There won’t be any reform of Fannie Mae and Freddie Mac, the corrupt, government-sponsored mortgage giants that even Obama administration officials admit were at the “core” of “what went wrong” in the financial crisis.
The “Obama Administration says Fannie, Freddie reform” is “‘too hard,'” reports the Washington Examiner.
Last week, the Senate passed a 1,500 page financial “reform” bill. But it contained no meaningful reform, and won’t do anything to prevent the next financial crisis, as even liberals like Clinton’s Labor Secretary Reich have admitted.
(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals. Dodd is the chief drafter of the financial “reform” bill.)
The so-called financial “reform” bill would give government officials the ability to nationalize businesses that they claim are at risk of failing — and block meaningful judicial review of such seizures by shareholders alleging violations of their constitutional rights. (That will increase the ability of presidents to shake down businesses for donations to their political allies, since a business in danger of being seized by the government will try to curry favor with government officials, the way the drug manufacturers are currently running ads for Senate Democratic Leader Harry Reid in order to curry favor with him and the Obama administration.)
The financial “reform” bill’s House architect, Barney Frank, boasts that it will create “death panels” for American companies (this is the same Barney Frank who for years blocked any reform of the corrupt mortgage giants Fannie Mae and Freddie Mac).
The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs). Soon, they will be receiving much more: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports the New York Times.
At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.) By contrast, the Republican alternative, rejected by the Senate, aimed “to wind down, and break up” the mortgage giants and “limit taxpayer exposure” to their losses.
The Obama administration showered the mortgage giants’ executives with $42 million in compensation.
Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk. “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.
Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis. That pressure will increase under the financial “reform” legislation. Legislators approved Obama’s proposal to create a new consumer “protection” agency. But it may harm rather than help consumers. Why? “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.” It would do so without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.