Did Bush cause 2008 the Financial Crisis?

[healthmyths]

I looked through this entire article and NOT one mention that George W Bush single-handedly caused the crisis as many Bush bashers believe!

And while GWB was NOT single-handedly blamed as MOST unintelligent UNINFORMED idiots would have you believe..
Here are the Presidents that share the blame.
[Personal note: Unlike many of the posters here I am intellectually honest to include GOP as part of the blame... Yes GWB included!]

These people were appointed by US Presidents including Reagan, Bush Senior, Clinton, Bush and Obama to top government positions, in part as a payback for campaign contribution by some of these Wall Street firms.

Who contributed to the creation to the financial crisis and the ensuing economic crisis?
The following is a general answer followed by a section naming the key players:

Regulators who relaxed risk management regulations required by the banks and for not regulating derivative investments (please, see more specific details below)
The Federal Reserve Chairmen who dismissed the build-up of the housing bubble from 2002 to 2007 until it was too late. They did not take actions to regulate mortgage companies or control the housing bubble

World Central Bankers who blindly copied the US Federal Reserve Bank policies

World Financial Regulators who blindly copied US financial market models and regulations

World Investment Banks who sold subprime (high risk) mortgage backed securities to their customers without fully understanding them and who hired credit rating agencies to rate them as high quality investment when in fact they included high risk loans. The same banks who sold the subprime investments later bet against their own clients without disclosing the conflict of interest to their clients

Credit Rating Agencies who overrated junk securities as investment-grade quality and misled investors about the risk and the value of these investments

Academic and Financial Economists who ignored the warnings and misjudged macroeconomic and financial market indicators

Award-winning Economists who designed flawed risk pricing models

Investment Analysts who used flawed risk pricing models and asset portfolio theories

Wall Street Banking Executives who ignored internal risk management policies out of greed to increase revenues and their bonuses in the short term at the expense of long term stability of their companies

Wall Street Boards of Directors who did not protect their shareholders against excessive executive compensation and ignored prudent risk management strategies
Wall Street Advisors who did not do their homework before advising their clients on bad investments

Investment Fund Managers who lost billions of dollars investing without adequate due diligence

Mortgage Brokers who sold loans to unqualified borrowers in order to collect more commissions

Homebuyers who took loans they could not afford to pay back and blamed the banks for predatory lending

US Presidents for hiring former Wall Street lobbyists as government policy makers who bailed out the banks without regard to the moral hazard. By doing so, they shifted the burden on the taxpayers and risked the future of the national economy

US Supreme Court Justices who ruled that the government may not ban political spending by corporations in candidate elections thus tightening the grip of Wall Street on government officials and skewing the balance of power in favor of Wall Street and big companies.

The Financial Media who took no responsibility for promoting the illusions of a healthy housing sector and for not asking the right questions. Media outlets that favored a promotional business model at the expense of investigative journalism. In our research, we found a prevalent bias in allocating airwaves and print space to brand name experts. Most journalists and editors seem to ignore voices that are not well-known or those who have a story that do not fit their narrative or preconception. All we had to do is Google simple phrases like "US Economic Risks" to find a wealth of information that would raise so many critical questions. If equal media exposure was given to the voices that warned us about the housing bubble, the damage could have been mitigated.


Who is to Blame for the Financial Crisis and Ensuing Economic Crisis

 

[Katzndogz]

Not only did Bush not start it, he tried 17 different times to stop it.

 

[auditor0007]

I looked through this entire article and NOT one mention that George W Bush single-handedly caused the crisis as many Bush bashers believe!

And while GWB was NOT single-handedly blamed as MOST unintelligent UNINFORMED idiots would have you believe..
Here are the Presidents that share the blame.
[Personal note: Unlike many of the posters here I am intellectually honest to include GOP as part of the blame... Yes GWB included!]

These people were appointed by US Presidents including Reagan, Bush Senior, Clinton, Bush and Obama to top government positions, in part as a payback for campaign contribution by some of these Wall Street firms.

