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July 21, 2010

A Free Pass for Fannie and Freddie

Kevin E. Dayhoff

Last Thursday the Obama Administration’s broad sweeping financial reform legislation edged past its final hurdle when the Senate approved the measure by a vote of 60-39.


The Consumer Protection and Regulatory Enhancement Act (H.R. 3310) is now on its way to the White House and awaits the gleeful left-handed signature of President Barack Obama.


The bill, touted by several news accounts as “ushering in the broadest overhaul of financial regulation since the Great Depression,” received almost complete opposition from Republicans who voted 38-3 against it. Democrats supported it by a vote of 57-1.


In May, The New York Times quoted Mr. Obama as saying: “The recession we’re emerging from was primarily caused by a lack of responsibility and accountability from Wall Street to Washington. That’s why I made passage of Wall Street reform one of my top priorities as president, so that a crisis like this does not happen again.”


I’m glad to hear the president report that the recession is about to be over.


However, never wasting a good “crisis” to centralize and nationalize the engines of production in our country is the motto of the Obama Administration.


Besides, the crisis was partially caused by misguided government regulations, Fannie Mae, Freddie Mac, the Federal Reserve, and the Community Reinvestment Act, and exacerbated by the reckless behavior of a few Wall Street firms that ought to have been allowed to fail and let the market work.


Moreover, a September 19, 2008, information release by President George W. Bush’s press secretary, outlined:


“President Bush publicly called for GSE (government-sponsored enterprise) reform 17 times in 2008 alone before Congress acted. Unfortunately, these warnings went unheeded, as the President's repeated attempts to reform the supervision of these entities (Fannie Mae or Freddie Mac) were thwarted by the legislative maneuvering of those who emphatically denied there were problems.”


Incredibly, the financial reform measures just passed by the Democrat-controlled Congress do not fix Fannie Mae and Freddie Mac.


On July 16, The Virginian-Pilot reported: “The two mortgage finance giants, now in government conservatorship, were contributing factors to the financial crisis. The Obama Administration and congressional Democrats opted to leave Fannie and Freddie out of the bill, ostensibly to address them in separate legislation once the housing market recovers.”


I am not making this up.


“Fannie and Freddie buy mortgages originated by banks, then bundle them for sale to investors as bonds. From 2000 to 2006, Wall Street banks jumped aggressively into this business and out-competed.


“In 2007, these Wall Street bonds backed by pools of U.S. mortgages began blowing up.


“Right now, Fannie and Freddie are the only mortgage-bond game in town. The private sector's secondary market, where Wall Street banks passed on their mortgages, is frozen…”


Read that carefully. The huge majority of all mortgages in the United States are ultimately controlled by a corrupt, incompetent arm of the Democrat Party, err, the United States government.


What Republicans are against is stifling over-regulations that cripple industry and create unresponsive bureaucracies and big expensive government, especially when it will not solve the problems it is intended to address – and will make more problems. And making more problems is exactly what the Democrats do best.


According to a July 14 report by Bloomberg News, “Almost four out of five Americans surveyed in a Bloomberg National Poll this month say they have just a little or no confidence that the measure being championed by congressional Democrats will prevent, or significantly soften, a future crisis…”


Remember, it was days after President Obama took office that the House of Representatives passed its $819 billion version of the economic stimulus package by a vote of 244 to 188. Not a single Republican voted for the American Recovery and Reinvestment Act (H.R. 1) – for good reason;


It has since proven to not have helped the economy and, if anything, it has made it worse.


On July 15, House Republican Leader John Boehner (R., OH) responded: “The Democrats’ bill makes bailouts permanent, enshrines ‘too big to fail’ into law, and fails to reform the government mortgage companies that sparked the meltdown by giving high-risk loans to people who couldn’t afford it, and it needs to be fixed.”


Business leaders across the country have greeted the financial reform legislation with a sigh of resignation – as the latest attack on the industrial and service core of the nation.


Fortunately we can all see November from our office window, but even the idea of changing the make-up of Congress in order to stop the 18-month onslaught on capitalism is little consolation to those who still have to keep the lights on for another six or nine months.


The major impediment to jumpstarting the economy continues to be “regime uncertainty.” Small business owners, who already have very little access to the capital needed to expand and hire the unemployed, will tell you that the uncertainty of what the Obama Administration will do next to business is a huge problem.


Will the next shoe to drop be new unfunded mandates, increased bureaucracy and regulations or increased confiscatory taxes to pay for a huge national debt?


A July 15, 2010, letter to President Obama from Republican Leader Boehner and Republican Whip Eric Cantor (R., VA), spoke for many when it stated: “Today 14.6 million Americans are unemployed…


“That is why we believe it is imperative that we listen to the business owners, especially the small business owners, who are the engine of job creation in this country...


“They are not telling us that they think a 2,300-plus page ‘comprehensive’ financial regulation bill would have prevented the financial collapse, nor will it avert another one.”


The best economic reform possible for our country at this point is reforming Congress by way of the voting booth in November – “so that a crisis like this does not happen again.”


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