New York Times 2003: Dems Oppose Bush Plan To Rein in Fannie and Freddie

[-Cp]

http://patriotroom.com/?p=2135

The New York Times from September 11, 2003.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

”There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,” Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

The administration’s proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies’ exemptions from taxes and antifraud provisions of federal securities laws.

Obama’s current mortgage and housing advisor, Franklin Raines, was at the helm at the time of Fannie Mae at the time. Keep in mind, this is the guy that ran the thing right into the ground in the succeeding years.

Despite the attempt to curb the waste, fraud, and abuse, some Democrats were not on board. Barney Frank really looks like a genius on this one. And this guy was the ranking member on the Financial Services Committee.

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Yeah we need more stuff taken over and managed by the Federal Government. Those guys are really good at finance and mortages. Maybe when Obama wins he can make Franklin Raines the Treasury Secretary. That would sure be a change. Let’s bring crime, corruption, and mismanagement to the Cabinet level.

[theHawk]

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Thats what its all about. Rush played a tape today of Daniel Mudd, and exectuive of Fannie Mae. He was addressing the Congresional Black Caucus (I think it was in 2005), and really kissing their ass in the speech. He said they were having difficult times and needed their help, and he bragged about giving loans to more minorities than any other company in history (and it looks like they couldnt pay back). He said that the heart and sould of the company was with the Black Caucus.


Now we're starting to find out the truth of whats been going on...

[Gaffer]

Gee, imagine that, Bush has a plan and the dems are against it. Who'da thunk it.

[Kathianne]

Gee, imagine that, Bush has a plan and the dems are against it. Who'da thunk it.

The Republicans had been addressing the problems of Freddie and Fannie; many Democrats I must say were addressing the problems of executive pay being unsustainable. On an earlier thread I said I didn't know enough to know if this was a good plan or not, I doubt we'll ever know or understand what they finally do.

The one Schumer quote I saw, he was visibly shook up by what he'd heard the night before the plan was 'released', he said there was not time to play partisan politics with it, though it now seems that Pelosi and others will.

Here's what I've been able to gather from reading and television reports:

1. The US gov't-that's us, will receive all the 'bad stuff' from private companies that have been paying executives huge salaries and stockholders dividends for years, while the companies cooked the books in ways that made Enron look like a glitch.

2. The government buys or takes over these companies without so much as requesting a prospectus or zip. There seems to be nothing the US taxpayer receives for taking on this unprecedented debt, just a warning that it will 'hurt' in the short run, they hope not longer.

3. Perhaps I've missed it, but there seems no punishments being meted out or even investigations being called for regarding those that have caused the near meltdown of our financial sectors. Indeed, the key word being meltdown, as something seems to have been required to stop what was happening last week.

So the government will do 'something.' What they are doing most definitely is socialistic, as the financial sector may well be the largest US sector economically. There are real questions if by doing this buying of sludge, we are also taking on the debt of much of European and Middle Eastern financial sectors, so invested in ours for years.

I still don't understand what's really going on here, a real explanation has not been given to us. There is something though about it all, that right now I don't think it's solved the problem, more bubbles may well appear down the road in the not too distant future and I don't think the government has the money to deal with that.

[Mr. P]

The Republicans had been addressing the problems of Freddie and Fannie; many Democrats I must say were addressing the problems of executive pay being unsustainable. On an earlier thread I said I didn't know enough to know if this was a good plan or not, I doubt we'll ever know or understand what they finally do.

The one Schumer quote I saw, he was visibly shook up by what he'd heard the night before the plan was 'released', he said there was not time to play partisan politics with it, though it now seems that Pelosi and others will.

Here's what I've been able to gather from reading and television reports:

1. The US gov't-that's us, will receive all the 'bad stuff' from private companies that have been paying executives huge salaries and stockholders dividends for years, while the companies cooked the books in ways that made Enron look like a glitch.

2. The government buys or takes over these companies without so much as requesting a prospectus or zip. There seems to be nothing the US taxpayer receives for taking on this unprecedented debt, just a warning that it will 'hurt' in the short run, they hope not longer.

