Meanwhile, Back In 2003

Posted: September 17, 2008 in Economy, Politics

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

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.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

The administration’s proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies’ exemptions from taxes and antifraud provisions of federal securities laws.

The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

NOW, check out this next excerpt~

Significant details must still be worked out before Congress can approve a bill. 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.”

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.

Trust me, I am NO fan of adopting a socialist model to manage the free market. But Bill O Reilly completely had it wrong last night when he suggested that Bush did nothing to address this train wreck.

  1. Richard Froggatt says:

    The more I hear about this mess the more disgusted I get.

  2. Wizz says:

    Didn’t Republicans control Congress in 2003? And please don’t give me the line about Dems blocking them… You just put up a post a few days ago about Pelosi and Reid being able to flex their muscles when they fell like it.

  3. Duane says:

    Wizz, Wizz, Wizz,

    In your last 3 or so comments, you have done nothing but knee-jerked over the fact that Democrats are being blamed here. Meanwhile, you overlook the fact (again) that I have already said that Republicans are in this mess as well.

    The CBC was one of the main voices pushing for this crap in the name of helping helping minorities. Now that this plan has backfired, they are going to get the same pass they got when they pushed for 3 strike laws. Nobody is suggesting here they are the sole cause behind this mess, so relax. But to avoid talking about their involvement by matching their errors with Republican errors is downright a dishonest assement.

  4. Wizz says:

    In your last 3 or so comments, you have done nothing but knee-jerked over the fact that Democrats are being blamed here.

    No… I’m disputing the point you made in this post that Bush did something. His party controlled Congress and the White House.. If we wanted to do something he could have whether the CBC liked it or not. They did that with plenty of other things.. Why not this?

  5. Duane says:

    No… I’m disputing the point you made in this post that Bush did something.

    Not my point at all. Bill O’ Reilly suggested that Bush ignored the warning signs of Fannie/Freddie and was basically mum on the whole thing. This article proves that he did in fact saw the warning signs and addressed the issue. Did he or Congress have the backbone to push his proposal through? Apparently not.

    But again, the CBC was completely on the wrong side of this issue because they were not having any talk about regulating Fannie or Freddie. To them, the sky was blue and the birds were singing. Only when those loans began reverting back to their real interest rate did the CBC make a stink about it. They knew these rates would eventually mature yet they stayed silent until folks (who oftentimes did not read the fine print) started raising hell about it.

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