Democrats Blocked Financial Reforms that McCain and GOP Proposed in 2005!*

Cuomo was responsible for the mess, why shouldn’t he clean it up.

And Doug: remind me once again what office Rick Davis is running for?

Meanwhile, OBAMA took $32,000 per YEAR from Fannie and Freddie. McCain got 21,000 over TWENTY YEARS.

Understand the difference Doug?

Aaron: See if this helps:

http://www.bloomberg.com/apps/news?pid=20601039&sid=aSKSoiNbnQY0&refer=columnist_hassett

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. 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.
That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: “It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.”

Aaron: You will note above that Wraith falsely claimed that the House never voted on the bill but then you point out that 122 Democrats did vote for the House version. Wraith’s arguments have been discredited.

As for Bush’s opposition to certain provisions in the reform bill you could do better to expand on that theme rather than say “As a result, the administration opposes the bill.”

While there is no definitive source on how S190 was killed, though it is important to note that every Republican Senator in the Committee voted FOR it and every Democrat voted AGAINST. one thing IS clear: Republicans and President Bush have been proposing reforms for years while Democrats in key positions have been opposed (see Barney Franks comments).

And a little history on Bush’s efforts:

Just the Facts: The Administration’s Unheeded Warnings About the Systemic Risk Posed by the GSEs
White House summary

For many years the President and his Administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. President Bush publicly called for GSE 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 were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

2001

April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”

2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (“Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03)

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004

February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to “not take [the financial market’s] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04)

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05)

2007

July: Two Bear Stearns hedge funds invested in mortgage securities collapse.

August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07)

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07)

2008

January: Bank of America announces it will buy Countrywide.

January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)

April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

•”Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans.” (President George W. Bush, Radio Address, 5/3/08)

•”[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)

•”Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans.” (President George W. Bush, Radio Address, 5/31/08)

June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)

July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing

According to McCain’s adviser Kevin Hassett:

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.

OK, but what does that mean? “Tied in knots?”

Matt: thanks for pointing out that “The minority party cannot kill a bill in committee. ”

However, ALL the Dems voted against it.

And as we all now, all it takes is 40 Dem Senators to even SUGGEST a filibuster for a bill to be killed.

Perhaps our Dem friends would like to go on the record here and now demanding that the U.S. Senate change their rules so that Senators who object to bills will have their names known?

Again, apparently I need to repeat myself here: The pattern is clear, the GOP and the Bush Administration proposed reform after reform after reform.

Dems did everything they could to stop them.

That’s not a matter of dispute.

Please do not ask me to repeat what has already been written on previous points that documents that fact. Read the posts.

And when it comes to money and lobbying the bottom line is that Obama took more money in less than four years than ANY OTHER MEMBER OF CONGRESS. McCain took less than $22,000 over TWENTY YEARS while Obama netted $126,000.

Do the math.

MATT, MIKE….

“killing a bill in committee” means it is held there until it dies. Dodd, the chairman of the committee, held it. So he killed it. Please see my post, #56 above. AND THEY ARE STILL DOING IT WITH THE LATEST VERSION OF THAT BILL!

[UPDATE: ““The minority party cannot kill a bill in committee. ”” Oh yes they can! It’s the chairman of the committee who decides what comes to a vote, and Dodd (a Democrat) was and is the chairman of that committee.

OOPS, didn’t see yours, UdderCha0s. Thanks. but, please note: it is post #56, not #36.

(I really thought Mike’s America had touched on that in a previous thread. I guess I’m misremembering?)

FYI, yonason…Richard Shelby was the chairman of the Senate Committee on Banking, Housing and Urban Affairs in 2005–not Dodd.

Matt: I don’t know how you compare $22,000 going to John McCain over a span of 20 YEARS to Obama’s $126,000 from Fannie and Freddie in lss than 4.

And as for Shelby, please note that he was promoting reforms in 2004. Again, these efforts were blocked by Democrats.

