The Blame Game = Part 2

Let's expand yesterday's discussion about the political class use of the blame game. First, complete disclosure: I have never voted for a Republican for national office in my life. Thus, as you read the following do not think I come off as a Bush apologist, in my opinion his Presidency was a failure in so many ways.

However, should the Bush administration be blamed for the economic and housing industry meltdown as the Democrats claim and were the Democrats blameless? The following comes from a website called The Gateway Pundit and was published on their website on September 21, 2008. The website definitely has a pro-Republican bent but it documents all of its data sources and if even half of them are right, it is a damning indictment of the Democrats regarding their blame for the economic meltdown. Consider what the Bush administration thought of Freddie Mac and Fannie Mae, the two massive Federal agencies that were involved with trillions of dollars in home mortgages (the incompetency of these two Federal agencies will probably end up costing the taxpayer trillions of dollars and were central causes in the economic turmoil):

1. April 2001 - Bush administration 2002 budget declares the size of Fannie Mae and Freddie Mac "a potential problem" and "financial trouble of a Government Sponsored Enterprise (Freddie and Fannie are both GSEs) could cause strong repercussions in financial markets, Federally insured entities, and economic activity."
2. May, 2002 - Bush calls for better disclosure and corporate governance principles to also apply to Freddie Mac and Fannie Mae.
3. February, 2003 - the Office of Federal Housing Enterprise Oversight releases a report that concludes unexpected problems at a GSE could "immediately spread into financial markets and beyond the housing market."
4. September, 2003 - Bush Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend a new Federal agency to regulate and supervise the GSEs.
5. November, 2003 - Bush administration wants the new Federal regulatory agency to have enough power to "reduce systemic risk".
6. February, 2004 - the 2005 Bush budget reiterates the need for a new regulatory authority for GSEs and highlights the risks posed by their substantial growth.
7. February, 2004 - Bush cautions Congress about GSEs through Greg Mankiw, chairman of the Council Economic Advisors, calling for Congress to help reduce the risk of the GSEs.
8. June, 2004 - Deputy Secretary of Treasury Samuel Bodman spotlights the risk of the GSEs and calls for reform, emphasizing that stronger regulatory authority is needed.
9. April, 2005 - Treasury Secretary John Snow again calls for GSE reform citing risk concerns about the GSEs and the need for reform and warning of risks to the entire financial system.
10. July, 2007 - President Bush again calls on Congress to pass a reform package.
11. December, 2007 - Bush again warns Congress about the need to reform the GSEs and stronger oversight.
12. February, 2008 - Assistant Secretary David Nason reiterates the urgent need to move on reform.
13. March, 2008 - Bush calls on Congress to move forward on reforms of Fannie and Freddie.
14. April, 2008 - Bush again calls on Congress to pass the legislation needed to "modernize Fannie Mae and Freddie Mac."
15. May, 2008 - Bush calls on Congress for reform legislation.
16. June, 2008 - Bush calls on Congress to pass reform legislation.
17. July, 2008 - Congress passes reform legislation for Fannie Me and Freddie Mac, seven years after the Bush administration called for action to get the GSEs under control.
18. Note - in 2005, John McCain partnered with three other Republican Senators to "reform the government's involvement in lending." Their effort was blocked by the Democrats.

Thus, according to this source, there were at least eighteen instances where the Bush administration correctly predicted the problem that would occur from the ineptitude of Fannie Mae and Freddie Mac, insufficient oversight, and the horrible economic consequences. Combine this reality with the fact that Freddie Mac and Fannie Mae were restating financial results and having serious accounting issues during this whole time (2003 - Freddie restates financial results for three years, 2003 - SEC investigates Fannie regarding earnings manipulations, 2003 -Fannie discloses $1.2 billion accounting error.) Thus, the warning signs were all over the place but the political class did NOTHING to remedy or alleviate the situation. The question begs: Why?

Here's one theory: the political class did not WANT to fix anything since the status quo was to their benefit. From 1998 to 2009, the top three receivers of campaign donations from Fannie Mae and Freddie Mac were Democrats:

1. Democrat Senator Chris Dodd - Received $165,400 in donations from the GSEs
2. Democrat Senator Barack Obama - Received $126,349 in donations
3. Democrat Senator John Kerry - Received $111,00 in donations

But hold on! While the Democrats were the top beneficiaries of the GSEs, positions four through six were Republicans:

1. Bennett - $107,999
2. Bachus - $103,300
3. Blunt - $96,550

It all stinks, taxpayer supported Federal agencies using their budget dollars to support the political class. Combine this with the fact (source: factcheck.org) that although three top Fannie Mae excutives during this period ended up under investigation for fraud and accounting irregularities, Franklin Raines, Tim Howard and Jim Johnson, they all ended up working in handsomely paid positions for the Obama Presidential campaign. Stinks even more, doesn't it? Were GSE campaign donations traded by GSEs executives for preferential treatment by the recipients of said donations in the political class? Even if there was no quid pro quo, the potential for conflict of interest is extremely high.

Conclusion: most of the meltdown happened on the Bush watch and although his administration correctly identified the problem and the potential for economic disaster, he did not have the smarts or the clout to get what he wanted, beginning in 2001, to avert the problem. He is culprit number one. Culprit number two is the Congressional wing of the political class that either did not know how to fix the problem Bush correctly identified or, more likely, did not want the fixes to occur since it was a source of money for them, both Democrats and Republicans. Thus both Republicans and Democrats are to blame, the problem was staring them right in face seven years ago and they did nothing. But did you expect anything different from them? They have fixed nothing in the past forty years, what is another few trillion dollars of taxpayer wealth down the drain via bailouts as long as they can stay in office?

This is just another example of why Step 39 in the book requiring term limits is so important, entrenched politicians need to continually to get money for their re-election. In this case, their probable desire for GSE campaign donations led them to not fix a problem that is costing us all via our tax doillars.

Addition to yesterday's post: apparently I missed some of the Federal regulatory agencies that are in charge of some facet of the banking and housing market - OFHEO = The Office of Federal Housing Enterprise Oversight, Federal Housing Finance Agency = FHFA and Ginnie Mae. Thus, Howard Dean's statement that we examined in yesterday's blog is even more ridiculous, we have way too much bad and overlapping government regulation and interference in this country today, not too much capitalism.