The (OLD) Bush Plan for Fannie Mae and Freddie Mac Oversight
I've witnessed a lot of finger pointing about the current breakdown of the secondary mortgage market. I hear democrats blaming republicans and republicans blaming democrats. I decided to look into it for myself.
Who's more at fault?
The following is taken from a New York Times article from 2003:
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.
Here are two rebuttals to this plan:
”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.
Let's see what another Lawmaker had to say about Fannie Mae and Freddie Mac on May 26, 2006:
“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.”
Wow. Who said that? John McCain did.
Who's more at fault?
The following is taken from a New York Times article from 2003:
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.
Here are two rebuttals to this plan:
”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.
Let's see what another Lawmaker had to say about Fannie Mae and Freddie Mac on May 26, 2006:
“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.”
Wow. Who said that? John McCain did.
4 Comments
FjnbkI'm not an expert on what's going on, but as TIME pointed out, if the other financial institutions were more like Freddie Mac and Fannie Mae the current crisis may have been averted. The FMs were more regulated than the other institutions.
Going after those two companies was going after the wrong targets entirely.
deedub81I agree that the contributing factors, what is a cause and what's an effect, can get very complicated. I still don't think we should let the Execs off the hook! I got two words for you:
Accounting Scandal!
That may not have been the overall cause, but it certainly didn't help matters. And it could have been avoided with better congressional oversight.
We need to remember one very important fact: Our financial markets and overall economy have been the most dominant and one of the most stable in the world for a LONG TIME. What has changed?
We could learn a lot from other stable (and free) economies in the world:
Finland is a world leader in four of 10 economic freedoms: financial freedom, monetary freedom, freedom from corruption, and business freedom. A business-friendly environment with minimal regulation is enabling the rapid growth of private enterprise. Property is protected by a transparent rule of law, and foreign investors enjoy excellent market access. There is virtually no corruption, and business operations are not hampered by government bureaucracy.
Japan enjoys very high levels of business freedom, monetary freedom, property rights, freedom from corruption, and labor freedom. Business regulation is efficient. Virtually all commercial operations are simple and transparent. Japan enjoys very high levels of business freedom, monetary freedom, property rights, freedom from corruption, and labor freedom. Business regulation is efficient. Virtually all commercial operations are simple and transparent.
America could do better in its scores for fiscal freedom and government size, which are 7 and 8 points below average, respectively. Total government spending equals more than a third of GDP. Corporate and personal taxes are moderately high and are getting relatively higher as other advanced economies reform with lower tax rates.
http://www.heritage.org
It's a fine line.
choggieyer both wrong-contrived assumptions based on limited data.....but everything is as it should be, otherwise y'd all be carpeting........
rougy"...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."
I don't understand how anybody can look at what George W. Bush has done to this country over the course of the past eight years and think that he would do anything for its benefit.
I've been trying to find the specifics of the proposed Bush plan from 2003, and I can't find anything that goes into the nuts and bolts.
Just that the Treasury Department, a.k.a. whoever was there before Henry "give me $700 billion and trust me" Paulson took charge, would assume oversight of F-May and F-Mac.
I don't have the links in front of me, but I found something that suggested that Wall Street considered F-May and F-Mac as a sort of competition that was cutting in on their profits, and Bush was, in a sense, trying to reduce their competitiveness with the private sector.
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