Jan 08 2009
Setting the Economic Record Straight
Regular readers of my blog know I have supported Pres. Bush when called for and trashed him when warranted.
One thing I have supported him on is this housing debacle that set off the current economic meltdown. Why have I supported him? Simple, the records prove that President Bush did what he could to rein in Fannie Mae and Freddie Mac (along with John McCain). Not only was he ignored, but his pleas were mocked and ridiculed by those such as Chris Dodd and Barney Frank.
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Karl Rove
Like most myths, this is entertaining but fictional. In reality, Fannie Mae and Freddie Mac were among the principal culprits of the housing crisis, and Mr. Bush wanted to rein them in before things got out of hand.
Rather than a failure of capitalism, the housing meltdown shows what’s likely to happen when government grants special privileges to favored private entities that facilitate bad actors and lousy practices.
Fannie and Freddie are “government-sponsored enterprises” (GSEs), chartered by Congress. As such, they had an implicit promise of taxpayer backing and could borrow money at rates well below competitors.
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Because of this, the Bush administration warned in the budget it issued in April 2001 that Fannie and Freddie were too large and overleveraged. Their failure “could cause strong repercussions in financial markets, affecting federally insured entities and economic activity” well beyond housing.
Mr. Bush wanted to limit systemic risk by raising the GSEs’ capital requirements, compelling preapproval of new activities, and limiting the size of their portfolios. Why should government regulate banks, credit unions and savings and loans, but not GSEs? Mr. Bush wanted the GSEs to be treated just like their private-sector competitors.
But the GSEs fought back. They didn’t want to see the Bush reforms enacted, because that would level the playing field for their competitors. Congress finally did pass the Bush reforms, but in 2008, after Fannie and Freddie collapsed.
The largely unreported story is that to fend off regulation, the GSEs engaged in a lobbying frenzy. They hired high-profile Democrats and Republicans and spent $170 million on lobbying over the past decade. They also constructed an elaborate network of state and local lobbyists to pressure members of Congress.
It’s Time for Washington Politicians To Go To Jail
I like Bush, I even voted for him the first time. I want to believe you about the housing crisis, but I am having trouble. As President, he could have done more to bring the issue to the American people. Most of us only recently discovered how much trouble we are in.
With the republicans essentially in control, Bush should have found a way to get it done. As President, he has shown a propensity to make excuses. He still thinks the governments response to Katrina was adequate.