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Date:  October 14, 2008

Topic category:  Other/General

Liberal Responsibility for the World Wide Credit Crisis
By George Snyder

There is a perception fostered by the Barack Hussein Obama campaign that Republicans did nothing to prevent the mortgage crisis melt down. Nothing could be farther from the truth. Read on to find out who is really responsible for the devaluation of your property and your retirement account.

Today there is a perception, that the Republicans did nothing to prevent the mortgage crisis melt down. Nothing could be farther from the truth. People are led to believe that the Bush administration is responsible for the meltdown. Many people, who do not understand the constitutional provisions covering the separation of powers, are prepared reward the liberal perpetrators by keeping them in office and electing Obama. Keep in mind if Obama is elected, he will control the treasury, and the goal of the liberals that created this economic situation was to provide mortgages for those who could not meet the traditional requirements for mortgage credit. With the U.S. Treasury about pump money into Fannie Mae and Freddie Mac, should we expect an Obama Whitehouse to push for more sub prime mortgages, only this time to be financed with increased national debt and ultimately your taxes?

The red flags were evident, but Congressional action was delayed from 2001 until 2008, with some Senators and Representatives supporting secrecy at the Government Sponsored Enterprises (GSE) Fannie and Freddie, and some afraid to appear opposed to the provision of mortgages to low income high risk borrowers, which could be construed as racism.

The housing boom that was generated by the government enforced availability of high risk mortgages is now a housing bust, with a surplus of housing on the market, causing a decline in the value of existing properties. With borrowers obligated to mortgages balances that are higher that value of their homes, default is encouraged, resulting in foreclosure. The borrower will lose his home and the lender will recoup less than he has invested in the mortgage. A proposal to cancel mortgage debt in excess of the market value is one option, with the borrower remaining in his home and the lender losing the amount of the debt canceled.

It has been reported that in order to secure the support of 13 members of the Congressional Black Caucus for the bailout, Obama made a commitment.

Newsmax correspondent Phil Brennan reported. "According to Cummings (Rep. Elijah Cummings D-MD), Obama told him that if he won in November he would order an official of the Treasury Department to work with homeowners facing foreclosure to restructure their loans. He added that Obama promised he would try to make changes in bankruptcy laws allowing judges to reduce the amount of the mortgages borrowers owe."

Traditionally, a borrower had to prove that he or she had enough income to be able to make regular monthly mortgage payments. The borrower was required to make a down payment large enough to cover the loss of value in the property, in the event of a foreclosure. This could be 20 to 25 per cent of the purchase price. The credit rating was also considered when negotiating the loan. The bank or S & L would judge the risk and determine the granting or denial of a mortgage, based on a combination of these three factors. The borrower was not always required to be "perfect", but he had to convince the lender that he had the means and the intention of repaying the loan.

In 1977 during the Carter Administration the Community Reinvestment Act (CRA) was passed, in order to prohibit Mortgage lenders from "red lining", that refusing to provide mortgages in areas of communities that were deemed high risk. Under Bill Clinton the Community Reinvestment Act was amended to provide oversight to insure that lending organizations provided loans to low income people, relaxing the criteria for loan qualification.

Yes, during the Clinton Administration the CRA was amended to require lending institutions grant more high risk loans. It would appear the freedom to conduct activities such as mergers could be denied if a lender was found guilty of granting an insufficient quantity of high risk loans. Investigations into the credit worthiness of borrowers were no longer effectively used as a tool to make a loan decision. Eventually lenders were granting "NINJA" (No Income, No Job, No Assets) loans.

Fannie Mae and Freddie Mac were directed to acquire a higher level of the secondary mortgage market (mortgages packaged as bonds) which allows for easier trading between investors. For a history of these two Government Sponsored Enterprises (GSE) see Rob Alford’s 2003 article published by James Mason University’s History News Network at http://hnn.us/articles/1849.html.

In Alford's article it is noted that "Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having." This is what allowed the GSEs to operate while concealing losses.

April 2001: President Bush, in his 2002 budget message, identified the size of Fannie Mae and Freddie Mac as a potential problem that could cause strong repercussions in the financial markets. Every Fortune 500 company with the exception of Fannie Mae and Freddie Mac is regulated by the Securities and Exchange Commission. Every other mortgage lender is subject to Federal Reserve oversight. Regulation could have revealed the level of safety in the securities held by the CSEs. Under existing law Fannie and Freddie only had to reveal the information they chose to reveal, and subsequent events proved that information to be manipulated to maximize the bonuses of upper management.

Fall 2003: Treasury Secretary John Snow wanted a strong regulatory body to oversee the actions of the GSE’s. Rep. Barney Frank ridiculed the administration's request referring to it as "Sky Is Falling mentality".

