Socialising risk, privatising rewards

Thanks to Cuomo, between three and four million American families are now facing the repo man. Good work Andrew. You too Bill.

Over the years, Fannie Mae’s and Freddie Mac’s holdings of dodgy mortgages grew ever more unsustainable. The ticking bomb of several trillion dollars in Fannie Mae’s and Freddie Mac’s portfolios remained low-risk “investments” so long as home prices continued to rise. Once prices began to tank, the jig was up.

If Fannie Mae and Freddie Mac were better regulated, it’s hard to imagine this disaster ever happening. But they were not better regulated. Why?

Some three years ago, Fannie Mae and Freddie Mac were in all sorts of trouble, notably accounting scandals that led to turnover at the top. Responsible commentators were aghast when they heard the Securities and Exchange Commission’s chief bean counter dismiss Fannie Mae CEO Mr Franklin Raines’ accounting position was a sham.

Soon thereafter, a bill to reform Fannie Mae and Freddie Mac was passed by the Senate Banking Committee, after sailing through the House of Representatives. The bill allowed a regulator the power to crack down on, and to direct the companies to eliminate their investments in risky assets. The bill had three sponsors: one of them was Sen. John McCain.

If that bill had become law, then the world today would be very, very different.

But the bill didn't become law, for a simple reason: Democrats opposed it. Some Republicans, frustrated by the wholesale Democratic opposition, couldn't (or wouldn’t) get their act together to organise a Senate vote on the matter.

That the Democrats could have taken such a reckless political stand was scandalous then.

What was clear to keen observers was that opposing the bill was tantamount to socialising the risk while privatising the rewards. Obviously those hostile to the bill could only act so shamefully because their constituents understood very little of what they were doing.

The public - aided by the overwhelmingly a leftist media - was broadly ignorant then and remains ignorant now as to the true involvement of the Democratic Party in creating the home loan fiasco. In the light of the US$700 billion taxpayer funded bail out, the wickedness of the Democrats in 2005 is indefensible.

Today we know that many Senate Democrats who shielded Fannie Mae and Freddie Mac, including Barack Obama, Hillary Clinton and Christopher Dodd, received mind-numbing sweeteners from them over the years.

Throughout his political career, Barack Obama banked more than US$125,000 in campaign contributions from employees and political action committees (PAC) of Fannie Mae and Freddie Mac, only the Senate Banking Committee Chairman Christopher J. Dodd (D- Connecticut) received a fatter brown envelope. His bulged with US$165,000. Sen. Hillary Clinton (D-New York), not averse to having her own palm greased, scooped upwards of US$75,000 from Fannie Mae and Freddie Mac.

There has been a lot of talk about who is to blame for this crisis. Looking back at three years, where Senate Democrats were drowning in payoffs from Fannie Mae and Freddie Mac, it’s pretty clear who’s to blame.

Oh and another thing. Franklin D. Raines, the former Fannie Mae CEO who was removed from his position in 2004 after Security and Exchange Commission (”SEC”) regulators found a multitude of accounting problems at the mortgage company, has a new job.

He’s advising Barack Hussein Obama.