“Regulators, mount up!”
September 29, 2008
Reading this blog for the last few days you would think that regulating business is a much cherished cornerstone of Republican political philosophy and that Democrats are always stifling their efforts to keep tabs on industry. We apparently misheard them at the Republican National Convention; they were chanting “regulate, baby, regulate!”
Barney Frank is the anti-Christ in this fledgling alternate universe and solely responsible for the financial meltdown.
What isn’t mentioned around here is that the bill that Frank voted against for whatever stated reason, PASSED. The White House intended to veto it. The author of the bill, Republican Mike Oxley put it like this:
[Oxley] fumes about the criticism of his House colleagues. “All the handwringing and bedwetting is going on without remembering how the House stepped up on this,” he says. “What did we get from the White House? We got a one-finger salute.”
The House bill, the 2005 Federal Housing Finance Reform Act, would have created a stronger regulator with new powers to increase capital at Fannie and Freddie, to limit their portfolios and to deal with the possibility of receivership.
Of course, the White House argued that the bill wasn’t strong enough.
Bottom line: six years of a Republican dominated House, Senate, and White House couldn’t bring about the regulatory changes necessary to avoid Fannie and Freddie’s near-collapse.
When the Democrats took control of the House in 2007, what was Barney Frank’s top priority as Chairman of the Financial Services Committee? H.R. 1427: Federal Housing Finance Reform Act of 2007. The summary is here.
Now back to the real world where McCain’s campaign managers and economic heroes make their fortunes fighting tooth and nail to deregulate everything with blatant disregard for future consequences (financial meltdowns for example). More on that later…
I think you’ve cherry picked a few things here & misrepresented what your linked article says:
“But a look back at the efforts to pass that bill calls into question Oxley’s version of events.”
More:
Hey, we don’t like the current regulator, ’cause he’s blown the whistle on us. Let’s scratch him and start over with something different, and while we’re at it, let’s spread the Freddie Mac goodness out to even more corruptible markets.
So Bush has his share of the blame?
That’s just Republican Oxley, who isn’t in Congress anymore. So while we kick him when he’s down, let’s remember that he also brought us SarBox, one of the largest rollouts of regulation in a generation.
But, what about Barney Frank? He opposed HR 1461 not because of any merits or downsides of the reform proposal, but because of a single provision over banning activist non-profits (i.e., his base) from receiving any additional money from Fannie Mae. His criticism had nothing to do with addressing the larger problem.
So he sponsored 1427 two years later, which proposed similar reforms as HR 1461. But a lot happened in two years, didn’t it? He speaks of a deal he had with Treasury, but they wanted a deal in 2005, too. He wanted credit for the legislation and put off a solution until his name could get on it and until he was guaranteed the creation of a housing “trust fund,” which would almost certainly be used to finance GOTV and non-housing political activities.
So the “trust fund” popped up its ugly head last week. It was beaten back this week, but it is almost certainly a part of the current bailout negotiations, let in part by Barney Frank.
So how exactly do you maintain Barney Frank is part of the solution?
The point of post was not to debate the merits of the 2005 bill. To sum up my argument:
1. Deregulation is a cornerstone of the Republican ideology. How is it that in 6 years of controlling the House, Senate, and White House, Republicans can’t pass regulations to avoid Fannie and Freddie’s near collapse?
2. The bill you criticize Frank for voting against, passed the House. How is he responsible for the fact that it didn’t become law?
3. Allude to the fact that John McCain is a self-professed deregulator whose campaign is run by people like Rick Davis who collected millions from Fannie and Freddie for his efforts at fighting regulations.
I don’t think I ever “maintained” that Barney Frank was part of the solution but you calling him the “primary malefactor in housing collapse” is a bit absurd.
You implying McCain is, um, a maverick?
1) Tell me when a slim majority was ever able to steamroll an agenda through. Look at the case today for example. Two houses plus a President pleading for a deal. Pelosi has the ball and can’t get it done.
2) It was a shit bill, but he voted against it because of unrelated provisions it didn’t contain. That’s a purely political reason to vote against something. In any event, I’m glad that particular bill didn’t make it far.
3) Drat, McCain just can’t have a campaign staff filled with folks that didn’t at some point in their careers advocate positions contrary to the current campaign platform! What a sign of terrible judgment! But, since you seem to be interested in the topic, for the record Rick Davis separated financially from his firm in 2006 and never lobbied for Fannie Mae or Freddie Mac. Instead, he led Homeownership Alliance which, although Fannie and Freddie helped fund it, so did a diverse consortium of low income housing advocates, including La Raza, National Urban League, and Habitat Humanity. Yes, John McCain’s adviser not only lobbied on behalf of Freddie Mac, he lobbied for Habitat! Sick bastard.
Wanna talk about Obama’s connections to former Fannie Mae execs?
It’s not absurd to call Frank that. Find me another congressman that has more statements on the record that resist change to the oversight of those bureaucracies. Ok, well, Chris Dodd doesn’t count–he never had a decade-long sexual relationship with a Fannie Mae exec that I know of.
If by Maverick you mean always in favor of deregulation then yes; John McCain is a Maverick.
