Now what I can understand of the current economic situation is that Fannie Mae and Freddie Mac's directors encouraged the lending of sub-prime mortgages nu banks and others to people of dubious means in order to increase their bonuses, promising the lenders that these mortgages would be fully backed by the Federal Government. Then Fannie and Freddie repackaged these loans and sold them to investment banks and others who bought them figuring they were good because they were backed by the Federal Government. These financial packages contained both good and bad loans. And what they really were was financial poison wrapped in financial candy. For years the packages were bought and sold until no one knew who had what and, of course, no one knew where the poison was. But what is known is that the poison was now widespread throughout the financial circulatory system.
And once that became known, no one wanted to lend to anyone since they had no idea if the collateral contained poison or not.
So it is clear that this started with Fannie May and Freddie Mac.
On September 11, 2003 the New York Times reported
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.
Huh. So what happened to that? Well, members of Congress shot it down, most vocal was Representative Barney Frank
''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.''
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
In 2005 came yet another opportunity to fix the problem with the introduction of Federal Housing Enterprise Regulatory Reform Act of 2005. It intent was to supervise Fannie and Freddie. It was sponsored by Republican Senator Chuck Hagel and co-sponsored by Senators McCain, Dole and Sununu. But it never passed either the House or the Senate. In fact it never made it out of the Committee on Banking, Housing, and Urban Affairs.
Despite this history, Senator Obama has been using the current financial crisis for political gain. New to his stump speech is rhetoric that blames the Bush Administration and Republicans in general for the current problems
"The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren't minding the store," Obama said in a statement. "Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression."
And according to the Institutional Media, the public is buying it.
...a CNN/Opinion Research Corp. survey of registered voters released Monday, 47 percent blamed Republicans for the current financial crisis the stock market. By contract, only 24 percent blamed the Democrats, with 20 percent saying both parties were to blame and 8 percent not blaming either party.
The problem is, that it is not true, of course.
It is clear that Bush and McCain tried to put a stop to it. And it is clear that most Democrats opposed it. And it is also clear that Senator Obama did nothing to identify or help fix the problem.
John Stephenson of NewsBusters writes
Since the current financial crisis is taking place under a Republican administration it is easy for people to automatically blame Republicans. The media have happily pushed this misconception too. Facts the media ignore are things such as the very groundwork for today’s problems being rooted in legislation created by Jimmy Carter , or that in 2003 President Bush proposed “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis that was blocked by Democrats on party lines. However, the media don’t report these very important and significant facts and so it is no wonder that the GOP takes the brunt of the blame in this recent CNN poll.
So it goes...