On Shelby’s 2004 bill:

Fannie and Freddie chose to fight legislation in the Senate Banking Committee that embodied the administration’s minimum requirements, particularly the receivership provision, in the late spring of 2004. The companies called in their chits and managed to obtain solid Democratic opposition to the bill crafted by the committee’s chairman, Richard Shelby (R-Ala.). The committee also watered down the receivership provision. The partisan nature of the vote to send the bill to the floor virtually assured that it would not be taken up in the Senate unless Fannie and Freddie relented in their opposition … but Fannie and Freddie would not budge. It may be that the [Fan&Fred] were banking on the defeat of President George W. Bush and on the assumption that a Democratic president would abandon the effort to pass tougher regulation. If that was their thinking, it was an exceedingly costly error.

Time and time again Democrats put politics before country.

Quibbling over which Democrats seems to be a transparent effort to obfuscate the point which is undeniable: DEMS BLOCKED REFORMS!

More examples here:

http://mikesamerica.blogspot.com/2008/09/mccain-lays-blame-for-financial-mess.html

It’s all about the money and the Dems were cleaning up.

Matt’s point requires addressing, especially because Shelby attempted to facilitate that [or another?]GSE reform bill, as we see in this report from 2005.

Over the summer, Shelby helped shepherd a Republican-backed GSE reform bill through committee–albeit along a strict party-line vote–and on to the Senate floor (see Mortgage Banking, September 2005, p. 8).
http://goliath.ecnext.com/coms2/summary_0199-4905779_ITM

But it doesn’t say if that was S190, though I would assume it was, I don’t know for sure. But, since it made it to the floor, I don’t yet know how it subsequently died.

In any case, as long as Dodd has been chairman (sorry for lack of clarity on that), he has been blocking reform efforts, or at least reform efforts that actually prevent Democrat (any) abuse.

I need to get more info on this, but I’ve read (from a source who supplied no references) that the fincial reform bill was shelved when Shelby was Chairman in order to take up an energy bill (I’m sure there’s a juicy story there, too), and then the Reps lost control of the committee and all hope of effective reform went out the window (not that RINOs would be of much use in that, either).

yonason–

I haven’t seen true evidence of it (or perhaps I simply don’t understand the whole mess well enough to be sure), but I’m willing to accept the suggestion that Dodd’s hands aren’t clean on this.

However, there’s a question as to whether these ‘reforms’ would have changed anything, at least according to AEI (which argued back then that the proposed “reform” would be worse that the law as it existed then).

P.S. S190 is NOT the bill that the same as the Shelby Bill which Democrats voted AGAINST on a party line vote.

Every two years Congress is reorganized to take into account the results of the election for House members and all legislation, including that in the Senate, which did not pass in the previous congress is wiped from the books.

S190 was NOT killed in Committee in 2005. It was passed. Again, on a party line vote with solid Dem opposition.

It was passed? Great! Where can I read about that? Why wasn’t it brought up for a vote?

The bill number isn’t important, so I’m not entirely sure why you’re getting excited about it. Are you not claiming that a the Democrats killed ‘some bill’ in committee? Which bill was it, then?

So, if you would do me a favor: please don’t lecture me on how the Senate works. I’ll wager I have spent more time on Capitol Hill than you.

That’s wonderful. I’m not looking for a pissing contest.

Again, despite your best efforts to obfuscate the issue one thing is crystal clear: Dems have BLOCKED reforms which Republicans have continued to put forward for YEARS.

Dems were at the bank cashing the checks from Fannie and Freddie while the GOP was putting COUNTRY FIRST!

You win on the cheerleading front, too. I’m of the belief that politicians from both parties often act out of self-interest.

The bill number isn’t important — Matt

yes it is. there has been so much activity on this that to see what happened we need to know the details, and those, for some reason, aren’t as forthcoming as is necessary to get to the bottom of the problem

“Jul 28, 2005: Committee on Banking, Housing, and Urban Affairs. Ordered to be reported with an amendment in the nature of a substitute favorably.”

Does “Order to be reported with an amendment in the nature of a substitute favorably” mean that the bill has cleared committee?

This is what we have already discussed above.

Again and again and again proposed reforms were opposed by
DEMOCRATS on a P A R T Y L I N E V O T E!!!!

No reform bill was killed in Committees controlled by REPUBLICANS.

…but isn’t that exactly what McCain’s adviser claims above, in the article you linked to? “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.”

