Obama and Democrats Shouldn’t Point Fingers about Fannie Mae

Posted on September 18, 2008. Filed under: B. Hussein Obama's real record as a "reformer", Elsewhere in liberal politics., Examination of Obama's past and present associations with questionable characters, News on Obama's Competition, Obama's Grand Plan for Change |

This week Obama is really showing how much he is counting on the ignorance of the American electorate.  The San Francisco Chronicle’s website reports from Las Vegas, that Obama gave his unquestioning supporters these instructions, “I need you to go out and talk to your friends and talk to your neighbors. I want you to talk to them whether they are independent or whether they are Republican. I want you to argue with them and get in their face.” He went even further telling his supporters to tell their unsuspecting victims that Obama supports the Second Amendment and that he is going to lower their taxes. Notice how he doesn’t mention Fannie Mae and Freddie Mac?  In light of the recent Fannie Mae (FNMA) and the Federal Home Loan Mortgage Corporation known as Freddie Mac (FHLMC) government bailouts, Obama knows that the last thing his supporters need to concentrate on is who is responsible for the government subsidized entities (GSE) failures that were the largest taxpayer liability of the financial institutions to fall. Nancy Pelosi was sure to come out Monday when the market exploded to explain to TheHill.com that she and her fellow Democrats had nothing to do with the mortgage giants’ collapse and the economic ramifications of their failure. Pelosi was taking every opportunity to blame George Bush for the problem and essentially further the same cause that has driven the Congress she presides over to a 9% approval rating. Barack Obama was out pointing his fingers at George Bush and claiming that John McCain would only extend the policies that brought Fannie and Freddie to their collapse. Obama would be much better off not mentioning the situation, lest he is prepared to answer for his actions and the actions of his party.

Obama has been in the US Senate since 2005. In these three short years, Obama has managed to clinch the third-ranking of politicians receiving the most campaign funds from Fannie and Freddie’s PAC’s and individual employees since 1989. OpenSecrets.com published a list of the top benefactors of the mortgage giants’ political donations which showed since 2005, Obama received $105,849. Ahead of Obama was only Connecticut Democrat Senator Chris Dodd, who has received $133,900, followed by John Kerry, the Democrat Senator from Massachusetts and 2004 Democratic presidential nominee, who collected $111,000. Where’s John McCain? He didn’t even make the list of top 25. McCain has taken $20,000 from these companies’ employees and PAC’s over a 20-year period. So, while Obama has taken an average of $35,283 a year, McCain has received just less than 3% of Obama’s annual haul. While Obama is telling audiences that John McCain’s whole campaign staff is made of lobbyists, he is taking over $35,000 a year from these companies while his party has consistently turned its back on any reform that would have stemmed the taxpayer liability to their meltdown.

The situation that has lead to the breakdown of Fannie and Freddie has been evident for years now. In 2003, Freddie was found to have an ethics lapse concerning their accounting methods. The following year, 2004, Fannie was also accused of unethical accounting practices which led to an earnings overstatement along with an understatement of risk as far as their subprime exposure was concerned.  After an SEC investigation, the accusations at Fannie were proven true which resulted in an $11 billion earnings restatement and the resignation of several top executives. Recent past executives have included Jim Johnson, former Fannie Mae CEO, who Obama hired as part of his VP Search Committee and Franklin Raines, another former Fannie Mae CEO who was forced to resign after the 2004 SEC investigation and who also made close to $50 million off of the erroneous earnings statements. Obama hired Raines as an economic advisor for his campaign. Both Johnson and Raines have also bundled very significant amounts of campaign funds for Obama. Yet, Obama was still on the campaign trail the week claiming that John McCain’s whole campaign is run by corrupt Washington lobbyists, even despite his own on-going deep connections, with two men whose greed greatly led to the disaster for which taxpayers will now end up footing the bill. No wonder Obama needs to raise taxes, he is fully aware of just how much his own advisors have wrecked this economy.

In 2005, John McCain spoke from the Senate Floor about the reforms that were needed in order to avoid a taxpayer-funded bailout of Fannie and Freddie. The blog, HotAir.com posted McCain’s remarks from that speech that included these prophetical remarks, “I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.” The bill McCain was cosponsoring would have put a new regulatory body over the GSE’s with a purpose of managing the level of risk they took on in their portfolios. A few of the other tasks of the new regulatory body would also place requirements on minimum critical capital levels, provide a risk-based capital test, and also keep an eye on golden parachutes so Obama’s current advisors wouldn’t be able to waltz in, manipulate earnings to increase their own bonuses, place the company in financial ruin, and walk away with more money than most CEO’s in non-government subsidized companies. What happened to this legislation? HotAir.com reports that Chris Dodd (number one of the list of politicians receiving contributions from Fannie and Freddie), who chairs the Senate Banking Committee buried it where it never got out of his committee. It has also been discovered that Dodd was also receiving preferential loan treatment from Country Wide Financial, another mortgage giant that was taking advantage of the cheap-credit situation.