3. Perhaps I've missed it, but there seems no punishments being meted out or even investigations being called for regarding those that have caused the near meltdown of our financial sectors. Indeed, the key word being meltdown, as something seems to have been required to stop what was happening last week.

So the government will do 'something.' What they are doing most definitely is socialistic, as the financial sector may well be the largest US sector economically. There are real questions if by doing this buying of sludge, we are also taking on the debt of much of European and Middle Eastern financial sectors, so invested in ours for years.

I still don't understand what's really going on here, a real explanation has not been given to us. There is something though about it all, that right now I don't think it's solved the problem, more bubbles may well appear down the road in the not too distant future and I don't think the government has the money to deal with that.

I got a good explanation this morning by Secretary Henry Paulson and many other folks that work with or cover the economy, both republican and Democrat.

The consensus is..we are on the verge of total economic collapse that has never been seen in history without this intervention. It won't just be in the U.S. AIG was the 18th largest company in the world..think about the affect, it will be global. But most importantly it will destroy OUR economy.

We need to, no, we must, fix this as fast as possible then deal with the rest.
If we don't do this now there will not be an opportunity to do so later.

IMO this issue is much more important than the coming election.

[Kathianne]

I got a good explanation this morning by Secretary Henry Paulson and many other folks that work with or cover the economy, both republican and Democrat.

The consensus is..we are on the verge of total economic collapse that has never been seen in history without this intervention. It won't just be in the U.S. AIG was the 18th largest company in the world..think about the affect, it will be global. But most importantly it will destroy OUR economy.

We need to, no, we must, fix this as fast as possible then deal with the rest.
If we don't do this now there will not be an opportunity to do so later.

IMO this issue is much more important than the coming election.

That is exactly why Schumer was so upset, I agree. The question would really be, is this the way to do it? Just finished reading this:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/20/AR2008092001059.html?hpid=opinionsbox1

Some of what is said is what I'm stumbling around about:


A Bad Bank Rescue

By Sebastian Mallaby
Sunday, September 21, 2008; B07

With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.

The plan is being marketed under false pretenses. Supporters have invoked the shining success of the Resolution Trust Corporation as justification and precedent. But the RTC, which was created in 1989 to clean up the wreckage of the savings-and-loan crisis, bears little resemblance to what is being contemplated now. The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions...

In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value. Billions in taxpayer money would be transferred to the shareholders and creditors of banks, and the banks from which the government bought most loans would be subsidized more than their rivals. If the government bought the most from the sickest institutions, it would be slowing the healthy process in which strong players buy up the weak, delaying an eventual recovery. The haggling over which banks got to unload the most would drag on for months. So the hope that this "systematic" plan can be a near-term substitute for ad hoc AIG-style bailouts is illusory.

Within hours of the Treasury announcement Friday, economists had proposed preferable alternatives. Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans. Given a fatter capital cushion, banks would have time to dispose of the bad loans in an orderly fashion. Taxpayers would be spared the experience of wandering into a bad-loan bazaar and being ripped off by every merchant.

Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. Banks don't do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed. Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don't want to signal weakness and they don't want to dilute existing shareholders. A government order could cut through these obstacles.

Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks' bad loans but by buying equity stakes in the banks themselves. Whereas it's horribly complicated to value bad loans, banks have share prices you can look up in seconds, so government could inject capital into banks quickly and at a fair level. The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under.

Congress and the administration may not like the sound of these ideas. Taking bad loans off the shoulders of the banks seems like a merciful rescue; ordering banks to raise capital or buying equity stakes in them sounds like big-government meddling. But we are in the midst of a crisis, and it shouldn't matter how things sound. The Treasury plan outlined on Friday involves vast risks to taxpayers, huge complexity and no guarantee of success. There are better ways forward.

[Mr. P]

That is exactly why Schumer was so upset, I agree. The question would really be, is this the way to do it? Just finished reading this:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/20/AR2008092001059.html?hpid=opinionsbox1

Some of what is said is what I'm stumbling around about:

I'm inclined to go with Secretary Henry Paulsons' plan rather than an Op-Ed piece.


