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How the Democrats Created the Financial Crisis Be sure to read the highlighted items near the end at least. How the Democrats Created the Financial Crisis: Kevin Hassett Commentary by Kevin Hassett Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story. Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex. But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally. Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves. In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home. The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them. Turning Point Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened. It is easy to identify the historical turning point that marked the beginning of the end. Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations. Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe. Greenspan's Warning The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: 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,'' he said. ``We are placing the total financial system of the future at a substantial risk.'' What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets. Different World If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed. But the 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. That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.'' Mounds of Materials Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing. But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years. Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000. Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix. There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear. Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess. (Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.) Last Updated: September 22, 2008 00:04 EDT Vincit Veritas~Truth Conquers |
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9/23/2008 10:29 am |
Janice, what is happening in the US is no different than here in Australia, same thing, good info, blessings. Gods way is my way,...Clay
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Hello and many Blessings! either DEMOCRATS and REPUBLICANS! are to "blame" why that don't get along and vote for the benefit of the American people, because they don't care, they do what is convinient to their Parties at the time of "battle" we have a "CORRUPT SYSTEM" Therefore I moved to be and INDEPENDET to man and DEPENDENT ON GOD! Just a THOUGH! The end is near, and nothing will matter when we are in front of our Maker, He will ask You, what did You do for me, and also Did You do the WILL OF MY FATHER? Let Politics get smirred on their on Mess, and we can only Pray that our leaders have God in their hearts so they can lead this country and the world out the "mess' were in! but I doub it! the time is near! CAN WE SEE THE SIGNS??? I remain praying! Beloved Brother, YES...I am dependent on God, but He gave us a Kingdom to rule and reign over and He said to "occupy until He comes". If I am going to have to stay here I most certainly do not want O_bomb_a ruling. It has been the Lord who has fasted me and given me strong unction of prayer. The LORD is my Shepherd ( not man ), and I hear and know His voice and no other voice will I follow. Where are you? Not in America? Thank you for commenting. With Great Love & Blessings, Hiz4Ever † Vincit Veritas~Truth Conquers
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Mysterious One, Thank you for noticing. If I agreed with a Democrat, any democrat, I would post that which I agreed with. Tenacious as a bulldog.... read my lipstick  With Great Love & Blessings, Hiz4Ever † Vincit Veritas~Truth Conquers
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Janice, what is happening in the US is no different than here in Australia, same thing, good info, blessings. Beloved Clay, Seems corruption eruption is as enmasse as the other destructions encircling this world. Chaos is rampant. Like in the days of Noah and Sodom and Gomorrah...yikes!!! You are in my prayers! Thanks for stopping by.  With Great Love & Blessings, Hiz4Ever † Vincit Veritas~Truth Conquers
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Beloved Pete, The Lord commanded we HIS people, not those who don't call on Him in Spirit and Truth.....the burden is on those who know Him and Believe in Him.... 2Ch 7:14 If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land. Jonah didn't want to warn the people because he thought they should pay for their wickedness and die in it. Perhaps if we all do this one commandment, a spirit of repentance will overcome all who reside in America. You are in my prayers, brother. With Great Love & Blessings, Hiz4Ever † Vincit Veritas~Truth Conquers
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Beloved Rusty, Yes, it is easy to get deep and over-the-head, buried in debt so fast you'd think you had your eyes closed when doing it. Two people came on TV saying the credit card company they worked for made them stay on line with the customer until they would they would take more debt. IN the background people partied and cheered as another person signed their life online. I have never used one of those Fast Cash places. I thought I might have to, but My LORD came through for me before it came to that. I have an aquaintance that uses them, and now they have to use them all the time. The problem is people act out of FEAR !!! FEAR the LORD won't answer them in time. The person mentioned above claims to be a Christian and prays, but does she really know the LORD? These end times warrant KNOWING the LORD of the WORD...not the Lord of this world. I really believe it will come down to we will have to have faith for our food and shelter. FAITH is what the LORD will be looking for when HE returns. Not faith in this world, but FAITH IN HIM. Thanks for commenting here. You remain in my prayers, my friend and brother. With Great Love & Blessings, Hiz4Ever † Vincit Veritas~Truth Conquers
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Beloved Brother, I have worked for nothing but Fortune 500 companies. I watched all of them becoming more and more greedier and was employed by them as they sold out the foundation builders, the employees, to make their pockets fuller. I believe the LORD hears the cries of the oppressed and HE has a plan to overturn the situation. HIS Word promises it, so I believe HIM. Put your trust in the LORD and HE will take care of you as HE has taken care of me. Thank you for commenting here & welcome to BC. With Great Love & Blessings, Hiz4Ever † Vincit Veritas~Truth Conquers
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Beloved Brother, The LORD has a way of hiding HIS beauty in things that the eyes of man may not find pleasing to look upon. The LORD did not burn you, His enemy did this to you to try to ensure you would blame the LORD and not receive Him as your Saviour. Allowing the LORD to work in and through you will do more to destroy the enemies kingdom than asking the LORD to bring you home. ABBA Father, I come to you in the name of Jesus and through the blood of the Lamb. I bring with me this precious brother, and I ask that You strengthen his inner man and cause him to rise out of the ashes of the past and the destruction that Satan meant toward him, that You would use it mightily to destroy the kingdom of darkness. Father when people look upon this brother, let them see You Son Jesus and His glory. May people hear Your wisdom and love come from him and befriend him and they will see the Goodness of God and be drawn into Your Kingdom for their Salvation. Many shall be saved because of Your sparing the life of this precious man. He will have the last laugh at the enemy who tried so hard to silence him because he saw Your mark and calling upon his life from his childhood. Comfort his soul and bring Shalom to his home. I ask these things in the name of Jesus, Yeshua haMashiach. AMEN With Great Love & Blessings, Hiz4Ever † IT IS FINISHED x2020 x2020 x2020 P.S. The post above might be a blessing to you. Vincit Veritas~Truth Conquers
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