In the June 20, 2005 issue of Backgrounder published by The Heritage Foundation titled Time to Reform Fannie Mae and Freddie Mac, Ronald D. Utt, Ph.D. explained that both GSE’s have greatly outlived their purposes and neither have a current significant impact in providing a secondary market to increase funds available in the mortgage market with the purpose of increasing homeownership rates through assisting to provide lower rates that would not be available through nongovernment subsidized private lenders. Fannie and Freddie purchase mortgages from different lenders and repackage them into mortgage-backed securities (MBS’s) that they sell in the securities markets. GSE’s have a line of credit from the US Treasury and the Federal Reserve is allowed to purchase their debt as part of the Federal Reserve’s open market activities. With this backing from the government, Fannie and Freddie’s MBS’s are considered by investors just as risk-free as US Treasury debt because they’re perceived to be backed by the full faith and credit of the US Government. With the increase in sub-prime mortgages, Fannie and Freddie purchased many sub-prime debts and packaged these mortgages in with regular mortgages in the construction of their MBS’s. Recently, the foreclosure rates for sub-prime borrowers have increased dramatically which cause many of the mortgages composing Fannie and Freddie’s MBS’s to default, thus prompting the need for a taxpayer bailout. All of this could have been greatly curtailed had regulations been in place such as those McCain cosponsored to limit the amount of exposure in the two GSE’s portfolios.

One of the biggest opponents of making such changes was in the House of Representatives, through Massachusetts Representative, Democrat Barney Frank. Frank is another root of the problem that is out condemning the Bush Administration for the problems derived from key Democrats’ opposition, such as Frank and Dobbs, to limiting the exposure Fannie and Freddie would be allowed to have from MBS’s. Frank has been especially forgetful of his past cheerleading for these companies while out finger-pointing blame in the press. In fact, The Wall Street Journal ran a piece on September 17 discussing how Frank along with his other Democrat “friends of Fran and Fred” opposed any effort to limit the size of the GSE’s portfolios along with opposing any attempts to establish a regulatory body to closely monitor the assets and running of the companies. In fact, the piece points out that, “Mr. Frank was publically arguing for an increase in the size of their combined $1.4 trillion portfolios right up to the day they were bailed out.” The Journal piece even goes further saying that he is still against the Treasury’s planned reduction in the portfolios in 2010. When asked about it during the week of the collapse, Frank apparently told a newspaper, “Good luck on that.”

Frank and his GSE-supporting Democrat brethren argued for increasing the GSE’s portfolios in the name of affordable housing, yet as Dr. Utt found in his piece for the Heritage Foundation, Fannie and Freddie only provide marginal benefits to first-time minority homebuyers. In fact, Dr. Utt cites a release of anti-homeownership materiel targeting minorities and moderate-income buyers that was put out by a Fannie Mae-assisted advocacy group which came a month before the Department of Housing and Urban Development released a new rule requiring Fannie and Freddie to improve mortgage availability to minority and moderate-income buyers, as the GSE’s were established to do. The anti-homeownership literature discussed advantages of renting, public housing and other options and had a clear intent on discouraging those they were being ordered to help. It’s apparent that Fannie and Freddie were more concerned with leveraging their government subsidized status to enrich the profits for shareholders and executives rather than providing the affordable housing Democrats such as Frank were claiming justified the huge mortgage exposure with little regulatory oversight that left a potentially huge liability to the US taxpayers.

 In light of the economic turmoil caused by Fannie Mae and Freddie Mac along with current campaign ties to two former CEO’s that played a key role in bringing Fannie Mae to its knees, where is Obama getting the gall to accuse John McCain of not being in touch with the economy? Just because McCain is not looking for advice from and providing a paycheck to the sources of the current economic strife, shouldn’t mean that Obama has the upper hand on the situation. In fact, where do Nancy Pelosi and Barney Frank find any justification to place the blame for these disasters solely at President Bush and the Republicans’ feet? After all of their on-the-record remarks only furthering the same corporate governance that led to these huge economic problems, how are Democrats able to ask American voters to trust them with solving these problems that John McCain was predicting in 2005? The meltdown of these GSE’s and the huge burden this puts on the tax payers proves that the Democrats’ uncompromising conviction lead to this problem. Through his choices of placing two former Fannie Mae CEO’s in advisory roles, Obama provides just another example of his lack of judgment concerning those he places trust in and looks to for advice.

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    Is this really a new type of politician? Or is the Obama machine just using politics as usual in their campaign?

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