Perhaps the biggest piece of financial sector deregulation ever, Gramm-Leach-Bliley, passed the Senate nearly along party lines. McCain voted for it. Biden, Dodd, and Reid all voted against it. The co-author of the bill, Phil Gramm, later amended the bill to insure that derivatives called credit default swaps would remain unregulated. In 2002, Warren Buffett called these types of derivatives “ticking time-bombs” and “financial weapons of mass destruction” (they don’t call him the Oracle of Omaha for nuthin’). Here we are 6 years later and these swaps brought down Lehman and would have sank A.I.G. had the government not stepped in. And these little financial system wreckers might just be getting started.
You might remember that Phil Gramm was John McCain’s campaign chairman and chief economic advisor until he decided to call the US “a nation of whiners”. And the McCain campaign still won’t rule out the possibility that Phil Gramm would be named Treasury Secretary in a McCain administration.
So your entire argument against Barney Frank is reduced to “statements” that he made in 2003? If you call Barney Frank the “primary malefactor in the housing collapse” for some wrong-assed statements he made about Freddie and Fannie in 2003, what do you call the guy who voted for Gramm-Leach-Bliley and for last two years, and as recently as last week, said that the “fundamentals of the economy are strong”? The Supreme Malefactor of the Housing Collapse”? Last time I checked, Frank wasn’t running to become President.
As for Rick Davis, you’re right, he wasn’t lobbying for Freddie, he was influence peddling, a far less noble affair. For the tidy sum of $15,000 a month, future access to John McCain was assured.
There’s plenty o’ blame to go around for this mess but if you want to pick a “primary malefactor” Gramm trumps Frank any day.
Always for de-reg? Except he regulated free political speech with McCain-Feingold.
(full disclosure - I used to be employed by Neuberger Berman, a subsidiary of Lehman Brothers, but I had no involvement with bankrupting the company).
A credit swap is only a vehicle to bet against defaults. It has many other purposes that are vital to the investment world. Its overuse in the mortgage world wouldn’t be an issue if there weren’t millions more subprime mortgages to bet on! If you really want to regulate bullets it’s best to regulate gunpowder first.
For the record, Lehman was not brought down specifically by their swap holdings.
I appreciate you getting creative on some potential root causes for the meltdown, but I’m not buying that GLB led to poor oversight of the de facto monopoly Fannie and Freddie enjoyed over the secondary market, and the too-little, too-late prosecution of Fannie Mae execs that, amazingly, pulled the same kind of shit Kenny Lay did but weren’t themselves frog marched to prison because they were fucking Democrats.
In Gramm’s defense–we are a nation of whiners. I’m whining right now. And with all the stupid shit Obama and his advisers say, which they inevitable have to retract.
I’d take Gramm with his PHD in Economics versus the detestable marble-mouth spitter who didn’t know his boo was running a prositution ring out of his own basement, who used to date a Fannie Mae exec for 10 years, and who had every chance over the last five years on the Committee to recommend oversight recommendations that would limit the size of Fannie & Freddie, who instead submitted something that cracked down on “predatory lenders” (the real problem, I guess), and who now leads the effort to resolve things? Fuck that.
Humor me, and post a summary here of news articles from the last 4-5 years about how a single Republican blocked effort to further regulate Fannie Mae. I will be fair and read it. You could still change my mind.
I guess I’ll have to ask directly. If the Republicans were able to pass a bill on party lines that deregulated the financial sector, why couldn’t they pass a bill on party lines that regulated the financial sector? Oh yeah, Republican orthodoxy forbids it.
I wonder if Gramm still thinks this is a “mental recession”? What’s your favorite regulatory effort of his?
As for McCain-Feingold, as a member of the Keating Five, McCain needed cover when it came to the influence of money on politics. Unfortunately, when your economic hero is a deregulating lobbyist and your campaign is stuffed to the gills with job-destroying lobbyist, people doubt your sincerity. You should ask the people of Wilmington, Ohio how they feel about Rick Davis and John McCain.
I didn’t say that credit default swaps were responsible for the meltdown (or bad, for that matter), I said that UNREGULATED credit default swaps brought down Lehman and A.I.G. But I’ll revise for the time being and say that CDSs, absent a government bailout, brought down only A.I.G. And while I respect your opinion, I’m going to side with Warren Buffetts assessment of unregulated credit default swaps.
By regulating gunpowder, and following your logic, I assume you mean individual mortgages. After all, if people were only able to get mortgages that they could actually afford, would it matter how large Fannie and Freddie got? Good capitalism dictates that it doesn’t. Just a thought.
Gramm has a PhD? Don’t let that get out or he’ll be reviled by the right.
And speaking of Kenny Lay, let’s not forget, the Enron Loophole that Gramm created, bilking Californians out of billions, and allowing speculators to inflate the cost of oil (gas). Thankfully, the Democrats were finally able to close it this summer.
Um, theres a difference between deregulating a private industry and attempting to regulate a GSE (or the federal government). It is possible to be an advocate for both scenarios.
Since when does the incompetence of one party absolve the responsibility of the other party? That’s a stupid argument.
