Yes, Something Must Be Done But No, The Bush Administration Is Not To Blame

Posted by LM Stansbury on Thursday, October 02, 2008 12:00:00 AM

The House is set to pass the new Rescue Bill tomorrow. While the new bill includes some modest adjustments to its predecessor, it also includes record-setting pork. With twelve more votes needed, on either side of the isle, it is expected that the requisite number of earmarks have been added in order to swing those needed votes. Did I say “earmarks?” Indeed I did. Amidst their demand for immediate financial rescue, our infinitely wise Congress has included myriad additional niceties which we, the taxpayers, must also flip the bill for if we are to save our economy from financial ruin. Manufactures of wooden arrows, corporations operating in American Samoa, funds for wool research and auto race tracks are just some among the many groups that stand to gain from the passage of this bill. With the bill’s added pork, the “Rescue” is beginning to look more like a guaranteed trillion dollar deficit. Additionally, the Dow Futures have already taken a dive this morning, a sign that the credit crunch is tightening further and a suggestion that the Stock Market is looking more to the future of the economy, than to the passage of this bill. Regardless our justifiable belief that these earmarks wreak of an evident continuation of reckless spending, it appears as though this second bill will likely pass the House sometime tomorrow.

Regardless the massive frustrations associated with this bill, its outcome appears to be inevitable and a rescue of some sort is quite obviously necessary. That said, our immediate course of action on the Right side of the isle must be to highlight the manner in which we arrived at this point in the first place. Senator Obama and Speaker Pelosi have already begun, and quite successfully so, to associate this Washington failure with the Bush Administration, simply by virtue that it came to a head on his watch. Never mind the irresponsible and economically ignorant conduct of the Democratic Majority, which has supported the government’s involvement with Fannie and Freddie all along. The Democrats might feel comfortable rearranging their words for political convenience, but those of us who do our research are not about to let them forget the sins of their past. For those of you who have friends who still believe that big government is the answer, pass the following collection of statements on to them. I have attached a few of the many statements made by House and Senate Democrats prior to the recent crisis.

Comments made by Representative Barnie Frank in a 2005 House Committee Hearing regarding government-sponsored enterprise reform:

FRANK: There are three sets of concerns that have been brought out with regard to the government-sponsored enterprises, and I will talk particularly Fannie Mae and Freddie Mac.

But there are two other agendas at stake here. One is the notion that it is inappropriate for the federal government to interfere with the allocation of functions of the capital market. I believe this partly motivates Mr. Greenspan.

There is obviously a very respectable, intellectual tradition that says: The market knows all, the market is smart and government is dumb — to quote a former majority leader from Texas, a former majority leader from Texas, a current former majority leader from Texas — and he said the markets are smart and the government is dumb.

And the view is that Fannie Mae and Freddie Mac, with a particular set of legislative and executive arrangements, biases capital allocation towards housing. And there are people who want to stop that. I very much disagree with that.

There are also competitors. There are organizations of people who compete or resent the fact that Fannie Mae and Freddie Mac can borrow money more cheaply than others, because of a perception in the market that we’re going to bail them out. I am not going to bail them out, and if they want to lend money to Fannie and Freddie cheaper, that’s their judgment. Don’t come to me if it doesn’t work out.

So what have the Democrats had to say about Fannie Mae and Freddie Mac since they took the reigns in 2006? Following is a statement made by Rep. Frank (D-MA) at the Office of Thrift Supervision Housing Forum on December 11, 2006:

“Now let me turn to housing — we have more to do yet in the deregulation. I’m just saying that one of the things that we did was to try and reduce the reporting requirement from the banks to the financial detectives. And far too much has to be reported now, in my judgment, of a routine nature. And the metaphor that I use is that we have told the law enforcement people to find a bunch of needles, and then we have set about building them a very big haystack. And we ought to thin that down so they can do a better job.

One of the things that I want to stress to my liberal friends is that excessive regulation or ineffective regulation is bad for regulation. Regulation is very important. The market does need some corrections, but if you overdo it, then you weaken your case.”

In a press conference regarding a plan to stem to the tide of home foreclosures, Speaker Nancy Pelosi delivered the statement below on October 3, 2007. In attendance at this press conference were Senate Majority Leader Harry Reid (D-NV), Senator Chris Dodd (D-CT), Representative Barney Frank (D-MA), Senator Charles Schumer (D-NY), Representative Carolyn Maloney (D-NY), and Representative Stephanie Tubbs Jones (D-OH).

PELOSI: Today we’re here to ask the administration to step up to the plate for once and do the right thing, to act decisively and quickly to help families protect their main source of wealth and prosperity and prevent the subprime mortgage crisis from dragging our entire economy down with it.

First, the administration should remove its ideological blinders and temporarily lift the portfolio caps imposed on Fannie Mae and Freddie Mac. The GSEs are the best hope for providing liquidity. When you have a homeowner who is a prime borrower, who could refinance, you have two things missing. You have money for the mortgage and you have somebody to help them work it out. Because as Barney mentioned, a bank is no longer on the scene. There’s no one to help them, and none of us could do this ourselves.

So the first step to get the money is the GSEs. That’s the logical and natural place. The administration provided a minuscule cap of relief two weeks ago, and the GSE regulator has suggested he may remove the caps altogether in February. We’re standing here today together and saying, “Mr. President, February is hundreds of foreclosures” — I’m sorry, “Mr. President, February is hundreds of thousands of foreclosures away.”

The time to act with sensible, targeted policies is today, not months from now. And my view, if the administration does not act, Congress should act on the legislation — now — that I introduced to temporarily lift the limits on Fannie and Freddie’s mortgage portfolios by 10 percent. That’ll free up $145 billion for the purpose of new prime mortgages.

The legislation requires that 80 to 100 percent of the financing be dedicated to refinancing borrowers who are stuck in risky adjustable rate mortgages. And that would do a world of good.

The administration should do it on their own; if not, we have to act and should act. Targeting the borrowers that are likely to default in the months ahead will not only save homes, but will help strengthen the broader credit markets and economy as a whole.

And following is the speech Nancy Pelosi delivered before the U.S. House of Representatives on September 29, 2008 in an effort to pass legislation that would bail out the reckless lending of Fannie Mae and Freddie Mac:
PELOSI: When was the last time anyone ever asked you for $700 billion?
It’s a staggering figure and many questions have arisen from that request. And we have been hearing a very informed debate on all sides of this issues here today. I’m proud of the debate.

$700 billion. A staggering number, but only a part of the cost of the failed Bush economic policies to our country. Policies that were built on budget recklessness when President Bush took office, he inherited President Clinton’s surpluses – four years in a row budget surpluses on a trajectory of $5.6 trillion in surplus. And with his reckless economic policies, within two years, he had turned it around. And now 8 years later, the foundation of that fiscal irresponsibility, combined with an “anything goes” economic policy, has taken us to where we are today.
The claim to be free market advocates, when it’s really an anything-goes mentality. No regulation, no supervision, do discipline. And if you fall you will have a golden parachute and the taxpayer will bail you out.

Those days are over. The party is over in that respect.
Democrats believe in a free market. We know that it can create jobs; it can create wealth, many good things in our economy. But in this case, in this unbridled form, as encouraged and supported by the Republicans — some Republicans, not all — it has created not jobs, not capital, it has created chaos. And it is that chaos that the Secretary of the Treasury and the Chairman of the Fed came to see us, just about a week and a half ago. It seems like an eternity, doesn’t it? So much has happened. The news was so bad. They described a very dismal situation.