Who contributed to the creation to the financial crisis and the ensuing economic crisis?
The following is a general answer followed by a section naming the key players:

Regulators who relaxed risk management regulations required by the banks and for not regulating derivative investments (please, see more specific details below)
The Federal Reserve Chairmen who dismissed the build-up of the housing bubble from 2002 to 2007 until it was too late. They did not take actions to regulate mortgage companies or control the housing bubble

World Central Bankers who blindly copied the US Federal Reserve Bank policies

World Financial Regulators who blindly copied US financial market models and regulations

World Investment Banks who sold subprime (high risk) mortgage backed securities to their customers without fully understanding them and who hired credit rating agencies to rate them as high quality investment when in fact they included high risk loans. The same banks who sold the subprime investments later bet against their own clients without disclosing the conflict of interest to their clients

Credit Rating Agencies who overrated junk securities as investment-grade quality and misled investors about the risk and the value of these investments

Academic and Financial Economists who ignored the warnings and misjudged macroeconomic and financial market indicators

Award-winning Economists who designed flawed risk pricing models

Investment Analysts who used flawed risk pricing models and asset portfolio theories

Wall Street Banking Executives who ignored internal risk management policies out of greed to increase revenues and their bonuses in the short term at the expense of long term stability of their companies

Wall Street Boards of Directors who did not protect their shareholders against excessive executive compensation and ignored prudent risk management strategies
Wall Street Advisors who did not do their homework before advising their clients on bad investments

Investment Fund Managers who lost billions of dollars investing without adequate due diligence

Mortgage Brokers who sold loans to unqualified borrowers in order to collect more commissions

Homebuyers who took loans they could not afford to pay back and blamed the banks for predatory lending

US Presidents for hiring former Wall Street lobbyists as government policy makers who bailed out the banks without regard to the moral hazard. By doing so, they shifted the burden on the taxpayers and risked the future of the national economy

US Supreme Court Justices who ruled that the government may not ban political spending by corporations in candidate elections thus tightening the grip of Wall Street on government officials and skewing the balance of power in favor of Wall Street and big companies.

The Financial Media who took no responsibility for promoting the illusions of a healthy housing sector and for not asking the right questions. Media outlets that favored a promotional business model at the expense of investigative journalism. In our research, we found a prevalent bias in allocating airwaves and print space to brand name experts. Most journalists and editors seem to ignore voices that are not well-known or those who have a story that do not fit their narrative or preconception. All we had to do is Google simple phrases like "US Economic Risks" to find a wealth of information that would raise so many critical questions. If equal media exposure was given to the voices that warned us about the housing bubble, the damage could have been mitigated.


Who is to Blame for the Financial Crisis and Ensuing Economic Crisis

We can blame any number of people, but the truth is that builders just built too many homes. Now, the reason that building continued at such a record breaking pace was in great part due to the fact that it was too easy for people to get loans, but at some point the builders themselves should have seen this coming. Many builders went belly up when the market crashed. In the final two years prior to the bust, many states saw more than 50% of new home sales go to speculators or individuals who were purchasing a home other than their primary residence. All of a sudden, all these speculators realized that the only people buying homes was them. And that is the reason the bubble burst so quickly. The truth is that primary home owners did not start defaulting on their mortgages until after the housing bust led to the big downturn in the economy and people began losing their jobs.

 

[TheOldSchool]

As you all used to enjoy saying... OWN IT

 

[soonerthunder22]

Seems like a well thought out, insightful and totally rational explanation for the mess we find ourselves in right now. This stumbling, bumbling, and completely insane administration has been such a disaster, one cannot help but put the whole unsavory bunch at the top of any list which purports to find the REAL root cause of this country's problems.

No one grabs a 3 year old off the street and immediately promotes him to head the brain surgery division at John Hopkins!

 

[Paperman299]

They've spread the blame pretty thin here. It's like blaming the murderer, the murderer's parents, his teachers, the owner of the store where he bought his gun, the kid who was mean to him when he was three...

I would go a step further on W and say his role was actually pretty minimal. And I feel homebuyers can be taken off that list entirely. People weren't out seeking loans they couldn't afford, they were aggressively sold these loans. Even low-wage people were being sold on and signed up for these loans.

 

[Political Junky]

Bush was still president in 2008.

 

[OnePercenter]

Not only did Bush not start it, he tried 17 different times to stop it.

By allowing Bank of America to buy Countrywide on spec?

 

[Katzndogz]

They've spread the blame pretty thin here. It's like blaming the murderer, the murderer's parents, his teachers, the owner of the store where he bought his gun, the kid who was mean to him when he was three...

I would go a step further on W and say his role was actually pretty minimal. And I feel homebuyers can be taken off that list entirely. People weren't out seeking loans they couldn't afford, they were aggressively sold these loans. Even low-wage people were being sold on and signed up for these loans.

The homeowners were definitely a major part of the crisis. What they did was refinance their homes taking out the equity as property values rose and then blew the money. They helped relatives, went on vacations, bought mounds of stuff. It was free money.

Especially hard hit was the elderly with children and grandchildren talking them into taking out mortgages on paid for homes. That $250,000 cottage became a $750,000 mortgsge.

 

[Avatar4321]

Pretty sure 2008 would have occurred with or without Bush.

 

[candycorn]

2 wars and a tax cut;
All Bush's idea

 

[OnePercenter]

They've spread the blame pretty thin here. It's like blaming the murderer, the murderer's parents, his teachers, the owner of the store where he bought his gun, the kid who was mean to him when he was three...

I would go a step further on W and say his role was actually pretty minimal. And I feel homebuyers can be taken off that list entirely. People weren't out seeking loans they couldn't afford, they were aggressively sold these loans. Even low-wage people were being sold on and signed up for these loans.

The homeowners were definitely a major part of the crisis. What they did was refinance their homes taking out the equity as property values rose and then blew the money. They helped relatives, went on vacations, bought mounds of stuff. It was free money.

Especially hard hit was the elderly with children and grandchildren talking them into taking out mortgages on paid for homes. That $250,000 cottage became a $750,000 mortgsge.

What about the Robo signing?

 

[Vigilante]

FACT: Liberal Public Policy caused the mortgage crisis by mandating eased requirements for lending, even to people who had no chance of ever paying the loan back. If banks and other lending institutions did not comply, their "score" from the SEC was too low to permit certain business transactions such as merges, etc. This is nothing less than a gun held to the head.

FACT: Many lending institutions were sued or otherwise pressured by ACORN, forcing them to make loans to folks who didn't qualify nor had any chance of ever repaying that loan.

FACT: HUD (Housing and Urban Development) under Andrew Cuomo, head of HUD) browbeat banks to make loans to folks who they knew couldn't pay them back.
FACT: Many lending institutions were sued or otherwise pressured by ACORN, forcing them to make loans to folks who didn't qualify nor had any chance of ever repaying that loan. IN FACT, BARACK OBAMA WAS INVOLVED IN AT LEAST ONE OF THESE LAWSUITS



FACT: Fannie Mae's sole purpose for being was to offer a Federal Guarantee of loans. So banks and other lending institutions didn't need to worry about thing. If a loan went bad, Fannie Mae was there to pick up the pieces (until there were too many pieces to pick up)

FACT: The Democrats stacked the operations of Fannie Mae with other Democrats who then cooked the books (FM had to pay MILLIONS in fines to the SEC over this) and took HUNDREDS OF MILLIONS OF DOLLARS in bonuses and funneled MILLIONS in campaign contributions to members of Congress. Franklin Raines (part of the Obama Administration) personally took 90 million dollars despite Fannie Mae's fines and fraud.

FACT: Bill Clinton turned a blind eye to all of this during most of the 90's. In fact, he worsened the situation in 1995 by making the CRA even more lopsided and requiring even MORE bad loans. One thing he did was to force lending institutions to accept up to 31% of one's income for a mortgage whereas previously it was only 25%

FACT: The Democrats who run Fannie Mae took hundreds of millions in bonuses while Congressional Dems provided cover, including Charlie Rangel , Chris Dodd , Barack Obama and Joe Biden.

FACT: Democrat Chris Dodd was #1 recipient with Democrat Barack Obama being #2 in campaign contributions from Fannie Mae and Freddy Mac

FACT: The Democrats blocked every attempt by Republicans to investigate Fannie Mae and its business practices. In fact, the Bush Administration made over 30 attempts over his two terms in office only to have the Democrats block every one through parliamentary procedures as the Republicans, while controlling both Houses, NEVER had a super majority so the Dems could block anything they pleased (case in point - judicial nominees)





http://query.nytimes.com/gst/fullpag...gewanted=print


Quote:
September 11, 2003
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON

WASHINGTON, Sept. 10— 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.
Note the date


Quote:
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON

WASHINGTON, Sept. 10— 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.
http://www.bucksright.com/bush-propo...n-in-2003-1141


Quote:
A September 11, 2003 New York Times article shows that President Bush proposed “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” His proposal: An agency within the Treasury Department to supervise mortgage giants Fannie Mae and Freddie Mac.

