Wednesday, September 24, 2008

A Doddering Fool & Charlatan


With our economy teetering on an actual depression due to the Fannie/Freddie/subprime loan crisis, it was not merely surreal to watch Senator Chris Dodd chair an emergency hearing of the Senate Banking Committee to evaluate the Treasury's proposed rescue plan, it was obscene. Democrats bear ultimate responsibility for this crisis. And among the Democrats, Bill Clinton, who forced subprime lending upon America, and Chris Dodd, who protected Fannie Mae even as he cashed their contributions and personally benefited to the tune of $75,000 from unethical, if not illegal, favors from Fannie-related Countrywide, are the two most culpable of the Democrats. Below is a fact-check of Chris Dodd's opening statement. His statement was a grim fairy tale indeed.
_____________________________________________________

Senator Chris Dodd opening remarks at today’s Senate Banking Committee hearing on the proposed bailout appear below in italics.

We gather this morning at an extraordinary and perilous moment in our nation’s history. The landscape of our nation’s economy has been radically re-shaped by the United States government over the course of just a few days and in a totally ad hoc manner.

The landscape of our economy was radically reshaped in the 1990's when Bill Clinton and his fellow Democrats forced subprime lending on our financial markets. It was a move that Chris Dodd has uniformly supported. What we are seeing today is merely the final, foreseeable chapter of that radical reshaping.

Companies that form the foundation of our financial markets are shrinking and disappearing practically overnight. Their insatiable appetite for risk has permeated all sectors of the financial services industry, and has spread beyond our shores. It has felled giants like Bear Stearns and Lehman Brothers; brought others to their knees like Merrill Lynch, A.I.G., Fannie Mae, and Freddie Mac; prompted the largest thrift failure in our history – IndyMac Bank; and eliminated the final two independent investment banks – Morgan Stanley and Goldman Sachs.

Ultimately, it is one thing for a company to sell risky investments and turn a profit, quite another for a very sophisticated buyer to purchase them in quantity sufficient to threaten their existence when they proved bad investments. I am speaking now not of the mortgage brokers, but the secondary market. As to the "insatiable appetite" of Fannie Mae and Freddy Mac, to hear Dodd condemn that today is insane. Last year, even as Fannie threatened to topple our entire economy, Dodd was calling for an expansion of Fannie's ability to purchase subprime loans.

As to Indy Mac, that was a troubled institution, but it is one that might well have survived. It only fell because of the direct intervention of Sen. Schumer in what was either a direct effort to harm the economy prior to the election or an act of just incredible stupidity. Rick Moran explains how Schumer literally started the run on IndyMac. Another highlight of the Democratic stewardship of our economy.

These drastic changes have reverberated far beyond the trading floors and board rooms of corporate America. Across our great nation, families are gathering around their kitchen tables each night asking how they will weather this storm. Hundreds of billions of dollars that Americans invested in retirement accounts and mutual funds have evaporated.

Actually, no. The stock market, at least through Friday, has proved resilient - virtually erasing all losses. It is starting to tumble again, but that is because Congress looks like they are going to put the screws to the Treasury's rescue operation. This crisis is not yet about stock prices, its about credit and liquidity. But that is a chicken and egg argument. Stock prices will fall like lead and we will take a bath if Congress fails to act decisively and soon.

Homeowners are watching the value of their homes plummet.

The housing bubble has burst. The upward drive of housing prices leads back to Fannie Mae. We are now in a period of market correction that is inevitable in a capitalist system - though government intervention has made this one hundreds of times worse.

Foreclosures are forcing 9,800 families from their homes each day. Families worry about how they will afford groceries and gas.

Do I sound hard hearted if I say I could care less about foreclosures. Foreclosure is what has to happen for mortgage holders to recover on a bad loan. That too is a part of capitalism. For Dodd to advocate ceasing foreclosures is to advocate socialism on a grand new scale.

Complaints about the costs of groceries and gas coming from a Democrat is just mind-numbing. It is the Demorats who do not want to allow us to pump one drop of oil from our own resources, and it is the Democrats who have pushed biofuels that, along with the near doubling of fuel costs, are contributing so much to the rise in food prices. For Dodd to raise these issues when the Democrats are at the root of the pain is beyond shameless.

