Barney Frank, Chris Dodd, and the Housing Meltdown:

 When assigning blame to the current meltdown affecting the financial industry there is plenty to go around. We often hear it was the Bush administration’s fault because he was president at the time and the Buck must stop with him.  However, the real truth has been hidden by the mainstream media.  I believe, as often the case, the main perpetrator is Big Government.  It is a turgid and ineffectual federal bureaucracy at the root of this problem.  The main function of government is to protect equal rights, not provide equal belongings. This leads to a Socialist society and as history has shown doomed to fail. Thomas Jefferson once remarked that “democracy will cease to exist when you take away from those who are willing to work and give to those who would not.” It can be easily seen that 200 years ago our founders new the dangers of big government and yet we are at place now where we are begging for more. 

One attribute that can be said about government is they always leave us with plenty of clues to follow.  In 1977, under President Jimmy Carter, the Community Reinvestment Act was born and later became the CRA under Clinton. As with most social programs it was good in theory but lacked practical applications. Clinton used this program to compel banks and make them loan money to high risk low-income individuals usually in minority neighborhoods. If banks did not comply they would be threatened with fines, loss of business, and ostracism. 

Enter the central players.  The Government Sponsored Enterprises known as Fannie Mae and Freddie Mac were created in 1938(Fannie) as part of Roosevelt's New Deal to provide federal money for housing, and 1970(Freddie) during Lyndon Johnson's Great Society.  In 1968, Fannie was privatized and removed from the federal budget.  This was when it became a GSE with private profits, exemption from state and federal income taxes & oversight, and the implied backing of the Federal Government.  Freddie was created as competition for Fannie.  They currently control about 90% of the secondary mortgage market.

The mortgage companies and banks eventually found a way to remove the risk, that they were forced to assume by the government meddling, by selling the risky mortgages as credit default swaps.  As long as prices were escalating, everybody was safe.  There is a saying on Wall Street that the innovators are always one step ahead of the regulators.  There was a backroom maneuver, in 2000, which kept credit default swaps from being regulated.  These arcane instruments are at the center of this mess.  Eventually companies were selling and buying credit default swaps, collateralized debt obligations, and derivatives.  It seems that value was anything that they wanted them to be. They were all so complicated, and finally oh so deadly.

Now we are all reaping the toxic results of another misguided federal giveaway.  The Wall Street Journal warned us in 1998 that Fannie and Freddie were another ENRON, aka cooking the books, waiting to happen.  Alan Greenspan warned us several years later that they were a potential problem.  Many were making money and many were asleep at the wheel.  Franklin Raines, former budget director for Bill Clinton, became the head of Fannie Mae.  He set up a schedule of bonuses, and in a five year period (1999-2004), he benefited to the tune of $90,000,000. to $100,000,000. Mostly from bonuses made available from cooking the books.  Fannie and Freddie became a promised land for Democrats.  Things were out of control.  The regulators were looking the other way.  It was so bad that even welfare recipients were qualifying for mortgages.  Another government social program run amok.  Now the taxpayers are expected to pick up the pieces.

Players, like Barney Frank, Chairman of the House Finance Services Committee, and Senator Chris Dodd, Chairman of the Banking Committee, were blocking all attempts at reform.  They even benefited financially.  Standards were lowered . . . low down payment, no down payment, no verification of income, and subprime was the name of the profit rhyme.  Former President Bill Clinton recently said "In retrospect, it probably was not a good idea to give mortgages to people on welfare."  Now we are supposed to believe that the government can be trusted to bail us out?  It is time to have a thorough independent investigation of how it happened and why it was allowed to happen.  It is time to tell Congress that the PARTY really is over . . . for them.