The Observation Deck

How come the Bush administration's economic advisors weren't on the ball here and telling the president to get out in front of this crisis?

This is what happens when you depend upon the drive by media or the Lakewood Observer for your news

September 11, 2003 New Agency Proposed to Oversee Freddie Mac and Fannie Mae (clicky)

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.

2001

April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."

2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that "although investors perceive an implicit Federal guarantee of [GSE] obligations," "the government has provided no explicit legal backing for them." As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. ("Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03)

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO's review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004

February: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04)

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)

2007

July: Two Bear Stearns hedge funds invested in mortgage securities collapse.

August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying "first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options." (President George W. Bush, Press Conference, The White House, 8/9/07)

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon." (President George W. Bush, Discusses Housing, The White House, 12/6/07)

2008

January: Bank of America announces it will buy Countrywide.

January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

February: Assistant Secretary David Nason reiterates the urgency of reforms, says "A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully." (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and "move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages." (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)

April: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

"Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans." (President George W. Bush, Radio Address, 5/3/08)
"[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator." (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)
Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans." (President George W. Bush, Radio Address, 5/31/08)
June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying "we need to pass legislation to reform Fannie Mae and Freddie Mac." (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)

July: Congress heeds the President's call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.

http://www.glennbeck.com/content/articl ... 198/15484/ part of the above post was from gb.com...

This about sums it up:

http://www.salon.com/comics/boll/2009/02/05/boll/

It was not the Bush tax cuts that caused the mortgage meltdown or the credit markets to freeze. It was the dems in congress who prevented republicans from putting tougher regulations on Fannie and Freddie that caused this financial meltdown

Stephen you have not presented studious research that precisely quantifies the Fannie/Freddie factor that is central to your allegations and blaming.

At a minimum such quantification would account for the magnitude of the purported effect as it rippled through a number of different types of markets and impacted the mortgage-derived secondary instruments of leverage and risk management.

In other words, show me credible research able to clarify the pernicious Fannie/Freddie effect in the context of all other actual effects. If you do so, you will make your case.

Maybe go to the library or call up a professor or read a journal.

The sad fact is that neither party seems to understand what caused the problem, nor to have a solution that people think will work.

Historians and economists still disagree over the cause of the prior great depression, and whether FDR's policies saved us or ruined us. Certainly unemployment even worsened when people were working on government projects, and our economy wasn't near healthy until we got into World War II, and having a war doesn't seem to be a wise way to improve your economy.

One valid criticism of bail out packages is that, since the days of FDR, bail outs have gone not where there was the greatest need, not where they would have the most restorative effect, but rather to who has the best lobbyists, and I use the term lobbyists to include all the special interest groups that demand special treatment.

The Democrats are pretty open in acknowledging that they grant funds and policies that benefit their lobbyists; Republicans don't seem to be as open about it (perhaps because they have less experience at being in control of the purse-strings). Republicans hold themselves out as advocates of fiscal responsibility, and of allowing us to run our own lives and businesses, but its hard to believe them after they ran amok in the last years that they controlled the congress.

I do think we have too many government regulations, but there should be regulations controlling government entities, or near-government entities, such as Fannie and Freddy, that are involved in the economy. But neither party seems interested is such regulation, so now we have bail-outs that are unregulated and unsupervised, and find ourselves in the embarrassing situation where we are trying to impose retroactive and probably unlawful, controls. Meanwhile, we do have a regulation that specifies how many seeds there can be in a seedless grapefruit, with, no doubt, a bevy of federal inspectors counting seeds. Now, in all seriousness, other than increasing the cost of grapefruit, how do we benefit from such a regulation?

Meanwhile, we are being hit with the biggest piece of pork in memory (at least this proves that the fringe characters who asserted that Obama was actually a Muslim were badly mistaken), that will have potential workers waiting for a bailout position, rather than scrambling to find work. I can't see how that will restore the economy; the bailout largess will have to stop someday, and those who will have come to count on it will be right where they started, but older and even less likely to find productive work.

One suggestion I would have would be a change in our attitude toward the infrastructure. It seems to me we build on the cheap, and are surprised when the paving fails or a bridge collapses. Our funding is based for the most part on annual budgets. What we need are some long-term plans with more substantial construction, so we will spend more on construction and less on repair. From what I have read (for a major bill such as the bailout, part II, shouldn't the media give more details?) this bill gives some billions for construction, for a year! I think contractors will be reluctant to add workers for such a limited program; it makes more sense for them to pay overtime to their existing workers than to bring in new workers, nurture them through a period of training (which takes a lot of labor and supervisory time), only to have to let them go at the end of the project. So this type of panicked spending will produce few if any new jobs, and little spill-over economic activity, as the workers on overtime won't have time to spend their extra money.

