Posted by
Always To The Right on Monday, September 29, 2008 9:46:29 PM
Nothing could more painfully demonstrate what is wrong with Congress
than the current financial crisis. Among the congressional...
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Among the congressional "leaders" invited to the White House to
devise a bailout "solution" are the very people who have for years
created the risks that have come home to roost.
Five years ago, Barney Frank vouched for the "soundness" of Fannie
Mae and Freddie Mac and said "I do not see" any "possibility of serious
financial losses to the Treasury."
Earlier this year, Sen. Chris Dodd praised Fannie Mae and Freddie Mac
for "riding to the rescue" when other financial institutions were
cutting back on mortgage loans. He too said they "need to do more" to
help subprime borrowers get better loans.
But the magic words "affordable housing" and the ugly word
"redlining" led to politicians directing where loans and investments
should go, with such things as the Community Reinvestment Act and
various other coercions and threats.
The roots of this problem go back many years, but since the crisis
happened on George W. Bush's watch, that's enough for those who think
in terms of talking points, without wanting to be confused by the facts.
In reality, President Bush tried unsuccessfully, years ago, to get
Congress to create some regulatory agency to oversee Fannie Mae and
Freddie Mac.
Gregory Mankiw, his chairman of the Council of Economic Advisers,
warned in February 2004 that expecting a government bailout if things
go wrong "creates an incentive for a company to take on risk and enjoy
the associated increase in return."
Alan Greenspan, then head of the Fed, made the same point in testifying
before Congress in February 2004. He said: "The Federal Reserve is
concerned" that Fannie Mae and Freddie Mac were using this implicit
reliance on a government bailout in a crisis to take more risks, in
order to "multiply the profitability of subsidized debt."