Fearing that mortgages would no longer be available to people who were unable to pay them back, Democrats eventually killed the proposal. The current meltdown in the mortgage industry is a direct result of giving mortgages to people who could not pay them back, a practice protected by Congressional Democrats.

Both entities were recently taken over by the government, a move that puts trillions of taxpayer dollars at risk.

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.

But Democrats in Congress, also known as “the caucus perpetually on the wrong side of history,” were having none of this “responsibility” stuff.

”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.

The proposal worked its way around Congress for a couple of years. Efforts at reform of the kind proposed by President Bush were shot down by Democrats each time.

In 2005, Republican Mike Oxley, then chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddie’s lobbyists set out to weaken it.

[...]

During this period, Sen. Richard Shelby led a small group of legislators favoring reform, including fellow Republican Sens. John Sununu, Chuck Hagel and Elizabeth Dole. Meanwhile, [Democrat in bed with the mortgage industry Chris] Dodd — who along with Democratic Sens. John Kerry, Barack Obama and Hillary Clinton were the top four recipients of Fannie and Freddie campaign contributions from 1988 to 2008 — actively opposed such measures and further weakened existing regulation.

According to OpenSecrets.org, between 1988 and 2008 Dodd received $133,900, Kerry $111,000, Clinton $75,550, and Obama — in only 143 days in the Senate — received a whopping $105,849 from Fannie Mae and Freddie Mac.

Pennsylvania Democrat representative Paul Kanjorksi, who also opposed new Fannie Mae and Freddie Mac regulations, was given more than any other member of the House of Representatives. He was paid $65,500 by representatives of these entities.

And, in case you were wondering, John McCain co-sponsored a bill requiring greater Fannie Mae / Freddie Mac regulation in 2005. It was also blocked procedurally by Democrats.

The 2003 New York Times article was unearthed by a Free Republic poster.

UPDATE: 2004 video posted to YouTube shows Republicans arguing for, and Democrats arguing against, regulations that would have saved us from the current crisis.
http://www.bucksright.com/congressma...ge-crisis-1451


Quote:
Congressman Sorry Democrats Dropped Ball On Mortgage Crisis
Wed, Oct 1, 2008 at 10:55 am Posted by Steven in Economy

After being featured on Hannity & Colmes in a damning 2004 video showing Democrats fighting tooth-and-nail against greater Fannie Mae and Freddie Mac regulations, Democrat Congressman Artur Davis admits Democrats dropped the ball on reigning in the failed institutions and calls on fellow Democrats to do the same.

“Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie Mae and Freddie Mac. I defended their efforts to encourage affordable homeownership, when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit that when it comes to Fannie and Freddie, we were wrong. By the way, I wish my Republican colleagues would admit that they missed the early warning signs that Wall Street deregulation was overheating the securities market and promoting dangerously lax lending practices. When it comes to the debacle in our capital markets, there is much blame to go around for both sides.”

Along with President Clinton, I take issue with Davis’ contention that equal blame exists on both sides. President Bush requested greater oversight in 2003, Republicans are clearly seen in the video fighting for greater oversight in 2004, and John McCain led the charge for greater oversight in 2005. All efforts were rebuffed by Democrats, who demagogued the issue with racial politics that made reform impossible to accomplish. At least they tried. I see no evidence of any push toward greater Fannie Mae / Freddie Mac oversight since the short bus rolled onto Capitol Hill in January 2007.

That said, I appreciate Congressman Davis’ candor in admitting Democrats let their ideology get in the way of what was right for the country.

 

[I.P.Freely]

Reagan and Thatcher the Batman and Robin of deregulation started it, The changes in the 80s removed constraints on bankers, and made them more important than the manufacturing side.

 

[OnePercenter]

Pretty sure 2008 would have occurred with or without Bush.

Nope, sorry, the mergers on speculation monies were all BushCo.

 

[Little-Acorn]

A summary I wrote six years ago. Still very timely today.

----------------------------------------

An hour-long program on the origins of the current financial crisis, was put together by Fox News in 2008. It contains a great many clips from various officials who were involved, interviews by news people, etc. They called it "Saving Our Economy". Someone put it on YouTube, in six segments. Go there and do a search on that title, and you should get all six segments. They vary from 5 to 10 minutes each, about 45 minutes running time total (no commercials).

It's an excellent explanation of how the crisis started, who did what, what the results were, etc. A real must-see.