Mr. Eisel, despite the lengthy list of statistics you have provided and the fact that you are quick to assert that anyone who disagrees with you must get their information from bad sources, you still haven't explained why no one did anything.

Sure you can cry wolf all you want, but that doesn't necessarily indicate action. I saw no serious efforts on either side of the aisle to curtail this problem. The truth of the matter is that the last administration's priorities were the Middle East wars, terrorism and social issues. I never remember Mr. Bush saying anything relevant about the economy until recently.

And give the media some credit, they only bother to cover events that are news worthy. So a few people saying there is a problem and then subsequently failing to garner support falls under the category of not news worthy. No action = no news.

After all, I'm sure that all the failing newspapers are reveling in this economic downturn and were covering up the supposed attempts to stop this crisis by the Republicans because it would benefit them. Because that makes total sense.

Mr. Eisel, despite the lengthy list of statistics you have provided and the fact that you are quick to assert that anyone who disagrees with you must get their information from bad sources,

Where did I assert that anyone who disagrees with me got their infor for a bad source?

edit: got their info from a bad source?

Stephen Calhoun wrote:

It was not the Bush tax cuts that caused the mortgage meltdown or the credit markets to freeze. It was the dems in congress who prevented republicans from putting tougher regulations on Fannie and Freddie that caused this financial meltdown

Stephen you have not presented studious research that precisely quantifies the Fannie/Freddie factor that is central to your allegations and blaming.

At a minimum such quantification would account for the magnitude of the purported effect as it rippled through a number of different types of markets and impacted the mortgage-derived secondary instruments of leverage and risk management.

In other words, show me credible research able to clarify the pernicious Fannie/Freddie effect in the context of all other actual effects. If you do so, you will make your case.

Maybe go to the library or call up a professor or read a journal.

How about the Dow and the US dollar diving after Fannie and Freddie stocks went in the tank?

In other words, show me credible research able to clarify the pernicious Fannie/Freddie effect in the context of all other actual effects. If you do so, you will make your case.

Maybe go to the library or call up a professor or read a journal.

I should probably ignore my real world experiences and forget that I worked for a major bank that serviced Freddie and Fannie mortgages.

Quote all the statistics you want, but all that does is prove that there was a problem that no one addressed. Since you seem to believe that you have a better understanding of this matter than us laymen, then why no offer suggestions for solutions other than "this isn't working". Even I can tell you that and that doesn't make me an expert.

Anyone can complain. Not everyone can offer a decent solution.

Sure you can cry wolf all you want, but that doesn't necessarily indicate action. I saw no serious efforts on either side of the aisle to curtail this problem. The truth of the matter is that the last administration's priorities were the Middle East wars, terrorism and social issues. I never remember Mr. Bush saying anything relevant about the economy until recently.

No serious effort?

2001

April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."


2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)




September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.



2004

February: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04


June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04


2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05


2007

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon." (President George W. Bush, Discusses Housing, The White House,

2008

February: Assistant Secretary David Nason reiterates the urgency of reforms, says "A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully." (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/0

March: President Bush calls on Congress to take action and "move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages." (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/0


April: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/0

and no serious effort here?

http://www.youtube.com/watch?v=_MGT_cSi ... re=related

Quote all the statistics you want, but all that does is prove that there was a problem that no one addressed. Since you seem to believe that you have a better understanding of this matter than us laymen, then why no offer suggestions for solutions other than "this isn't working". Even I can tell you that and that doesn't make me an expert.

Anyone can complain. Not everyone can offer a decent solution.

The solution was simple (tougher regulations)

http://www.youtube.com/watch?v=cMnSp4qE ... re=related
This clip sums everything up very nicely...

Thealexa Becker wrote:Fewer regulations equals no plan. Liberals haven't had control of economics until recently and this meltdown has been spawning for longer than that. I don't think it is accurate to say that it was all the liberals fault or all the republicans fault. ..........................

Shifting the blame doesn't fix anything.

Liberals have had control of the economy for the last 10 years. One of the ironies of politics is that the "conservative" Geroge Bush presided over the largest increase in non-defense spending and regulations than any other president in history.

Assigning blame is vital to finding solutions.

This article blames the market:

http://www.slate.com/id/2201641/pagenum/2

I don't totally agree because for the last 20 years the federal government has been pushing home ownership to all classes of people without regards to income.

The result is that there are now 19 million vacant housing units in the United States.

The solutions offered by Obama will make the problem even worse. (by design, he wants the problem to be worse).

The number 19 million includes apartments and second homes but the remaining number of 7 or 8 million means trouble for the housing industry.
We have a ten year supply of homes and modifying mortgages in an effort to prop up prices will fail to address the problem.

The only realy solution is to allow prices to decline to their natural level.