Wall Street Bailout, The Truth!

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I received this in an email, it fully and accurately explains the reason for the current financial crisis the country is experiencing.
We will have the same crisis with social security and medicare for the same reasons if something isn’t done.

MANY thanks to the author!!!

This needs to be understood before election day, do we want to put the fox in charge of watching the hen house?

Well, here I go with what seems like some partisan
politics…… sorry, …..  I’m not really intending to do that, but I’m just
wanting to try to understand what caused this credit mess we’re in.  Here is
some perspective which sounds to me like it finally makes some sense.  I think
every thing below is factual.  The Democrats are claiming that Republican lack
of regulation caused this mess.  That’s very ironic, because it is clear
that in recent years the Republicans have been trying to push more regulation of
Fannie and Freddie, and the Democrats have blocked all the Republican attempts. 
This article claims that Democratic influences, starting with the Clinton
administration, caused Fannie and Freddie to accept insecure loans in order to
provide the opportunity for everyone to own a home.  (I think I remember that 
…… a noble goal, but……).  I think this article offers a very simple
explanation of how the typical Democratic and Republican positions on regulation
seem to be reversed on this issue…… with Republicans wanting more regulation
of Fannie and Freddie in recent years, and the Democrats blocking more
regulation …….. until now……

 
I think we have an example here of how partisan politics has now caused
every American major damage.  I’m not saying that partisan politics caused this
problem, but rather that it prevented it from being fixed before it became a
significant problem.
 
You be the judge…..  after reading this, you will be amazed by the Obama
ads claiming that Republicans caused this mess by their lack of
regulation. 
 
(The truth is somewhere in between).
 
Now, having said all the above, let me clearly say that Congress needs to
drop the partisan B.S. and work to correct the situation, regardless of how it
came about.  However, understanding the root cause of the problem is
critical to determining the correct fix…… rather than just addressing the
symptoms of the problem.  My guess ……. they do understand the root cause,
and both sides are scurrying around to cover their a__es.  Something that really
irritates me is that both political parties seem to think the American people
are too stupid to understand what is happening, and to see through their B.S. 
 

Subject: Fw: Good Background on the Economic Crisis and who REALLY
caused it!

 

I hope you will take
time to read this thought-provoking article by someone in our ranks who knows
about these things first hand. Don’t let anyone fool you that the GOP is
responsible for this economic mess! Thanks, Jack, for putting this into an
easy-to-understand article.

 

Dianne B.
Edmondson

Denton
County
GOP
Chair

The Economic Crisis:  We Were
Warned!

by Jack Anderson, GOP Precinct 131
Chair, Frisco Area Victory Chair

and a former
investment banker who is now a small business owner.

REPUBLICANS ISSUED WARNING YEARS
AGO

We were warned.  Several times, in fact.  The Bush
Administration gave us the first warning 6 years ago after only being in office
for two months.  The President’s 2002 budget request declared that, “Fannie Mae
and Freddie Mac are a potential problem because of the size of either one of
them and that if either failed it could cause strong repercussions in financial
markets.”

HOW DID WE GET INTO THIS
SITUATION?

So how did buying a house create the financial quagmire
from Main St. to Wall St. to the U.S. Government and back to Main St. in the
form of a bailout?  Answer: Government
intervention in the free market process
.   

When people purchase homes through loans, the mortgage
typically does not stay with the lending institution.  It is then sold
“upstream” to an investment bank who securitizes the mortgage and bundles it
with hundreds of other mortgages to be re-sold in the secondary markets to
investment banks and countless financial entities that purchase these Mortgage
Backed Securities as investments in their portfolios.  Because all of these
securities were backed by the “full faith and credit” of the U.S Government,
buyers never seriously considered the credit and collateral of the underlying
mortgages.

Wall Street, in their innovative ways, also continued to
create new, and many times, riskier investments from these securities.  But one
thing never changes: Every time a home owner defaults on paying his loan, it
undermines the quality of the security that was purchased.

WHAT PART DO FANNIE MAE AND FREDDIE
MAC PLAY IN THE CRISIS?

Freddie and Fannie were a problem as early as 2002
because the Clinton Administration and the Democrats in Congress wanted everyone
in America to have a home regardless of income and credit.  Freddie Mac (Federal
Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage
Association) are Government Sponsored Enterprises (GSE’s).  They are backed by
the federal government to buy mortgage loans from the lenders, so lenders can in
turn go create more loans.

In a September 30, 1999 New York Times article written by Steven
Holmes, it was reported that, “In a move that could help increase home owner
ship rates, the Fannie Mae Corporation is easing the credit requirements on
loans that it will purchase from banks and other lender. … 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.” The article continued, “Fannie Mae was encouraged to
help lending institutions make more loans to so-called sub prime borrowers…… In
moving, even tentatively, into this new area of lending, Fannie Mae is taking on
significantly more risk..”

