The Truth Behind Dole's Fannie Mae Reform Attempt
The most recent whine coming from Republicans is centered around their alleged attempt to "reign in" Fannie Mae and Freddie Mac back in 2005, and the Democrats' blocking of such. I should have looked closer at this sooner, because there's always something that stinks just under the surface of these "valiant" efforts. Anyway, here's the deal:
Conservatives and Free Market fundies have historically been opposed to GSEs (Government Sponsored Enterprises) for a few basic reasons: they target assistance to groups the government deems "in need" of assistance, and the profits/losses of said enterprises are controlled by the public (as opposed to private industry). The former is viewed as an entitlement, and the latter makes it difficult for private enterprises to compete with the GSEs.
Fannie Mae and Freddie Mac are GSEs that (among other things) have been chartered to ensure that minorities and others who live in economically depressed areas have access to financial vehicles the private sector would normally consider too risky or not profitable enough. These GSEs also generally favor smaller banks in their transactions as well, in an effort to keep them viable in addition to the borrowers that are being helped.
Now, I'm not going to get into the politics of whether that's right or wrong, or even if it's fiscally wise. I am, however, going to show you how Republicans like Liddy Dole have used rhetoric to cloak their true intent, which is the dismantlement of Fannie Mae and Freddie Mac so all those hundreds of billions can be sucked up by the mega banks.
The legislation in question is S.190 (2005), better known as the Federal Housing Enterprise Regulatory Reform Act. The main focus of this bill was to abolish two previous regulating bodies:
SEC. 301. ABOLISHMENT OF OFHEO.
(a) IN GENERAL- Effective at the end of the 180-day period beginning on the date of enactment of this Act, the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development and the positions of the Director and Deputy Director of such Office are abolished.
SEC. 311. ABOLISHMENT OF THE FEDERAL HOUSING FINANCE BOARD.
(a) IN GENERAL- Effective at the end of the 1-year period beginning on the date of enactment of this Act, the Federal Housing Finance Board (in this title referred to as the `Board') is abolished.
And replace them with another:
SEC. 1311. ESTABLISHMENT OF THE FEDERAL HOUSING ENTERPRISE REGULATORY AGENCY.
`(a) ESTABLISHMENT- There is established the Federal Housing Enterprise Regulatory Agency, which shall be an independent agency of the Federal Government.
That would have broader powers to manage and oversee GSEs like Fannie and Freddie. Of course, President Bush would have named the director and (through) said director could have done all kinds of things, including changing the direction the funds went to, stopping certain programs, etc.
Knowing our President the way we do now, giving him near-absolute authority of the trillion-dollar, half-of-the-mortgages-in-America business that Fannie and Freddie have accrued is damned near gut-wrenching. But the real intent of this legislation came out when Liddy Dole's cosponsor Chuck Hagel tried to sell this to the Senate. Among many other powers this new director would have, this one is the (literal) killer:
Provide the new regulator the authority of receivership to close down a failing GSE and protect against a taxpayer bailout
Bolding mine. That's right, this bill would have allowed Bush to close down Fannie Mae and Freddie Mac for good. Not just regulate 'em, get rid of 'em.
And where would have all that future loan business ended up? All you need to do is look at Liddy Dole's top two contributors for 2004 and 2006:
2004:
Wachovia Corp $65,950
Bank of America $42,900
2006:
Wachovia Corp $72,450
Bank of America $59,850
Now, I know many reading this are not real happy with the way Fannie and Freddie have operated recently, and yes, they do need to be reigned in, just like the private sector financial institutions. But these two GSEs have helped millions of Americans pull themselves up by their bootstraps over the years, and they've helped to stem the tide of poverty across the land. They don't represent a "failed social program", they represent an unbelievably successful one.
But Liddy doesn't get that, just like she doesn't get so many other things about our state and country. It's time for a change, and Kay Hagan is that change.
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Great work, Steve!
Really, really nice work on this.
Another way to look at this is that Bush could have appointed someone to head the regulatory arm who would have turned a blind eye as a way of achieving backdoor deregulation.
Think about what we learned yesterday - Dole instroduced legislation to relax oversight on smaller banks and financial institutions and introduced legislation that could potentially relax oversight of the GSEs who favored transactions with these smaller banks and financial institutions. One big giant clusterfuck waiting to happen.
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Currently lacking a witty signature.
I'm sure deregulation would have followed
closely on the heels of this. If you take a look at each of the powers granted to this new director, you'll see a whole lot of language like "if the director deems necessary" and such.
It's an outrageous bill, but not because it would "reign in" Fannie and Freddie; because it would give the President the power to radically alter their scope and/or do away with them completely.
Thanks for doing the digging on this one, Steve.
