As Someone Fascinated by Bureaucratic Responsiveness
Atrios nails the economic issue we are dealing with:
The real issue is that you need a sensible regulatory framework to prevent financial crises from happening in the first place and criteria and practices for dealing with them when they do, along with a sensible and consistent broad social safety net for individuals and families for when crises happen to them.
It might have been the right thing to run down to the river with buckets to collect water to throw on the burning building, but it would have been much better to have better fire codes and a functioning fire department.
TPM has a good post up as well
One metaphor the Democrats don’t use, that I think of over and over when I hear Obama speak about the need for regulation: the markets operate like team sports — like say, a football game. Team sports don’t operate well without referees, and that’s exactly what’s happened under the Republicans.
They can blame Clinton all they want — the fact is, the Republicans under leadership of such brain trusts as Phil Gramm have methodically removed the referees from the games, and look what’s happened. One of the primary reasons investors shy away from putting money into third world countries is an ABSENCE OF REGULATION.
We’ve been watching the results of Phil Gramm’s policy since the Enron energy market manipulation and collapse at the beginning of this administration. Now we’ve moved on to oil speculation instead of electricity speculation and risky home loans that are now hitting the ARM point.
Everyone works within the rules, but they’ll game the system within the rules at a minimum.
September 17th, 2008 at
Who needs regulation when the most important thing is making sure mortgages are given to poor people regardless of their ability to pay…
NYT article from September of 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.
[...]
Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.
”The regulator has not only been outmanned, it has been outlobbied,” said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ”Being underfunded does not explain how a glowing report of Freddie’s operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.”
Significant details must still be worked out before Congress can approve a bill. 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.
September 17th, 2008 at
Wow, you don’t even begin to understand the issue do you?
Let’s start with Fannie and Freddie in this context–they weren’t the ones offering toxic loans or guaranteeing them. They backed largely loans that were far better bets than the private markets. Fannie and Freddie weren’t pushing ARMs and they weren’t working with huge bubble payments that have created the conditions we see now. The problem for them now is that when they loaned to people in the bubble, those who are having problems find themselves with owing more than the house is worth. If you avoided the bubble pushed by a deregulated private sector and the housing bubble it created Fannie and Freddie would not be in the condition they are.
If anything, we’d be far better off had Fannie and Freddie been more involved in loans than the private sector actors who created NINjA loans and other loans that were essentially junk.
Fannie and Freddie were far more selective in guaranteeing loans than were private actors. The only problem regulators could have helped with in the case of Fannie and Freddie is ensuring a higher ratio in terms of capital.
The real question is why were they ever privatized in the first place.
More to the point, finding an article claiming the Bush Administration was trying to regulate Fannie and Freddie demonstrates utter ignorance. The pressure there was to reduce Fannie and Freddie in guaranteeing loans so private companies could do so-pushing loans that led to the crisis we observe today.
But nice try.