The bill was never voted on. Was it even debated?

Are you so desperate to defend Democrat’s actions here that you willfully misrepresent the FACTS that have been labourisly presented to you?

Your obfuscative tactics are making your bias clear for all to see.

I’m interested in figuring out exactly what happened, because the current line being offered (the minority ‘killed’ the bill) doesn’t smell right. You’re free to draw whatever conclusions about my intentions that you wish, but I’m not playing that game.

yonason–

You’re right, knowing exactly what bill was being discussed would be quite helpful. Apparently a bill was killed in committee, but it’s not the senate bill that was being discussed up until this point (S190). I’d like to know what bill was being referred to, then. The one that McCain attached his name to (sponsored by Chuck Hagel) was S190.

Matt #83

You’re correct that there is a lot of confusion, the old smoke and mirrors that crooked pols count on to keep us barefoot and ignorant so they can retain control. But what is clear is that the vast majority of those crooks, and the worst of them, are Democrats.

And THAT is what we need to keep in-focus as we come up on election day.

Bottom line Matt: McCain has a proven record as a reformer. Obama has a speech he made last week.

Get the difference?

Just look at who is leaving the Dem party to vote for McCain, not because he’s so great by himself, but compared to Obama or any of the other scum in the leadership, he’s a giant.

Back around the 2000 election, I would have agreed with you. However, the McCain of the past is not the McCain I see today. His incredibly cynical pick of Gov. Palin just further cemented that point for me.

I’ve thought that the past eight years under Bush have been terrible–and lots of Americans agree with me. I’m also still bothered that the GOP continues to placate the “social conservative” base, whom I have nothing in common with. I believe that it could be a great opposition party and keep spending in check–but it lost its way during several years in control, and I’m not willing to hand everything back to them yet again.

Now perhaps you have approved of the Bush Administration, in which case your choice is easy. I doubt that I see as a great a difference between the donkeys and the elephants as you do, however.

http://www.youtube.com/watch?v=BGoX_84S4qM&eurl=http://mccaindemocrats.blogspot.com/

Matt said: “I’ve thought that the past eight years under Bush have been terrible–and lots of Americans agree with me.”

Lots maybe. But the majority in 2004 voted for BUSH.

Sorry Matt, but Bush isn’t on the ballot in 2008 so you are going to have to come up with something better.

McCain is the proven reformer and Obama is the proven money grabber.

If you were honest about your political inclinations that’s all you would need to know.

I’ve carefully read through this interesting discussion, but I’m struck by a question:

Why are these charges not being made by the likes of John McCain and Sarah Palin? Are the latter too polite to resort to negative campaigning? Why didn’t Bernanke or any other economist lay the blame at the door of the Fannie Mae? The whole reason Obama has jumped ahead so fast is because of the financial crisis. Why not turn it back on him and reverse the advantage? If the Democrats did, indeed, “block” sensible regulation in 2005, then why have no Republican Senators made that charge, when it’s looking for all the world that this election could turn into a disaster for Republicans, from the Presidential level on down? How is it that Democrats could really have “blocked” anything in 2005, absent a filibuster? With so many House Democrats having supported similar legislation, how likely is it that the Democrats could have put together nearly unanimous solidarity to sustain a filibuster? I’m just curious; this whole argument of Democrats “blocking” regulatory reform seems somewhat urban legend in character.

Here’s how Ben Bernanke succinctly explained the root problem:

http://www.federalreserve.gov/newsevents/testimony/bernanke20070920a.htm

>>The originate-to-distribute model seems to have contributed to the loosening of underwriting standards in 2005 and 2006. When an originator sells a mortgage and its servicing rights, depending on the terms of the sale, much or all of the risks are passed on to the loan purchaser. Thus, originators who sell loans may have less incentive to undertake careful underwriting than if they kept the loans. Moreover, for some originators, fees tied to loan volume made loan sales a higher priority than loan quality. This misalignment of incentives, together with strong investor demand for securities with high yields, contributed to the weakening of underwriting standards.<<