I guess Liddy's not getting any money from Wachovia this time around. How does that work, anyhow - a failing bank giving money to a politician? Shouldn't the politician give it back to help save the liquidity of the bank?
Just asking. I don't know much about money. Mine's in my lockbox, a la Al Gore. :)
__________________
"My darling girl, when will you understand that 'normal' is not necessarily a virtue. It rather denotes a lack of courage." - Alice Hoffma
Unfortunately, my lockbox
is on Wall Street, and it's been doing "The Incredible Shrinking Box" routine for close to a year now. :/
So, Dole's bill was....
a way of:
"The striking difference between me and my opponent is that I live in North Carolina and my husband can vote for me."
- Sen. Kay Hagan
Jesus Swept ticked me off. Too short. I loved the characters and then POOF it was over.
-me
For all the regulatory language,
I believe moving that business into the private sector was the main goal of this bill.
The new director would have had the power to push more loans toward business (as opposed to home loans), or he could have discontinued programs that were turning a profit so "failure" could be declared quicker.
Have to disagree with the value of Fanine/Freddie.
These institutions are part of a general government program to increase home-ownership over the last few decades. (In concert with our monetary system based on perpetuation of cheap credit and what I think is one of the most ridiculous economic policies in our history, the tax deduction for mortgage interest.) There is nothing special about home ownership as an economic or social force.
With the purpose of policy to promote home ownership, we have encouraged lower-middle income families to make irrational financial decisions and take on massive amounts of debt just to secure a home. I would also contend that it has been a major driver of suburbanization, which has led to a whole host of other problems. (Energy inefficiency, negative externalities from land-clearing, and generally unsustainable development.)
This is a major part of a large problem we're facing, which is the rapid accumulation of debt (largely due to the incentives set up by our government) that threatens to strangle our economy. I would also contend that it is largely responsible for the current financial mess in which we find ourselves, as the building of an unfathomable market in credit-based derivatives likely would not have occurred without the massive accumulation of credit.
As long as Fannie and Freddie are in existence as GSEs, though, they should be thoroughly regulated.
I agree that the push
for home ownership has fueled out-of-control development and urban sprawl (both of which I hate), but this is simply not true:
Economically speaking, the accrual of equity from home ownership not only provides a vehicle for lower-middles to generate some personal wealth, it has also provided many of them with the collateral to go into business for themselves.
On the social side, home ownership encourages more responsible behavior as well as making the homeowner feel more "invested" in his/her neighborhood. If the neighborhood declines, property values decline with it, directly affecting the homeowner's personal wealth, yada yada.
All that being said, the total lack of consideration for risk by both GSEs and private lenders has deeply damaged the idea of home ownership as a driver of progress, and I think that's a shame, because it will only widen the gap between classes.
re:
"Economically speaking, the accrual of equity from home ownership not only provides a vehicle for lower-middles to generate some personal wealth, it has also provided many of them with the collateral to go into business for themselves."
Which REALLY serves them well when, say, home values plummet due to an asset/credit bubble collapse and/or the Fed decides to raise interest rates and (provided they have ARMs) and squeezes them out of their ability to make interest payments. (Which has very much the effect of widening the wealth gap.)
I'm guessing that you don't support Social Security Privatization (as I don't) largely for the reason that Social Security earnings would be subject to significant risk in securities markets. This is a great analogy for the push toward home ownership: you're subjecting them to a substantial amount of market risk in real estate.
Furthermore, I would contend that an asset is not an asset unless one owns said asset.
"On the social side, home ownership encourages more responsible behavior as well as making the homeowner feel more "invested" in his/her neighborhood. If the neighborhood declines, property values decline with it, directly affecting the homeowner's personal wealth, yada yada."
This is a very neoclassical type of statement to make, and it is based somewhat on an assumption of a significant level of extended rationality. I don't share this assumption, and I would argue that home ownership doesn't do anything special to encourage more "vested" behavior in one's neighborhood and community relative to home renting. (After all, if one rents a home, one has as much incentive for "vested" behavior as would one who owns a home, chiefly to maintain a comfortable lifestyle within the confines of the community.)
I'm talking overall and over time,
not in a specific situation like we're in now. Of course people who bought their first home recently only to find themselves in default and/or bankruptcy are worse off than they were when they were renting. I bought my home (VA loan) 15 years ago, and even though property values have plummeted recently, my house is still worth 50% more than what I bought it for.
It's not an assumption Paige, it's a conclusion based on life experiences and a whole lot of reading from a variety of sources.
But what do you base that on? A gut feeling? A static view of human potential? I've read numerous studies that, in one way or another, show very positive effects of home ownership. This one deals with LA, but it's similar to other studies I've seen: