The Truth Behind The Financial Crisis
By Tom Fitton
September 30, 2008
Our politicians deliberate just how far down the road to the perdition of socialism/communism/fascism they plan to take our country in response to the latest financial crisis while we want to know the true source of the financial meltdown in the home mortgage industry leading to the collapse of Fannie Mae and Freddie Mac and today's attendant financial crisis. Let's follow the money trail back about nine years. Check out this article from the September 30, 1999 edition of the New York Times: (web site)
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. [Emphasis added.]
The article goes on to predict that such a strategy might not cause problems during times of economic prosperity but that Fannie Mae could run into serious financial difficulty during an economic downturn.
And here we are with the financial markets on the verge of collapse and the federal government debating the largest government bailout in the nation's history.
While the Clinton administration is certainly culpable for getting the ball rolling on these high-risk loans, there is plenty of blame to go around. Fannie Mae led by Clinton's former budget director Franklin Raines and Obama campaign advisor Jim Johnson took Clinton's risky gamble and then doubled down. The pair allegedly cooked the books at Fannie, issued countless dubious mortgages, and then took huge bonuses before leaving the company. Both men have also been accused of accepting special mortgage deals from Countrywide (a co-conspirator in this financial mess) as well.
Johnson resigned from his official position with the Obama campaign because of the scandal, though he, like Raines, may still be advising him. (To be sure, these "companies" contributed generously to Republicans and kept many a Republican on the payroll and their boards. Some will point to Rick Davis, McCain's campaign manager, as an example.)
Politicians on Capitol Hill were no better. For example, Senate Banking Chairman Chris Dodd (D-CT), who was also nabbed in the Countrywide scandal, took more money in campaign contributions from Fannie Mae and Freddie Mac than anyone else in the U.S. Senate. (Barack Obama, with only four years in the Senate under his belt, was close behind.) When reform proposals for Fannie and Freddie were put before Dodd, he called them "ill advised."
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