There are good investments and there are bad investments. In what has to be one of the best investments of all time, Fannie Mae and Freddie Mac have donated over $126,000 to Barack Obama. And boy has it paid off. The Senate recently passed a financial reform act allegedly to rein in derivatives and eliminate “too big to fail” and unending bailouts. In pitching this reform, Barack Obama said
“Never again will taxpayers be on the hook because a financial company is deemed ‘too big to fail.”
And Obama added:
“Every day we don’t act, the same system that led to bailouts remains in place, with the exact same loopholes and the exact same liabilities. And if we don’t change what led to the crisis, we’ll doom ourselves to repeat it.”
The truth is, those words make sense. But in Obamaworld, the reality is always different. Democrats’ version of financial reform makes not a mention of GSE’s. For the last decade, Democrats have consistently blocked reform of Fannie and Freddie. Fannie kept buying up sub-prime mortgages, securitized them and then selling them off as investments. Smart people saw this stupidity and bought something called CDO’s- derivatives which were bets that at some point these high-risk mortgages were going south. One thing that would have been a great help in blunting the damage to GSE’s was to reform them. Chuck Hagel tried to do just that, including the creation of a powerful regulator and to limit the size of portfolios that could be bought by the GSE’s. In 2003, then-Treasury secretary Snow testified that the size of portfolios purchased by GSE’s be limited. Democrats also claimed to want reform of GSE’s. They just didn’t want it to mean anything. Democrats wanted a pit bull regulator – as long as it had no teeth. They resisted limits on portfolio size to assure that there were sufficient resources available so that the GSE’s could continue to buy risky mortgages. In 2004 Barney Frank said
“these two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis … The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
In 2005 Snow again called for GSE reform and Harry Reid refused, saying
“…we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process.”
Democrats never stopped blocking reform of GSE’s. That tradition continues today. Democrats blocked the proposal to include GSE reform in the current financial reform bill by a 56-43 margin. And Obama’s Treasury has lifted the $400 billion cap on limits to Fannie and freddie, creating the ultimate endless bailout. It’s one heck of a return on the investment they made in Barack Obama.
We have financial reform of a sort- treating the symptoms and not the causes, as usual. The patient has a brain tumor and Dr. Obama and his colleagues are giving the patient aspirin for the pain. I can’t help but laugh when I read someone write that Democrats are serious about financial reform.
It’s a painful amusement:
Experts say the financial regulatory bill approved by the Senate last week, and a similar bill that passed the House, include loopholes and gaps that weaken their impact. Many provisions depend on the effectiveness of regulatory agencies — the same agencies that failed to foresee the last crisis.
Obama promised us that never again would we face unending bailouts for institutions which are too big fail, leaving us on the hook for it. Instead, we are on the hook for unending bailouts for institutions which Democrats have decided are too big to fail. “Never again” has an odd definition in Baracksburg.
You’d think I’d be used to it by now.
DrJohn has been a health care professional for more than 30 years. In addition to clinical practice he has done extensive research and has published widely with over 70 original articles and abstracts in the peer-reviewed literature. DrJohn is well known in his field and has lectured on every continent except for Antarctica. He has been married to the same wonderful lady for over 30 years and has three kids- two sons, both of whom are attorneys and one daughter on her way into the field of education.
DrJohn was brought up with the concept that one can do well if one is prepared to work hard but nothing in life is guaranteed.
Except for liberals being foolish.
From the link you’ve provided, it appears F&F have donated equally to both parties. But go ahead and try to pin F&F’s problems on Obama. Talk about a derangement syndrome, sheesh.
Well, the clear winner is Chris Dodd and his role in the financial collapse was pivotal. The second most money went into the pockets of Barack Obama, and in only 4 years. I do not believe for one second that the shielding of Fannie and Freddie from reform is anything other than intentional. Feel free to explain otherwise.
Money like this is always “spread around”, to coin a phrase, but you put your best money into the surest bets.
Ok… lets talk about derivatives, because IMO this is one major part of the problem.
First, derivatives have NOTHING to do with the actual Mortgage… they are a “bet” as to whether a group of properties will make more, or less, money. You can buy into either position to “hedge” your other investments… but it is essentialy nothing but a bet.
They do NOT own the mortgage, or even a part of it. Fannie and Freddie own the Mortgages, and often take the other side of the “bet” as to whether it will increase or decrease in price.