The Treasury plan outlined on Friday involves vast risks to taxpayers, huge complexity and no guarantee of success.

Yes, and Paulson said so this morning as well, he added taxpayers have always been at risk.

For me the gravity of this situation does not allow time to debate options..
That was also the consensus of all the folks I heard this morning.

AIG is like a giant octopus with tentacles wrapped around the world...if they fail so will everything they hold or touch now.

We need Action now! Hope and pray it's right, vs non action and we face certain collapse, here and in the rest of the world. I'll go with Paulson on this.

[Kathianne]

I'm inclined to go with Secretary Henry Paulsons' plan rather than an Op-Ed piece.



Yes, and Paulson said so this morning as well, he added taxpayers have always been at risk.

For me the gravity of this situation does not allow time to debate options..
That was also the consensus of all the folks I heard this morning.

AIG is like a giant octopus with tentacles wrapped around the world...if they fail so will everything they hold or touch now.

We need Action now! Hope and pray it's right, vs non action and we face certain collapse, here and in the rest of the world. I'll go with Paulson on this.
I concur regarding hoping and praying, this is huge and it's not Paulson that is taking the risk. I'll feel better if it doesn't devolve into partisanship, the next few days will show.

[Mr. P]

I concur regarding hoping and praying, this is huge and it's not Paulson that is taking the risk. I'll feel better if it doesn't devolve into partisanship, the next few days will show.

If it does we're toast. simple as that. I think they all know that too.

[Kathianne]

Well here's the proposal:


September 20, 2008, 1:05 pm
Treasury’s Financial-Bailout Proposal to Congress

The following is the legislative proposal from Treasury Department for authority to buy mortgage-related assets:

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.
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[Kathianne]

Gingrich has some words of warning:

http://corner.nationalreview.com/post/?q=ZGE5MmE0YmRiODA3YTRiNzFlN2FmNDU5N2I0ZDc3YTE=


Before D.C. Gets Our Money, It Owes Us Some Answers [Newt Gingrich]

Watching Washington rush to throw taxpayer money at Wall Street has been sobering and a little frightening.

We are being told Treasury Secretary Henry Paulson has a plan which will shift $700 billion in obligations from private companies to the taxpayer.

We are being warned that this $700 billion bailout is the only answer to a crisis.

We are being reassured that we can trust Secretary Paulson "because he knows what he is doing".

Congress had better ask a lot of questions before it shifts this much burden to the taxpayer and shifts this much power to a Washington bureaucracy.

Imagine that the political balance of power in Washington were different.

If this were a Democratic administration the Republicans in the House and Senate would be demanding answers and would be organizing for a “no” vote.

If a Democratic administration were proposing this plan, Republicans would realize that having Connecticut Democratic senator Chris Dodd (the largest recipient of political funds from Fannie Mae and Freddie Mac) as chairman of the Banking Committee guarantees that the Obama-Reid-Pelosi-Paulson plan that will emerge will be much worse as legislation than it started out as the Paulson proposal.

If this were a Democratic proposal, Republicans would remember that the Democrats wrote a grotesque housing bailout bill this summer that paid off their left-wing allies with taxpayer money, which despite its price tag of $300 billion has apparently failed as of last week, and could expect even more damage in this bill.

But because this gigantic power shift to Washington and this avalanche of taxpayer money is being proposed by a Republican administration, the normal conservative voices have been silent or confused.

It’s time to end the silence and clear up the confusion.

Congress has an obligation to protect the taxpayer.

Congress has an obligation to limit the executive branch to the rule of law.

Congress has an obligation to perform oversight.

Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess.....

[Mr. P]

Gingrich has some words of warning:

http://corner.nationalreview.com/post/?q=ZGE5MmE0YmRiODA3YTRiNzFlN2FmNDU5N2I0ZDc3YTE=

I'm disappointed that it's Newt that tossed the first partisan grenade.