Housing: Who Got Rich? Who's to Blame?

Who do we blame for today's housing crisis, subprime loans and the Fannie Mae and Freddie Mac debacle? Who got rich? The Democrats are blaming it on the Republicans and G.W. Bush, but that's not the answer. We can accurately blame it on the Clinton administration, and the Democrats. The irresponsible actions of some very powerful people got this cauldron brewing many years ago - and then, there was no stopping it. Start with Alan Greenspan, former Head of the Federal Reserve, and husband of NBC reporter Andrea Mitchell (photo right), who still hasn't regained her color since Sarah Palin's acceptance speech - a quote from Greenspan to set the context:

"...the traditional fixed-rate mortgage may be an expensive method of financing a home"

In otherwords, Greenspan (photo below) encouraged more creative and innovative methods of borrowing money for home mortgages. From Greenspan in April 2005:

Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants.... With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers....

From USA Today: "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said. Here's some damming commentary from Merk Mutual Funds about Greenspan's statement, Feb. 23, 2004:

...unless Greenspan clarifies his comments, he must resign. Calling on homeowners to leverage their personal finances using short-term debt is a financial distress call. Greenspan must be desperate to get consumers to take ever more money out of their homes, to inflate home prices. He can only make such a statement if he knows short-term rates will stay low for years to come, at any cost. The "cost" will be sharply higher long-term rates and a faltering dollar.

...It is our view, however, that Greenspan is indeed desperate and means exactly as he said. Greenspan's entire monetary policy has been based on wealth creation through higher real estate prices; he is taking this concept to new levels thereby risking an unprecedented real estate bubble, and a subsequent collapse of unprecedented proportions.

If Greenspan remains in power he may well succeed with his policies, and leave it up to his successor to deal with the consequences. Greenspan wants inflation, and there's barely a better way to ask for it; except, of course, that with consumers exposed mostly to short-term debt, the Fed will be unable to fight inflation should it come without risking a depression.

For background, read some commentary about Greenspan's penchant for bad advice from MSN Money, March 2004. The web is ripe with critics of Greenspan's policies, going back years - before Bush...before we knew there would be a "crisis." And this all omits the odious comments Greenspan has made over the last couple of years, as he travels and speaks around the world, causing the DOW to tumble as he exits the stage. Here are quotes from a fine Byron York analysis from National Review OnLine:

But Fannie Mae is not just any private institution. It is congressionally chartered, meaning its existence is established in law, it does not have to pay state and local income taxes, and it is not subject to bankruptcy laws. It can borrow money at a lower rate than anyone else except the federal government itself. In the 1980s, it went a step further, essentially creating a new product when it bought up mortgages and bundled them for sale to investors as mortgage-backed securities. It was an extraordinarily profitable move for Fannie Mae, and good for the housing market, too. But in the 1990s, the company moved in a much riskier direction. Fannie Mae used its borrowing power to buy up mortgages and hold them, making a profit from the difference between the low price it paid to borrow the money and the higher interest rate it received on the mortgage. It was potentially profitable, but it had nothing to do with helping low- and middle-income people buy houses. But the OFHEO report suggests that none of that mattered to Raines, who had been a top official at Fannie Mae in the early 1990s before leaving to join the Clinton administration and then returning to Fannie Mae as chief executive in 1998. Even though his salary never topped $1 million, Raines’s [more on Raines below] total compensation shot from $6.48 million in 1998 to $8.52 million in 1999, to $13.89 million in 2000, to $18.86 million in 2001, to $18.20 million in 2002, to $24.15 million in 2003, all on the strength of EPS bonuses. Investigators found that of the $90.12 million Raines was paid in that six-year period, more than $52 million came from EPS bonuses. Gorelick’s [more on Gorelick below] situation was similar. OFHEO found that she took home $26.46 million in the period from 1998 to 2002 (she left in that year, so she wasn’t there for the entire period under investigation). Of that figure, nearly $15 million came from EPS bonuses. In other words, they cooked the books. And to make matters worse, according to OFHEO, when regulators began to catch on to what was happening, Raines and his team then “sought to interfere” with the OFHEO investigation by trying to get Congress to start up a separate probe of OFHEO. Fannie Mae also lobbied Congress to cut OFHEO’s funds unless it got rid of the top official in charge of investigating Fannie Mae.

Fannie Mae's lobbying efforts failed and they paid a $4 million civil fine. Here's an interesting report from WAPO 2005, with Fannie Mae already deeply in trouble. Some snippets:

The targeting of individual lawmakers was so precise that Fannie lobbyists were able to ask advocates to telephone lawmakers just as they were about to vote on amendments that Fannie wanted to defeat. The tactics worked. Pressure from Fannie has been credited with repeatedly derailing legislation it did not like, including an effort last year that would have created a tough new regulator to oversee the company.

Take a look at a September 16th, 2008 statement via the BostonHerald.com from Speaker of the House, Nancy Pelosi:

Democratic House Speaker Nancy Pelosi, D-Calif., said the trouble in the markets showed the Bush administration was a poor manager of "our economy, of our energy policy, of our issues that relate to housing, the housing crisis ... Plain and simple, George Bush is a very poor manager."