This new program was intentionally geared toward people
whose incomes and credit ratings were not sufficient to qualify for conventional
loans.  Many of these mortgages had what was called a “teaser rate” which
initiated as a very low rate, later increased to a higher rate.  People who
could not qualify for  conventional loans in the first place suddenly were
saddled with even higher payments.  Why did everyone think this would work?  The
housing market bubble.  But, everything in life goes in cycles, especially real
estate.  So home values in various housing markets around the country started
declining and people couldn’t pay their mortgages, making the underlying
mortgages in those securities, which Wall Street. and the investment community
buys, worth less every day.  But, this new lending criteria
continued.

ANOTHER REPUBLICAN WARNING IS
IGNORED!

In addition to the warning in April 2002, the White
House upgraded its warning in 2003 to “a systemic risk that could spread beyond
just the housing sector.” In the Fall of 2003, the White House was pushing
Congress hard for a new regulatory agency to oversee both Freddie and Fannie
when, during the House Financial Services Committee of September 10, 2003, then
Treasury Secretary John Snow said that “…we need to create a strong world class
regulatory agency to oversee the safety and soundness …” of Fannie and
Freddie.

In that same hearing, Secretary Snow received tremendous pushback
from then ranking House Financial Services Committee member and now
Chairman Rep. Barney Frank
(D-Mass.)
who said, “Freddie & Fannie are not in a crisis”.
 Instead, Frank said the Federal Government should do more to encourage Freddie
and Fannie to increase efforts to get low income families into homes.  “The more
people, in my judgment, exaggerate a threat of safety and soundness, the more
people conjure the possibility of serious financial losses, which I do not see,
”  Frank said. The legislation to
create a regulatory body was blocked on a party line vote with all Democrats
voting against it. 

REPUBLICAN PROPOSE STRONGER
REGULATIONS; DEMOCRATS KILL THE PROPOSAL

The Republicans again tried to be pro-active in this area in 2005,
when the Senate Banking Committee Chaired by Richard Shelby (R-AL) tried to pass
new strong regulations which would have prevented Freddie and Fannie from buying
the bad loans.  It would have created a new regulator for Freddie and Fannie
with the power that a bank regulator has which safeguards everything a bank had
in it loan portfolio.  All of the Republicans voted for it all and
all of the Democrats voted against
, including the now-Chairman of the Committee, Chris Dodd (D-CN). Democrats voted
against stronger regulations even after Federal Reserve Board Chairman Alan
Greenspan warned Senators that Freddie and Fannie “…are playing with fire.” On
 April 6, 2005 at  the Committee hearing, Greenspan cautioned, “We increase the
possibility of insolvency and crisis……Without restrictions on the size of
(Freddie and Fannie), we put at risk our ability to preserve safe and sound
financial markets in the U.S. ”.  This prediction unfortunately is being shown
to be correct.  But because the
Democrats voted to block, those new regulations never got to be considered by
the full Senate and died.

Trying once again trying to avert a possible crisis and
co-sponsoring legislation pushing for regulation, reform minded Senator John McCain (R-AZ), said in a
speech on the Senate floor on May 25, 2006, ” For years I have been concerned
about the regulatory structure that governs Freddie and Fannie …… and the sheer
magnitude of these companies …the GSE’s need to be reformed without delay.” 
The bill made it out of the Senate Banking Committee with a party line vote,
all the Democrats voting against
it,
but knowing they would not have enough votes for
passage, Senate Republicans could not bring it up on the Senate floor.

WHY HAVEN’T WE HEARD THE TRUTH ABOUT
THIS?

Because, according to Brent Bozell of Media Research
Center , the mainstream news media liked the concept of government-sponsored
entities and bureaucracy. “It is a Holy Grail issue with liberals and media
because they wanted people who couldn’t afford homes to have one. So the media
looked the other way as the house of cards collapsed.  Barney Frank prevented
the solution from happening for years.” 

The solution is being worked currently by the very
people who caused it and they are suggesting a taxpayer bailout trying to cover
their own mistakes and trying to make everyone think they have it handled. 
Sen. Harry Reid
(D
NV) said last
week, “We don’t know what to do.”  So the only solution they have is to, once
again, make the taxpayers pay for it. 

We should be talking about
a workout not a
bailout
.  There are several people with good ideas, but they
are not chairing these committees that are meeting. And to blame this on the
Republicans, as many partisans are attempting to do, is both incorrect and
hypocritical. Sen. Chris Dodd
(D-CN)
said just today (September 25, 2008) that this crisis was
avoidable. And he’s absolutely right. Problem is, Sen. Dodd was one of those who
chose NOT to avoid it.

And, there is no question that this bill was killed in
the Senate Banking Committee, chaired by Chris Dodd.  Republicans wrote the
bill  (written by Hagel, McCain was a co-sponsor, along with Dole and Sununu). 
That bill just may have averted this whole credit mess:  Here’s the bill: http://www.govtrack.us/congress/billtext.xpd?bill=s109-190 

 

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