Tuesday, October 14, 2008

On the Economy...

There were many mistakes, bad bets and miscalculations leading up to the financial morass our economy is languishing in, however, the Democrats have endeavored to inoculate Obama from any connection to the current market volatility and credit crunch. Conversely, Obama claims his liberal economic policies will change America for the better and make the improvements needed to correct the economy. Yet Obama, his advisors and the Democrat leadership in Congress played key roles in causing the failure of the credit markets and the subprime mortgage crisis that precipitated bank and investment house collapses.

Let's take a look at the failures of government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. As GSEs they had access to lower interest rates than other private lending institutions, had less regulation than public banks and lower capital requirements, in addition to an “implied” government guarantee on their huge debts. The intent of this special arrangement was supposed to translate into more money available to the public for mortgages, but was used instead to make record profits for shareholders, and not so incidentally, big bonuses for the politically connected executives in charge.

In 2003, Freddie revealed it had understated earnings by almost $5 billion, one of the largest corporate restatements in U.S. history. As a result, in November, it was fined $125 million--an amount called "peanuts" by Forbes. The next year, Fannie was under investigation and later audited by federal regulators who found widespread accounting errors and manipulations.

In order to gain congressional support in the wake of these scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." From 2004 to 2007, they became the largest buyers of subprime and Alt-A mortgages (targeted to low income, low credit, first-time home buyers), with total GSE exposure eventually exceeding $1 trillion. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006, driven by the aggressive buying from Fannie and Freddie.

In exchange, Fannie and Freddie retained the support of many in Congress, particularly Democrats to whom they heavily contributed campaign cash, and they were allowed to continue unrestrained. The resulting lack of oversight and regulation allowed crooked executives to cook the books to increase their bonuses and in turn make their bundled subprime and Alt-A loan packages look like profitable risks to the Wall Street banks where they were traded on the open market.

These same officials got away with their crimes by lavishing money on mostly Democratic legislators, including Obama, who was the second highest recipient of Fannie/Freddie money in Congress. Democrats like him could then return home to their districts and tell their constituents what they were doing to help them become homeowners. A win-win situation for the politicians, who fill their campaign coffers with money skimmed off the top of earnings from crooked CEOs, while appealing to low-income voters. That is, until Fannie and Freddie's malfeasance came to light.

When it did, Obama looked the other way as these same executives opened their golden parachutes and took off with taxpayer money. The way he tells the story, it seems like it was everybody else’s responsibility, just not the Democrats in Congress. Now Obama and his friends are trying to cover their tracks and pointing fingers at the one politician who called to reign in the government sponsored entities – John McCain. This is shameful.

Senator McCain was an advocate for stricter oversight and regulation of both Fannie Mae and Freddie Mac -- dating back to 2006. As a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, McCain supported legislation that would have curbed the greed and corruption surrounding the subprime mortgage market. This bill was killed by Ranking Democrats on the Senate Banking Committee.

Is it any wonder why Obama would try to deflect attention from his own connections to this crisis? James Johnson, who headed Obama's VP selection Committee, was Fannie chairman from 1991 to 1998. He too, according to an official government report, cooked the books to increase his compensation and failed to publicly reveal how much he received. “Subprime Mortgage Queen” Penny Pritzer, Obama's campaign Finance Chair, was also involved in this debacle and directly responsible for creating the situations that began the sub prime lending schemes and caused the mortgage collapse.

The real problem, however, is more insidious. Since the Clinton Administration, Democrats have used home ownership as a wedge issue to gain a political advantage among minority groups and low-income voters, with whom they sought to curry favor across America. The Democrats, collaborating with community organizing groups like ACORN, demonized bankers, regulators, and whomever else failed to offer home loans to low-credit consumers, in order to drive their dangerous political agenda. The result was that million of loans were made to first time homeowners with no chance of repayment. Bankers across America suffered with excessive delinquency, which resulted in the secondary mortgage industry being wrecked by these politically connected executives selfishly intent on gaining voters for their Democrat candidates.

Meanwhile, the Democrats running Fannie and Freddie made untold millions. These are undisputed facts. There are still serious questions about Obama’s fiscal policy. Most importantly, can Americans trust the Democrat party to play fair in the future, on the Housing issue, or any other partisan issue, when for over a decade they only played in a way that benefited them personally and politically?

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