Free Markets, Free People
Greg Mankiw produces a story from 2003 which makes a statement Barney Frank made during a recent debate with Sean Bielat an absolute lie.
During the debate, Bielat, the Republican challenger for Frank’s seat, said this:
“He has long been an advocate for extending homeownership, even to those who couldn’t afford it, regardless of the cost to the American people,’’
“Low-income home ownership has been a mistake, and I have been a consistent critic of it,’’ said Frank, 70. Republicans, he said, were principally responsible for failing to reform Fannie Mae and Freddie Mac, the mortgage giants the government seized in September 2008.
“I was always against it and it’s the GOP’s fault”.
Two things implied by this statement. First Frank is obviously admitting that “low-income ownership” was a mistake. Secondly, he’s admitting that Fannie and Freddie were integral to the financial problems we’re enduring.
Now, to the record. First the “it’s the GOP’s fault”:
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….
All opposed? Say "aye":
Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”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.”
But there’s even more evidence than just that. How about a letter to President Bush in 2004 signed by Frank, Pelosi and 74 other Congressional Democrats?
"We urge you to reconsider your Administration’s criticisms of the housing-related government sponsored enterprises (the GSEs) and instead work with Congress to strengthen the mission and oversight of the GSEs. We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing.
We have been concerned that the Administration’s legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. While the GSEs’ affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.
We also ask you to support our efforts to push the GSEs to do more affordable housing. Specifically, join us in advocating for more innovative loan products and programs for people who desire to buy manufactured housing, similar products to preserve as affordable and rehabilitate aging affordable housing, and more meaningful GSE affordable housing goals from HUD."
But, you know, Frank has always been a critic of low-income housing and it’s the GOP who prevented reform.
Again, a lie designed to influence and placate the low-information voter who will, unfortunately, accept it at face value.
Another in a long line of reasons to give Frank the opportunity to apply for unemployment benefits.
If you live in Frank’s district, this is the only reason you need to vote for Sean Bielat, his GOP opponent. I.e. Frank is about to remake Fannie Mae and Freddie Mac in his own image. That after the two institutions that he fought so hard to support with your tax dollars and attempted to keep Congressional oversight to a minimum, tanked and almost took the economy with them.
The Washington Post has a mostly sympathetic piece (poor Barney, he only wanted to use your money to help the poor put a roof over their heads) which, if you read carefully between the lines, at least hints at most of the story. And the rest of the story ends with us pumping $160 billion and counting into the two institutions after the government took them over.
Back when it all started, Frank identified cash cows in the two institutions which would allow him to fulfill his personal agenda:
Fannie and Freddie were in the business of buying and guaranteeing mortgage loans from private lenders, which in turn could take the money and make even more loans to prospective homebuyers or developers looking to build apartment buildings.
Democrats, led by one of Frank’s closest allies, Rep. Henry B. Gonzalez (D-Tex.), wanted to require the two companies to spend a specific percentage of their funds on affordable housing. Under the proposed legislation, the companies were to buy home loans made to lower- and middle-class people and loans going to fund development of affordable rental housing.
This represented a rich new vein of money.
But even as Democrats were looking to expand Fannie and Freddie’s mission, a small group of Republicans, led by Rep. Jim Leach of Iowa, urged the government to pay more attention to the dangers posed by the firms.
Let’s see – “rich vein of money” or oversight and caution? “Rich vein of money” of course. So Leach’s warning were pushed aside:
The companies had been growing ever larger. Yet compared with their rivals in the banking industry, they were putting aside relatively little capital to cover potential losses. Leach proposed a tough new regulator that would restrain Fannie and Freddie.
Nah. So onward we went, huge sums of money flowing out the door, very little oversight, with a political agenda driving the bus instead of financial sanity. That was in 1992. In 2003, the warnings were still coming and getting louder:
By late 2003, the firms had taken on more than $4 trillion in debt, rivaling that of the entire federal government. Yet Frank, who had by then become the top Democrat on the influential House Financial Services Committee, still wasn’t focused on the risks. He had his sights set on what else they could do to promote for affordable housing, particularly low-cost rental housing.
At a hearing called by Republicans, who controlled the committee, Frank made clear that he was reluctant to tighten oversight because it could limit the ability of Fannie and Freddie to help people get a roof over their heads.
The companies, he urged colleagues, "are two of the very important tools that we have" and had to do what "the market in and of itself will not do. "They were "not endangering the fiscal health of this country," he continued.
But, of course, they were and did endanger the fiscal health of the country. Denial was his only weapon and he used it constantly – because his personal political agenda was apparently worth the risk – at least to him. He even said once he wanted to “roll the dice” a little more, perfectly willing to risk the fiscal future of the country to push his political agenda.
And you all know the rest of the story.
Fannie and Freddie proceeded to load up on securities backed by risky mortgages, such as subprime loans and no-document loans. The firms asserted that they were aggressively fulfilling their affordable housing mission, and some risky mortgages were indeed going to borrowers who couldn’t otherwise afford a home.
But many of the loans were going to people who could have afforded traditional mortgages, and the companies were bulking up on the risky loans purely in pursuit of even larger profits.
When the housing market crashed, the unprecedented surge in mortgage defaults blew a hole in the firms’ finances.
The Democrats and Frank want to deny this part of the story or pretend it is an insignificant part of it or that what happened to Freddie and Fannie were a result of Wall Street’s shenanigans.
Not really. The prime buyer and bundler of the sub-prime mortgages were those two institutions. And, as the article notes, Freddie and Fannie believed they were “aggressively fulfilling their affordable housing mission” as legislatively enabled by Barney Frank and Congress.
And what has he managed to get for his effort?
For all his efforts, Frank readily acknowledges that there are more people needing decent housing than there were when he started in Congress. And with millions of others losing their homes to foreclosure, Frank asks to be judged by how much worse things would have been without him.
"In the political world, you get measured on the ultimate results," he said. "I think we’ve prevented things from getting as bad as they otherwise might have been."
Really? Have you looked around you Mr. Frank? This ranks right up there with the unmeasurable “saved jobs” nonsense pushed by the administration in the midst of 9.6% unemployment. And now Frank is going to get another chance to shape the housing market’s future?
Time to put him into retirement before he can again try to do what he did last time. Another reality of the “political world” is you should only get one chance and if you screw it up as badly as Frank did, you should join the ranks of the unemployed.