Everyone is looking for someone to blame in regards to our current crisis. Here are a couple of article excerpts which add some clarity to the whole picture. First, an excerpt from the NY Times covering the Bush Administration’s push (in 2003!) for a new regulator to oversee Fannie and Freddie, along with new guidelines:
The Bush administration today 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.
Both Freddie and Fannie responded favorably to the President’s proposal. Unfortunately, some in congress were not so favorably disposed to support Fannie and Freddie Reform. Rep. Barney Frank had this to say regarding the President’s proposal:
“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.”
With the administration’s push and Greenspan’s urging, the legislation appeared to be well on it’s way to becoming law. However, as noted by Kevin Hassett of Bloomberg News, the legislation was dealt a fatal blow:
In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.
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.
This is a developing story. Expect more to follow.
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