Democrats out politician the Republicans with Our Financial Crisis!

Democrats for the most part are simply better politicians than Republicans.  Democrats seem to be first in front of a microphone, first to lob a grenade, and can without flinching be Teflon deflecting an issue to Republicans, greedy Wall Street types, Big Oil, or to Mother Theresa.  They are experts at obfuscating the truth.  If we examine this credit crisis mortgage meltdown we will see that they have the country blaming the Republicans, and vehemently so.  Democrats I talk with do not want to hear any facts on this matter – I am told they are all lies.  The media has helped quite a bit in steering public opinion as it routinely holds Republicans accountable and gives Democrats a pass.

In Nancy Pelosi’s supposedly bipartisan speech to the House on why the rescue Bill should be passed in the House – the Bill that went down to defeat – she eviscerated the Republican Administration and the Republican members in Congress for the crisis – yet her party has their hands, feet, and lips all over this debacle.  After the Bill went down in defeat by 12 votes, she had the audacity to blame Republicans on national television who voted no, while 12 Democratic members of Barney Frank’s House Financial Services committee – the committee responsible to the House for crafting such legislation and for watching out for the voters – voted no.  She blamed the Republicans while 5 of her committee chairs voted no.  Anyone watching would come away swearing at those dastardly Republicans.

Yes, the Republicans need to have their knuckles smacked with a ruler for not fighting hard enough to avert this problem.  Perhaps they did send up flairs that we were running into an iceberg, but since the news media protects Democrats and holds Republicans out to dry, then perhaps the Republicans were screaming and no one heard them, because they were in a media created vacuum.

At this point, you folks on the left or even mainstream Democrats are thinking, this guy is  a “kool aid” drinking right-winger.  Well my assertions are supported by the facts and timeline.  Let’s examine the mortgage crisis.  I have written on this in other posts and I have some knowledge of the workings of mortgage backed securities and banking.

In 1968 Fannie Mae was spun off as a Federal Agency to become privatized, but was really a quasi private organization.  It had heavy oversight from members of the Democratic Party.

In 1970 Freddie Mac was created by the Federal Government, and the Fannie Mae model was followed.

In 1977 the Community Reinvestment Act, CRA, was enacted.  This was during the Carter Administration and the purpose was to ensure that banks were giving low income families credit.  This law allowed community groups to interfere, so to speak, with banks wanting to expand, open branches, or to merge.  To not appear racist and to avoid the stick in the eye from community groups, banks started to make questionable loans to people who did not qualify solely on a credit perspective.

One community group, the Association for Community Organizers for Reform Now, ACORN, became a major player among community groups with an organized and concerted effort to force banks to make loans to people who strictly on a credit basis were poor risks.  Under CRA, Acorn complained about one particular bank – that is did not make the kind of loans required under CRA.  Barack Obama was a community organizer who helped ACORN effectively use CRA to punish banks that did not make ill advised loans to people with limited ability to repay.  With Obama’s guidance, ACORN took the bank to court and won, effectively lowering credit standards nationally.

Fannie Mae was prodded by the Clinton Administration, circa 1999, to buy these questionable mortgages now being generated by banks under CRA and ACORN pressure.  The move by Fannie Mae to accept these underperforming borrowers signaled to other financial institutions that this was now the way to go.  Since Fannie Mae really had unlimited money due to its government backing, it began to buy these mortgages in earnest from banks, freeing up cash for the banks to make more of these loans.  The sub-prime mortgage market was founded.

This was the start of “affordable” housing for persons who might not ordinarily qualify for a mortgage.  Actually at the end of the Clinton Administration, HUD (Department of Housing and Urban Development) told Fannie and Freddie to keep making these loans until these loans equaled half of their portfolios.   Seeing dollar signs, mortgage lenders jumped on board, due to the lucrative fee income from the program, and broadened the borrowers to include higher income people buying condos and other properties.  By using the same criteria of a no documentation loan, i.e. not providing income and employment verification, and requiring little or no down payment, the sub-prime mortgage program expanded to the mainstream with upscale properties.

Democrats had been pushing these programs as a means of helping those with little means to obtain homes.  Republicans just did not pay attention.  Democrats in their effort to make this a noble thing, failed to understand that credit and borrowing needs to make sense.  Just because you put someone into a home with little down, an artificial short term low interest rate and with little capacity to pay, to help them you are  not necessarily doing a good thing.  You cannot ignore the reality of payback, of credit repayment, and the reality of where is the money coming from.  The Democrats from Barack Obama through Barney Frank did just that – they ignored reality, because they apparently knew better than the experts.