The subprime crisis was not caused by anyone “pushing” anyone to make loans to anyone. Ben Bernanke explained the problem : loan originators pushed the new predatory 2/28 loans to make commissions. Insatiable investors (e.g. the sophisticated investment portfolio managers at Merrill Lynch, Bear Stearns, Washington Mutual, Lehman Brothers, Wachovia, etc.) snatched up these loans in the aftermarkets. And Community Reinvestment Act-participating banks made objectively higher quality loans than CRA non-participating banks.

http://traigerlaw.com/index.php (click on “Community Reinvestment Act” sections)

Why in the world would Merrill Lynch, Bear Stearns, Lehman Brothers, Washington Mutual, Wachovia, etc. snatch up all the the mortgages and mortgage-backed securities they could in the aftermarkets? Did they do this because of their desire to promote social engineering or because they thought they were good, profitable investments? Why was it that it was the lending institutions themselves which lobbied congress to to relax Fannie Mae restrictions and let the banks make whatever types of loans they wanted to make? Sure, there was a convergence of interest going on — banks wanted to make more loans to make more money; some Democrats wanted more loans made to expand housing opportunities — but the Democrats didn’t control anything during the period of time where the subprime market exploded, owing to aggressive profit-driven salesmanship of exotic (e.g. 2/28) lending instruments and exploding aftermarket investment.

P.S. I’m just now listening to NPR’s Weekend Edition. Charge is being made that it was Wall Street lobbyists themselves who wrote the relevant regulatory legislation pertaining to the subprime market. Who knew that Wall Street was so devoted to social engineering?

Dollars to donuts that Wall Street talked to either President Bush or to influential GOP Senators and support for the reform bill ebbed away. That’s why neither McCain nor any other Republican Senators or Representatives are trying to make political hay of this. Speculative, but does anyone else have a more credible explanation?

– Larry Weisenthal

Mike, What we are talking about here is not “resisting” reforms (Clinton’s word) but “blocking” reforms (your word).

Yes, it is true that SOME Democrats resisted reforms (but, according to the data reported on this very thread, a great many Democrats — 122 was the number listed — supported reforms in the House vote — which, again, indicates that there is little likelihood that the Democrats could have sustained a filibuster threat), and this is a very long way from suggesting, much less proving, that Democrats blocked reforms.

Anyway, the problem with the present crisis isn’t that Fannie Mae was pushing lenders to make bad loans. The problem was described this weekend on NPR’s “This American Life” with Ira Glass. On this very informative show, Credit Default Swaps were explained. On “60 Minutes,” Sunday evening, they were explained again.

Turns out the the subprime debacle (driven entirely by greed and not by any government induced “social engineering”) by itself would have only been a relatively minor hiccup. What’s really triggering the meltdown are Credit Default Swaps, in which financial institutions bought and sold private insurance contracts with each other to hedge the risk of the subprime loans. They carefully didn’t call them “insurance,” because insurance would be subject to regulation, and they didn’t want to be regulated. Insurance regulations require insurers to have principal reserves to cover potential losses. These Credit Default swaps were nearly 100% leveraged, and there were no reserves whatsoever. Turns out that there is $60 trillion dollars (estimated) in outstanding Credit Default Swaps; none of which are regulated in any way. It is the Credit Default Swaps, and not the subprime mortgage market, which is creating the financial meltdown.

Unfettered capitalism, completely divorced from any government oversight or regulation. That is what is imploding the world financial system.

Now, what happens if you have a situation where the people selling the home and selling the primary mortgage don’t plan on keeping the mortgage? They are going to sell it off, and Fannie is going to sell it off, and the tertiary buyers are going to sell it off, because all know that there is an insatiable demand, on the part of investment bankers world-wide, for high yield, mortgage backed securities, which they are going to insure against default with perfectly hedged Credit Default Swaps?

Anyway, I don’t think it is justifiable, on the basis of any available information, to claim that Democrats “blocked” regulatory reform in 2005. As stated, I think it’s far more likely that Wall Street lobbyists were panicked when the reform bill passed the House, with strong Democratic support and went into overdrive, leading the Senate Republicans to quietly deep six the bill, which is why you are NOT hearing Senate Republicans, in an effort to stem their losses in the upcoming election, make the claim that Democrats “blocked” regulatory reform.

– Larry Weisenthal