Here's a summary:

-----------------------------------------

Sept. 23, 2008: Treasury Secretary Henry Paulson: "The events leading us here began many years ago, starting with bad lending practices by banks and financial institutions, and by borrowers taking up mortgages they couldn't afford."

-----------------------------------------

The Federal National Mortgage Association (FNMA, or "Fannie Mae") was created in 1938 during the Great Depression. to create a market for mortgages where they could be bought and sold.

In 1968, Lyndon Johnson and a Democratic Congress spun off Fannie Mae so that it would not show up in the Federal budget. But the Federal govt was always there, ready to bail out Fannie Mae if problems happened. This enables Fannie Mae to offer lower rates for the mortgages it bought, since it was not taking the risks that other banks and institutions had to. In 1970, the Federal Home Loan Mortgage Corporation ("Freddie Mac") was formed, to create competition for Fannie Mae, since ordinary banks could NOT compete with the government-backed rates they offered.

The Community Reinvestment Act (CRA) was passed by a Democrat Congress and signed by Jimmy Carter in 1977. It made sure banks were lending to people of all colors and income levels. But things quickly began going off the rails, as activist groups found a new weapon in the law: The could start suing lenders for discrimination if they didn't lend to enough minority families, regardless of the families' ability to pay the loans back as promised. Banks began making riskier and riskier loans for fear of having to fight expensive lawsuits.

Community groups began bullying the banks, especially one called the Association of Community Organizers for Reform Now ("ACORN"). It hired several specialized lawyers, including a young man named Barack Obama, to teach its employees how to go to the homes of bank CEOs and senior officers, harassing and publicly embarrassing them while remaining within the limits of local law to avoid prosecution. At one point, ACORN brought a lawsuit against a thrift merger in Illinois, insisting that the lending institutions had not made as many loans to minorities as ACORN thought they should. The bank replied that such loans would be financially irresponsible, and would put ALL the bank's customers at unacceptable risk. ACORN prevailed in court, and banks began making more and more risky loans to home buyers who could have never qualified for those loans under ordinary circumstances.

In late 2000, in the last days of the Clinton administration, the government ordered Fannie and Freddie to increase the numbers of these risky ("sub-prime") mortgages they were buying from banks and lending institutions across the country. They did, lowering their rates and buying more and more, until fully half their portfolios consisted of these risky sub-prime mortgages, combined and packaged in various ways.

The Bush administration raised red flags starting in April 2001. Their 2002 Budget Request declared that the size of mortgage giants Freddie Mac and Fannie Mae is "a potential problem" because financial trouble in either one of them "could cause strong repercussions in financial markets".

In 2003, the White House warning about Fannie and Freddie, was upgraded to a "Systemic Risk that could spread beyond just the housing sector".

As Fannie and Freddie continued to lower their rates and buy mortgages, lenders made more and more mortgages to buyers with questionable ability to pay, safe in the knowledge that they could immediately turn around and sell the mortgages to the government-sponsored Fannie and Freddie, thus avoiding any consequences if the loans were later defaulted. They were happy to make more and more such mortgages, collecting fees for each and selling the mortgages to F&F.

Countrywide Financial chairman Angelo Mazzillo literally started screaming at Wall Street Journal editor Paul Gigot, when Gigot asked him about the wisdom of making so many loans to buyers unlikely to pay them back. Mazzillo insisted loudly that Gigot had no idea what he was talking about, did not understand the first thing about mortgage lending, etc., etc. He failed, however, to answer any of Gigot's questions in even the simplest terms or explain why they were "wrong".


(to be continued)

 

[Little-Acorn]

(continued from above)


In Fall 2003, the Bush Admin was pushing Congress hard to create a new Federal agency to regulate and supervise Fannie and Freddie, both Government Sponsored Entities, or GSEs.

At a Congressional hearing on Sept 10, 2003, John Snow, Secretary of the Treasury stated: "We need a strong, world-class regulatory agency to oversee the prudential operations of the GSE's, and the safety and soundness of their financial activities."

At that same hearing, ranking member of the House Financial Services Committee Barney Frank (D-MA) defended his practices with regard to Fannie Mae and Freddie Mac: "Fannie Mae and Freddie Mac, are not in a crisis."

Frank said the Fed Govt should be encouraging F&F to do more to get low-income families into homes:
"The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up a possibility of serious financial losses to the treasury - which I do not see, I think we see entities which are fundamentally sound financially and can withstand some of the disaster scenarios - the more pressure there is there, then the less I think we see in terms of 'affordable housing' ".

