Mae and served in the role from 1997 to 2003. During that six-year period, she earned over $26 million.

Read the whole thing here.

Glenn Reynolds enters the fray with some good ideas for a new McCain ad:


I would put together a commercial that said…
James A. Johnson - former Fannie Mae CEO and Obama Advisor
Just cost you billions in taxes
Franklin Raines – former Fannie Mae CEO and Obama Advisor
Just cost you billions in taxes
Barack Obama – If we can’t afford his advisors, how can we afford him?

At JustOneMinute we learn a lot of the history and it turn out that Democrats blocked legislation to regulate Freddie and Fannie.

The Bush administration today [in 2002] recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Prescient! So what happened?

The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

But who could be opposed to more stringent regulation?

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.