I think you’re making a mistake of leaning on the phantom of Republican orthodoxy. There is no such thing. What part of Prescription Drug Plan, Amnesty for illegals, or deficit spending speaks orthodoxy to you? I hadn’t seen ANY mention of Republicanism or conservatism in conjunction with regulation until this week, when all of a suddem it became a talking point designed to shift blame for Fannie Mae away from Democrats. See Barney Frank on O’Reilly tonight. See Joe Biden on the dais tonight. They - are - in - perfect - sync.
I can see how how some might blame default swaps and short selling for making matters worse, but the nobody in the consensus suggests such normal trading behavior shoulders any blame for root cause. It’s almost the same in the oil markets when economic populists blame ’speculation’ for high commodity prices when there’s not even any evidence of hoarding or profiteering. Just blame those speculators–damn the real reasons.
It seems like you are the only one reviling Gramm for having a PhD. My favorite Gramm regulation attempt? Gramm-Rudman. Apparently attempting to regulate our government is a little difficult.
Regarding gunpowder. Fannie & freddie could grow as large as they wish, as long as their risk to asset ration remained reasonable. But it didn’t. The GSEs promised to guarantee mortgages that, until a few years ago, would never have existed. But they promoted the lowering of lending standards, and we ended up with hundreds of thousands of lending agreements that should not have been extended. In addition–if their business was built 100% on sound, recoverable debt–they shouldn’t have grown to 50-70% of the secondary market. That’s monopoly land.
“Since when does the incompetence of one party absolve the responsibility of the other party? That’s a stupid argument.”
A stupid argument indeed. Who’s making it? Not me. My argument has been that your case to brand Barney Frank as the “primary malefactor” of this mess is weak. I stand by that. I’ve also conceded that there is plenty of blame to go around.
Are you saying that limited government is not a cornerstone of conservative ideology? Limited government not only refers to limiting federal spending (Gramm-Rudman, for example) but also prohibiting government from interfering with markets (i.e., regulating). Of course, the euphemism for deregulation is “reducing the cost of doing business.”
When did I say that swaps were the “root cause” of the meltdown? AIG was on the hook for $400 billion in swaps at a time when they only had a market cap of $35 billion. That doesn’t strike me as “normal”.
Regarding “blackpowder”: If people can afford to pay their mortgages, those mortgages aren’t risky for Frannie and Freddie to purchase. How would that lead to an unreasonable risk to asset ratio?
You did imply that there was either incompetency or hypocracy on part of the GOP (”If the Republicans were able to pass a bill on party lines that deregulated the financial sector, why couldn’t they pass a bill on party lines that regulated the financial sector? Oh yeah, Republican orthodoxy forbids it”). Frank definitely implied that when, on the record, he cynically used minor objections as a reason to vote against a reform package he knew wouldn’t make it out of the House. What a valorous vote!
It’s easy to say ‘there’s plenty of blame to go around” when you’re done making excuses. Alec Baldwin is tired too. . Start at 2:34.
Do you know the difference between conservatism and republicanism? Just asking.
You said the swaps brought down Lehman and would have brought down AIG. Re-reading, I didn’t say you said they caused the meltdown.
blackpowder: Pls read my last paragraph again.
But where did I absolve anyone of responsibility? You could say that I absolved Barney Frank of being the “primary malefactor” of the meltdown. And until you provide more than a few statements that he made as your evidence, I’ll stand by that. Does that mean that he’s guilt free? No. But there are 435 members of Congress, 100 Senators, a President, Federal Reserve, Treasury Dept., among others, that failed to prevent this. Personally, I think the party that controls most of those institutions deserves more of the blame. Especially, when that party tends to promote laissez-faire economic policy.
The “root cause” is of course that people bought and received loans on homes that they couldn’t afford. Within that transaction there are variously guilty parties. Some people just wanted a house that they couldn’t afford. Some lenders gave people shittier lending terms than their credit should have afforded them. But if there were regulations and oversight to ensure that people only received loans that they could afford over the length of the mortgage, we wouldn’t be here right now. Again, how you get to Barney Frank being the “primary malefactor” is a bit of a mystery. Doesn’t the Federal Reserve have a mandate to monitor mortgage lending?
Conservatism = anti-Enlightenment. Capital “R” Republicanism = unenlightened.
Are you really trying to separate Republicans from “conservatism”? I think their meanings in this forum are pretty apparent. Does your understanding of their respective meanings differ greatly from the way in which I am using them? Or are you really just yearning to me all about small “r” republicanism.
I agree there’s plenty of blame to be shared, but which party was throwing around reckless charges of anti-minority bias any time the lowering of lending standards was even broached? Which side fought to preserve –at all costs— off-budget “housing trust funds” that more often than not funded activist causes unrelated to housing, like GOTV efforts. The “laissez-faire loving” party in control at the time attempted to regulate GSEs, which you mention above would have been a good thing. Are you now going to tell me nobody tried to reform the GSEs this decade?
Show me where mainstream republicanism — most suitably defined as the path taken by President Bush — has mirrored traditional conservatism. Surely it has in some cases, but looking at the growth in government over the last 8 years, I think there’s some space between his record and conservative doctrine.