Problem is that these were very very lucractive investments as Property values increased, so a LOT of Capital Leveraged off of Fractional Lending practices, was put into these “bets” (and NOT used for traditional investment, in companies, or to produce goods).
When the Market decreased, these bets had to be paid off… and the big folks like Morgan, or Lehman, or AIG (who all had huge skin in the game) would have gone under…. thus TARP was used to float loans to support this virtual Vegas.
This bastardization of Capitalism… the Wallstreet Vegas betting mentality… which does not INVEST in the real economy, but just Fake non productive derivatives)… is a systemic problem which the Politicians to NOT want to do anything about….
In fact, its instructive that Obama’s Financial advisors are people who made Bank in this Wallstreet version of Vegas..
That’s right- CDO’s are a nothing but a gamble- a gamble that those buying up the mortgage MBS’s were wrong. There were a few things that could have prevented this mess. One was complete disclosure. Another was to demand that the entities selling the CDO’s be able to cover the losses if things went south. Yet another was to limit leverage.
Imagine buying accident insurance policy for a car you do not own. If the car wrecks, you get the benefit wile suffering no loss. That’s what CDO’s are.
But F&F should NOT have been up to its neck in subprime purchases. This was the biggest single problem. Thank you Bill Clinton and Andrew Cuomo for that mess. And thank you Franklin Raines for putting us all on the hook for bad mortgages and cooking the books and thank you Barney Frank and Chris Dodd for shielding F&F from reform.
@DrJohn
Add in that folks like Bear Sterns were heavily into Mortgage based securities, which were based on those subprime loans… and into them with borrowed money? Once real people started defaulting on loans… it was a house of cards built on the San Andreas Fault…
And yet, they are not fixing ANY of the systemic problems… they are not even talking about the amount of Capital tied up in these investments which is then not available for the Productive end of the economy (which looks to me as a major reason small business credit is still very hard to get, even with the fed funds rate being very very low).
One contribution to the failure of a recovery is the inability of credit-worth borrowers to get an funds for investment. The rules, as you note, are brutal for those of us who would make the economy go.
That’s particularly galling in light of the fact that banking institutions get money for free. It’s not hard to show great profits when borrowing costs you nothing.
This is what happens when you send a community organizer faux lawyer to do a President’s job.
@drjohn:
Unfortunately, it’s not that simple. the Mark to Market accounting rules we saddled the banking industry with a couple of decades ago keep having an impact on the balance sheets, even with no money changing hands. It’s kind of like that South Park episode where little Stan gives the banker his $100, and the banker looks at him immediately and says, “and….. it’s gone.” Government accountants are busy changing the reserve requirements for banks, on a daily basis. They aren’t increasing the requirements per se, but by simply marking the assets the banks hold in collateral portfolios to consistently lower values. Long story short, banks are busy loaning money once again only to people who can prove they don’t need the loan. This is how it used to be in this country, as banking is a for profit business. This makes the system seem constipated by recent standards, but in the long run, it is the best thing for the economy. This is the second time in my adult memory in the financial services industry that we as a nation have faced this. The first being 1990 -1991. This time is much worse to be sure, but ignoring the lesson, and inventing a quick artificial fix will ony make the third time exponentially worse yet. Free markets being allowed to function without central planning is the best way to get out of this mess. Everything the genius’ in Washington come up with carries unintended consequences. The Irony is, nobody seems to hold these imbeciles accountable or even remember that these problems did not exist prior to the infliction of liberal policies to begin with.
@Flyovercountry
Mark to market went into full legal effect in fiscal year starting 2007 (they had a year to implement)… and thus really hit the market full force starting in late 2008… helped create the mess… and then was “relaxed” starting in April 2009…. just in time for the Big banks, after taking over all the smaller banks assets (and companies like Bear Sterns), to start posting Profits…
Everyone was overleveraged using Fractional Lending… so when a few people started to default, AND Mark to Market was in full effect… the collapse started…
So they “relaxed” it… but have not done anything about the fundamental problems with our economic system…
But then… thats what happens when you have the people who created the mess, be the ones you trust to fix the mess…
@Flyovercountry
You know, I had included in my comment that if I promised not to pay the loan back I would likely get the money. I pulled it out, but I ought to let it remain because you’re right.
More akin to “Mr. Toad’s Wild Ride”