Two Democrats, Chuck Schumer and Barney Frank, have been the lead Democrats in supporting Fannie Mae.  These two among others were the enablers.  Schumer and Frank used Fannie Mae and Freddie Mac for political benefit.

Now the real fun begins.  When sub-prime mortgages are initiated they are often placed into a group of other mortgages as security for a sale of these instruments to private buyers, at least it started with private buyers.  This is called securitization – a mortgage backed security has now arrived.  These are sold to institutional investors or investment banks.  Often these are then combined and repackaged as collateralized mortgage obligations, CMO’s, and then placed into tranches based on risk level.  Often these are given credit enhancement insurance to make the package market worthy and balance rate versus risk.

The more these tranches were commoditized and were moved throughout the financial markets easily.  This new market created even more money to lend to create more of the loans – the spiral cycle began.  The Achilles Heel to this pan was that the weak borrowers had to keep up with payments and property values had to continue to increase.  The gas crisis and other slowness in the economy start the whole cycle to unravel.  As housing prices dropped, weak borrowers who had no equity in their home just stopped paying, creating a flood of foreclosures.  As foreclosures flooded the market, housing prices dropped even further, thus continuing the cycle.  Credit insurance could not keep up with these out of equity defaults.  Mortgage securitization plans in the past have not worked, yet we embarked on it again.

In 2002, the Wall Street Journal, published a story on the risks of Fannie Mae, being Enron like, and the state of the mortgage market coupled with housing prices. Fannie Mae Enron? Year’s later A Wall Street Journal video on this issue that describes the Democrats reaction to being told that this was becoming a risky matter can be seen with a click of your mouse.

The Bush Administration on September 10, 2003 told the House Financial Services Committee that more supervision was needed for Fannie Mae and Freddie Mac.  Barney Frank at that time the ranking Minority member of that committee told John Snow, Treasury Secretary, that these two entities were financially fundamentally sound and that affordable housing would be in danger if controls were placed on these entities.  Affordable housing cannot come from magic, if the borrower is not well suited to the loan, then problems happen for the borrower and the lender.

In 2004, Clinton appointee, Franklin Raines, head of Fannie Mae stepped down and transactions of Fannie Mae under Raines are still under investigation for cooked books by the Security and Exchange Commission.  During Raines’ term, he earned $90 Million in five years.  Raines is still a key Obama advisor.  In February 2004, The Federal Reserve Chairman, Alan Greenspan, told Congress that regulation of Fannie Mae must be strengthened or we will face the possibility of insolvency and crisis.

In April 2005, the Bush Administration managed to get the Senate Banking committee to approve regulation for Fannie and Freddie, with all Republicans voting for regulation and all Democrats voting against regulation.  The measure failed because in the Senate you need 60 votes to pass a measure and the Republicans did not have 60 members.  This bill could have prevented a number of the problems we are experiencing currently.

In April 2005, Senator Schumer told his colleagues in Congress that things were good in the housing market and that radical change was not needed – he was referring to Fannie Mae and Freddie Mac.  In fact Schumer’s colleague Chris Dodd, at the time ranking member of the Senate Committee on Banking, Housing, and Urban Affairs received $165,000 for Fannie over 20 years and a questionable mortgage from a giant sub-prime originator Countrywide Financial.  Obama received a whopping $126,000 in only 3 years – tell me they did not want him in the White House.  Republican Bob Bennet received $108,000.  John McCain, received during his long tenure in the House and Senate $21,000.

In 2006 Senate Republicans tried again with another bill co-sponsored by John McCain.  Again party line voting blocked the measure – Democrats, now in the majority, were in lock step to block regulation.  In September 2008, Chris Dodd told his colleagues in the Senate that this entire calamity was foreseeable and preventable.  Between 2005 and 2008 Fannie and Freddie added a trillion dollars of these securities.

The Democrats whose hands are covered with the mortgage meltdown mess are: Senators Charles Schumer, Barack Obama, and Chris Dodd, Congressional Representatives Barney Frank, and Maxine Waters.  Yet, if you find a microphone in a Capitol hallway, you will most likely find one of these people in front of it slamming those “deregulation” Republicans, in Congress and in the Administration, blaming them entirely for the financial crisis.  Pelosi and Reid know better, but they can without hesitation slam the Republicans for this mess, without missing a heartbeat or blinking.  Democrats are much better politicians than Republicans.

Content is derived from the Wall Street Journal, Fox News, and a career in consumer finance.  When it is finally posted you may be able to watch an eye opening special on the crisis called Saving Our Economy – What’s Next? at hulu.com/fox-new-specials.