In my opinion, Pelosi will be found to be the most dishonest and conniving Speaker in the history of the U.S. House of Representatives. Here's a link to lobbying expenses for Fannie Mae. Here are links to recipents of Fannie Mae monies: Open Secrets Capital Eye headline: Fannie Mae and Freddie Mac Invest in Democrats - July 16, 2008, and Update:Fannie Mae and Freddie Mac Invest in Lawmakers. On the "update" list: Note that Senator Barack Obama is the second largest receiver on this list, John Kerry the third, and Hillary Clinton way down the list at No. 12, under Senator Harry Reid. John McCain's name appears nowhere. Then there's the Fannie Mae and Freddie Mac bailout and it's connections to Clinton, back then, and Obama today: From the Office of Federal Housing Enterprise Oversight (OFHEO) 1993 - Report of Findings to Date - Special examination of Fannie Mae Bonuses and Salaries paid to officers in 1998

Franklin D. Raines,

[Currently a Housing Policy Adviser for the Obama Campaign] [Carter administration assistant director for Domestic Policy]

Fannie MaeChairman and CEO Designate Salary $526,154, Award/Bonus $1,109,589

Photo Credit: Brendan Smialowski - Bloomberg News Photo

Raines: In the four years since he stepped down as Fannie Mae's chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself. He has shaved eight points off his golf handicap, taken a corner office in Steve Case's D.C. conglomeration of finance, entertainment and health-care companies and more recently, taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters.

James A. Johnson [Obama VP Vetter and Funds Bundler] Chairman and CEO Salary $966,00, Award/Bonus $1,932,000

Photo Credit: AP Photo

Johnson: Top Talent Scout for Obama Tied to Subprime Lender: Johnson may have resigned about this scandal broke.

James Johnson, one of three people tapped by Mr. Obama recently to oversee the search for his running mate, took at least five real estate loans totaling more than $7 million from Countrywide Financial Corp. through an informal program for friends of the company's CEO, Angelo Mozilo, the Wall Street Journal reported Saturday. The Journal said at least two of the mortgages, among a series of loans made available to people Countrywide officials called "friends of Angelo," were at rates below market averages, though it is difficult to predict a market rate without access to nonpublic information about a borrower's credit history and other factors that can reduce interest charges on a loan.

From Reuters: NOTE: Johnson Is Also A Bundler For Obama's Presidential Campaign And Has

Committed To Raising $100,000 To $200,000. (Obama For America Website,
www.barackobama.com, Accessed 5/19/08)

FLASHBACK: Obama's Campaign Attacked Sen. Clinton's Campaign For Its
Countrywide Ties

Jamie Gorelick [Deputy Attorney General for Clinton] Created "The Wall" Between the CIA and FBI] [Currently works for Law Firm representing Fannie Mae] [Gorelick took home $26.46 million [from Fannie Mae in the period from 1998 to 2002] [Currently legal Representative for Duke Univ., against students charged with rape] Vice-Chairman of Fannie Mae: $567,000, Award/Bonus $779,625 Photo Credit: Educate-Yourself

In Spring 2002, BusinessWeek.com had an interview with Fannie Mae Vice-Chair, Gorelick.
In the BW opening paragraph they said this:

In the wake of the Enron disaster, Federal National Mortgage Assn. (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac), the federally chartered mortgage banks that experienced explosive growth in 2001, have come under increased scrutiny. Once again, Republicans in Congress are threatening to conduct an investigation into the activities of the two -- No. 7 and No. 2, respectively, on this year's BusinessWeek 50 list of top performers -- some say in hopes of revoking the portions of the Fannie and Freddie charters that gives an implicit government guarantee to their borrowing.

Gorelick was also a member of the 9/11 Commission Study and was thoroughly trashed when it was made known, during the hearings, that she was the architect of the WALL policy during the Clinton Administration which forbid the CIA and the FBI from exchanging information, sharing case studies and alerting each other to the machinations of the bad guys. Here's a snippet of testimony from Attorney General John Ashcroft given to the 9/11 Commission about Gorelick's part in 9/11:

...we did not know an attack was coming because for nearly a decade our government had blinded itself to its enemies. Our agents were isolated by government-imposed walls, handcuffed by government-imposed restrictions, and starved for basic information technology... My second point today goes to the heart of this Commission's duty to uncover the facts: The single greatest structural cause for September 11 was the wall that segregated criminal investigators and intelligence agents. Government erected this wall. Government buttressed this wall. And before September 11, government was blinded by this wall. In 1995, the Justice Department embraced flawed legal reasoning, imposing a series of restrictions on the FBI that went beyond what the law required.... The wall "effectively excluded" prosecutors from intelligence investigations. The wall left intelligence agents afraid to talk with criminal prosecutors or agents. In 1995, the Justice Department designed a system destined to fail. Someone built this wall. The basic architecture for the wall in the 1995 Guidelines [written by Jamaie Gorelick] was contained in a classified memorandum entitled "Instructions on Separation of Certain Foreign Counterintelligence and Criminal Investigations." The memorandum ordered FBI Director Louis Freeh and others, quote: "We believe that it is prudent to establish a set of instructions that will more clearly separate the counterintelligence investigation from the more limited, but continued, criminal investigations. These procedures, which go beyond what is legally required, will prevent any risk of creating an unwarranted appearance that FISA is being used to avoid procedural safeguards which would apply in a criminal investigation." This memorandum established a wall separating the criminal and intelligence investigations following the 1993 World Trade Center attack, the largest international terrorism attack on American soil prior to September 11... I cannot imagine that the Commission knew about this memorandum, so I have declassified it for you and the public to review. Full disclosure compels me to inform you that its author is a member of this Commission.

Deputy Attorney General Jamie Gorelick's declassified memo, Instructions on Separation of Certain Foreign Counterintelligence and Criminal Investigations, is in pdf format, on official stationary, and addressed to the United States Attorney, the Director of the FBI and the Assistant Attorney General. It can be viewed here. These people are vultures, and they are all Democrats, except, supposedly Greenspan - who don't forget, is married to the ultra-Liberal Andrea Mitchell. Related: Washington Post - High Pay at Fannie Mae for the Well-Connected Volokh Conspiracy Andrew C. McCarthy's The Wall Truth