If Congress can bring itself to overcome the furious political opposition of the GSEs and their supporters, [it will] reduce the size of Fannie's and Freddie's portfolios [and reduce the] massive risks for the taxpayers and the economy in general... If Congress cannot take this essential step... Fannie and Freddie will continue to grow, and one day... there will be a massive default with huge losses to the taxpayers and systemic effects on the economy..."
-- Regulating Fannie Mae and Freddie Mac, 5/13/2005, Peter J. Wallison, The American Enterprise Institute
What follows is a select group of quotations, in roughly chronological order, illustrating the interplay between Republicans and Democrats regarding the regulation of Fannie Mae and Freddie Mac.
• "We manage our political risk with the same intensity that we manage our credit and interest rate risks." -- Fannie Mae CEO Franklin Raines, 1999.
• "[The size of the two GSEs (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." -- Fiscal Year 2002 Proposed Budget, Pres. George W. Bush, 4/2001
• "[A]lthough 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." -- The Bush Administration's Office of Federal Housing Enterprise Oversight (OFHEO), "Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03.
• [Bush Treasury secretary John Snow has proposed] "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." -- The New York Times, 9/2003
• "[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... The enormous size of the mortgage-backed securities market means that any problems at the GSEs matter for the financial system as a whole," -- Bush administration chief economist Gregory Mankiw, 11/2003.
• "I do not think we are facing any kind of a crisis [with Fannie and Freddie]." -- Rep. Barney Frank, D-MA, 11/2003
• "If it ain't broke, don't fix it." -- Sen. Thomas Carper, D-DE, 11/2003.
• "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." -- Fiscal Year 2005 Proposed Budget, Pres. George W. Bush, 2/2004 (pg. 83, 2005 Budget Analytic Perspectives).
• "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." -- Deputy Secretary of Treasury Samuel Bodman, testifying before the House Financial Services Subcommittee on Oversight and Investigations, 6/2004.
• "The matters detailed in this report (""Allegations of accounting and Management Failure at Fannie Mae") are serious and raise concerns regarding the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision, and the overall safety and soundness of the Enterprise... We all know that the Enterprise is very thinly capitalized, but the potential effect of requiring a responsible capital level would be to adversely affect earnings per share, and consequently make the payment of bonuses [to Fannie executives] much less likely..." -- Rep. Richard Baker, R-LA, 10/6/2004
• "I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger... I don't think we face a crisis; I don't think that we have an impending disaster. ...Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country." -- Rep. Barney Frank, D-MA, 10/6/2004
• "I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. [sic] ...These GSEs have more than adequate capital for the business they are in: providing affordable housing. As I mentioned, we should not be making radical or fundamental change... If there is anything to fix or improve, it is the [regulators]." -- Rep. Maxine Waters, D-CA, 10/6/2004
• "...I have to go to another hearing, I will try to be just real quick... I am just pissed off at [the regulator] because if it wasn't for you I don't think that we would be here in the first place. ...we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum [to change the] mission of what the GSEs had, which they have done a tremendous job... There has been nothing that was indicated is wrong, you know, with Fannie Mae... The question that then presents is the competence that your agency has with reference to deciding and regulating these GSEs." -- Rep. Gregory Meeks, D-NY, 10/6/2004:
• "[T]hese [subprime] assets are so riskless that their capital for holding them should be under 2 percent." Franklin Raines, Chairman and CEO of Fannie Mae, 10/6/2004.
• "S.190: A bill to address the regulation of secondary mortgage market enterprises, and for other purposes." -- Sponsored by Sen. Chuck Hagel [R-NE], 1/26/2005, co-sponsored by Sen Elizabeth Dole [R-NC], Sen. John McCain [R-AZ]. Sen. John Sununu [R-NH].
• "[If Fannie and Freddie] continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road... We are placing the total financial system of the future at a substantial risk [by doing nothing]." -- Fed Reserve Board Chairman Alan Greenspan, 2005.
• "[T]he [2005 GSE reform] 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." -- Kevin Hassett of the American Enterprise Institute (2008).
• "[F]irst things first when it comes to those two institutions (Fannie Mae and Freddie Mac). 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
• "These institutions [the GSEs] 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.
Meanwhile, Chris Dodd (D-CT) still won't release the HUD statement disclosing the particulars of the sweetheart loan he received from Countrywide's Friends of Angelo Program. Dodd was also the top recipient of Fannie Mae donations over the past two decades. Coincidentally, I'm sure.
Let's face it. The Democrats are laughing at us. After all, we just rewarded the culprits behind this financial debacle with more power.
We're a bunch of rubes.
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