The top executives at F&F began cooking their books, exaggerating their sales in their quarterly reports, so that the company officials could claim they had met their companies' sales targets, and thus collect huge salary bonuses. They were finally caught in 2004. Several of them stepped down, but none was every punished, or even charged. One of them, Franklin Raines, CEO of Fannie Mae, later gave financial and housing advice to the campaign of Presidential contender Barack Obama.

At a House Financial Services Committee Hearing on Feb. 17, 2005, Alan Greenspan warned against one of the fundamental ideas of modern liberalism, the idea of putting all our eggs in one basket by concentrating financial activity into just a few big agencies in central government: "... Enabling these institutions to increase in size - and they will once the crisis in their judgment passes - we are placing the total financial system of the future at a substantial risk."
He later added at another hearing on April 6, 2005: "If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis."

Senator Charles Schumer (D-NY) ignored any possibility the F&F might be in trouble at that hearing, and simply pointed to the advantages some people had gotten from the government's activities: "I think Fannie and Freddie ... are an intrinsic part of making America the best-housed people in the world... if you look over the last 20 or whatever years, they have done a very, very good job."
Schumer also complained, "Things are good in the housing market. Why are people entertaining radical change?"

On April 7, 2005, Treasury Secretary John Snow warned again: "These large portfolios, unchecked in their growth over the last decade or so, pose a real problem." The Senate Banking Committee adopted strong regulation that would have prevented Fannie and Freddie from acquiring these bad mortgages. All of the Republicans on the committee voted for it, and all the Democrats voted against it, and it passed out of the committee on a straight party-line vote. But Democrats then filibustered the bill on the Senate floor, preventing it from being brought to a vote.

Freddie Mac and Fannie Mae was active in making campaign contributions to politicians, from money that ostensibly was for low-income mortgages. The top two recipients were:

Christopher Dodd (D-CT): $165,000
Barack Obama (D-IL): $126,000

The highest-receiving Republican was Bob Bennett (R-UT), who got $108,000. Further down the list was John McCain (R-AZ), who accepted $25,000.

On May 25, 2006 in the Senate, John McCain (R-AZ) sounded more warnings over the huge size and lack of discipline in the government companies, and sponsored a bill to regulate the companies more firmly: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac... and the sheer magnitude of these companies and the role they play in the housing market... the GSEs need to be reformed without delay." McCain's bill was voted out of committee on a straight party-line vote: All Republicans voted for it, and all Democrats voted against. Democrats then announced they would filibuster the bill in the Senate, as they had the previous year's regulatory legislation. Republicans knew they did not have enough votes to achieve the 60% needed, and so never brought the bill to the Senate floor.

By the beginning of 2008, Fannie Mae and Freddie Mac had bought up over $4 trillion in mortgages, roughly one-quarter of which was risky sub-prime mortgage paper. With interest rates rising, these rickety homeowners started defaulting on their loans. Only about 2% of them defaulted by January 2008, but the effect was disastrous. Banks began to get leery of lending money to each other, knowing that their fellow banks held substantial assets that might default and become worthless, thus making the banks unable to pay back their loans to each other.

Banks and lending institutions began collapsing or seeking emergency help: Countrywide Financial, Lehman Brothers, insurer AIG, Bear Stearns, IndyMac bank, etc. buckled to their knees as paralysis spread. The huge numbers of risky subprime mortgages, had become like a "poison pill" that choked the institutions that had swallowed them. The Fed finally took over Freddie Mac and Fannie Mae, but the damage had long been done.

Congress appropriated nearly $1 trillion in emergency funds to loan to, or otherwise prop up, failing financial institutions. But none of the original legislation that had spurred decades of risky lending, has been repealed in all the "bailout" frenzy, and there are no bills pending to do so.

 

[waltky]

Actually all administrations since the Savings & Loan debacle each bear some of the blame...

... in that necessary financial reforms to prevent the 2008 meltdown weren't done.

 

[edthecynic]

Not only did Bush not start it, he tried 17 different times to stop it.

Bullshit! Bush did nothing but talk about reform. When his GOP House passed a reform bill, Bush let his GOP Senate kill the bill in committee.

It wasn't until Obama was elected that Pelosi passed a reform bill that Obama signed.

 

[edthecynic]

Not only did Bush not start it, he tried 17 different times to stop it.

FACT: the Bush Administration made over 30 attempts over his two terms in office ...

FACT: This lie grows every time it's told!