The following text is published at Wikipedia: In 2003, the Bush Administration sought to create an agency to oversee Fannie Mae and Freddie Mac. While Senate and House leaders voiced their intention to bring about the needed legislation, no reform bills materialized. A Senate reform bill introduced by Senator John Corzine (D-NJ) (S.1656) never made it out of committee. At the time members of congress expressed faith in the solvency of Fannie and Freddie. Congressman Barney Frank (D-MA), for example, described them as "not facing any kind of financial crisis."

In September 2004, the Bush Administration’s Office of Federal Housing Enterprise Oversight (OFHEO) presented the preliminary findings of an investigation into the accounting practices of Fannie Mae to the House Finance Services subcommittee. A video of those hearings recorded by C SPAN 2 is available at http://www.youtube.com/watch?v=_MGT_cSi7Rs.

Congressional liberals criticized the administration and said it did not have the authority to conduct such an investigation.

The Text of the final report OFHEO published in 2006, can be found at:http://www.ofheo.gov/media/pdf/FNMSPECIALEXAM.PDF

As a result CEO Franklin Raines was separated from Fannie Mae.

Source: Wikipedia -- On December 21, 2004 Raines accepted what he called "early retirement" from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.

In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $90 million in payments made to Raines based on the overstated earnings initially estimated to be $9 billion but have been announced as 6.3 billion. See more about Raines at http://en.wikipedia.org/wiki/Franklin_Raines.

The OFHEO investigation also revealed irregularities on the Part of Raines’ predecessor, Jim Johnson as recorded by Wikipedia.

Source: Wikipedia -- From 1991 to 1998, he (Johnson) served as chairman and chief executive officer of the Federal National Mortgage Association (Fannie Mae), the quasi-public organization that guarantees mortgages for millions of American homeowners. Previously, he was vice chairman of Fannie Mae (1990-1991) and a managing director with Lehman Brothers (1985-1990). An Office of Federal Housing Enterprise Oversight (OFHEO) report from September 2004 found that, during Johnson's tenure as CEO, Fannie Mae had improperly deferred $200 million in expenses. This enabled top executives, including Johnson and his successor, Franklin Raines, to receive substantial bonuses in 1998. A 2006 OFHEO report found that Fannie Mae had substantially under-reported Johnson's compensation. Originally reported as $6-7 million, Johnson actually received approximately $21 million.

After the revelation of the "irregularities" within Fannie Mae, the Democrats in Congress still refused to allow effective oversight. The C SPAN and Fox News videos show Congressional Democrats stating that regulation of the GSEs would inhibit the availability of loans to low income people.

Source: Wikipedia -- In 2005, the Federal Housing Enterprise Regulatory Reform Act, sponsored by Senator Chuck Hagel (R-NE) and co-sponsored by Senators Elizabeth Dole (R-NC), John McCain (R-AZ) and John Sununu (R-NH), would have increased government oversight of loans given by Fannie Mae and Freddie Mac. Like the 2003 bill, it also died in committee. A full and accurate record of the congressional attempts to regulate the housing GSEs is given in the Congressional record prepared in 2005.

Although the bill had enough committee votes to go to the floor, not enough floor votes could be secured. See the Fox News Special Report at: http://www.youtube.com/watch?v=VgctSIL8Lhs&eurl=http://www.ace.mu.nu/

Some financial institutions have disappeared. No one in his right mind, without a high level of clairvoyance, should invest in mortgaged securities until the situation changes. All credit markets are affected, including Auto and Student Loans, because there is precious little new money available in the marketplace. Virtually all of the Capital is tied to existing mortgages. It remains to be seen if the bailout will work.

Do we really want the people, who resisted oversight, and chose to keep everyone, including themselves in the dark, to have an ally in the Whitehouse who will choose the people who manage the Treasury, and the now government controlled GSEs?

Conservatives in the House helped block the first attempt to pass the bailout in order to prevent any possibility of monetary grants to the activist group ACORN (Association of Community Organizations for Reform Now), which the draft of the bill seemed to provide, although the Democrats deny it.

ACORN, a descendent of the old Welfare Rights Group pressured lenders to provide Subprime mortgages, and it has been accused and is currently under investigation in ten states for fraud connected to voter registration.

Obama served as an attorney for ACORN, and his campaign is applying damage control to separate him from ACORN, while McCain’s TV spots are saying there is an association.

Where there is smoke … ACORN must be an embarrassment, to prompt such denials.

Naked Emperor News.com has a video at http://www.youtube.com/watch?v=ivmL-lXNy64 which uses clips from C SPAN and Fox News, and covers much of the same ground as this article, with some eye-opening comments from Obama.

Two articles from Stanly Kurtz of National Review Online provide some insight to the ACORN-Obama connection.



Thomas Sowell has written four informative columns about Obama at:


George Snyder

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