. . . The root cause of our economic crisis is the collapse of our housing market, triggered by what Treasury Secretary Paulson himself has called “bad lending practices.” These are practices that no sensible banker should have engaged in. Reckless, careless, and sometimes unscrupulous actors in the mortgage lending industry allowed loans to be made that they knew hard-working, law-abiding borrowers would not be able to re-pay.

It is hard to imagine anything more false or hypocritical. Those lending practices were authorized and forced down the throat of financial institutions by Bill Clinton with the full support and protection of Democrats in Congress, including Chris Dodd. This from IBD:

. . . [I]t was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory." . . .

Financial regulators acted much too late and far too timidly. They failed to enforce the laws that Congress passed requiring them to prohibit these bad lending practices.

It was Congress that ended responsible lending. Indeed, a Washington Post article of a week ago takes Dodd directly to task for this dissimulation. Attempts by the Bush administration and John McCain to put new regulations on Fannie Mae were killed by Chris Dodd. This was first and foremost a failure of the socialist policies of Democrats as a whole, with Chris Dodd up to his ears in it.

The ensuing calamity was entirely both foreseeable and preventable.

Truer words have never been spoken. This calamity was foreseeable at its very inception in the 1990's when Bill Clinton forced lenders into the subprime industry and used Fannie Mae to spearhead the effort. This from a 1999 article in the NYT:

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 and felt pressure from stock holders to maintain its phenomenal growth in profits.

. . . ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

. . . In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

So yes, Sen. Dodd, it was quite foreseeable. And then of course there was the speech by Sen. McCain on the floor of the Senate in 2006 in support of a bill that would have significantly tightened oversight of Fannie Mae and perhaps averted the disaster we now face. This from Sen. McCain:

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. . . . The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. . . .These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

It seems that this meltdown was foreseeable to everyone but Democrats - and in particular, Sen. Dodd who killed the McCain sponsored legislation in his Senate Banking Committee - just as he had taken part in earlier frustrating Bush administration attempts to reign in Fannie and Freddie. In fact, as late as last summer, Sen. Dodd was arguing to expand Fannie's subprime borrowing. He wanted to lift the portfolio cap from Freddy & Fannie to create more loans and allow F&F to buy more sub-prime mortgages “to calm the market.” Doesn't he sound like just the right person to be leading us in the Senate Banking Committee during a period of near existential crisis. If you are not waking up in cold sweats at night, you are not paying attention.

This was no act of God; it was no Hurricane Ike. It was created by a combustible combination of private greed and public regulatory neglect.

Always expect a socialist to bash profit motive while their own much more pristine motives - the ones that gave rise to this crisis in the first place - get completely ignored. There is a real question of how and why those with large holdings of these subprime mortgages bought them up as investments. These are sophisticated people who I could not imagine knowingly purchasing an asset as risky as these have turned out to be. There was a disconnect in the system that must be identified. You can see how the system worked on Wall St. in the post here.

. . . Barely 72 hours ago, Secretary Paulson presented a proposal that he believes is urgently needed to protect our economy. This proposal is stunning and unprecedented in its scope and lack of detail. It would allow him to intervene in the economy by purchasing at least $700 billion of toxic assets. It would allow him to hold onto those assets for years, and to pay millions of dollars to hand-picked firms to manage those assets. It would do nothing to help even a single family save a home.

The left now wants to complete the socialist circle that they started a decade earlier. Dodd's first priority is to see that recipients of subprime loans who cannot pay their mortgages are now to be given their homes on the taxpayer's dime. What will he do about all the rest of us who are foreclosed upon when the economy actually crashes while he is redistributing our tax dollars?

It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of taxpayers – and walking away with a bonus and a golden parachute.

Chairman Dodd, the entire idea here is to buy up these assets, value them and resell them. But Dodd has to introduce another element of socialism - complaints about CEO pay. I agree here that golden parachutes for poor CEO performance sticks in my craw. But under no circumstances should Congress get involved in dictating CEO pay. One need only look to Sarbanes-Oxley to see the law of unintended consequences negatively impacting on our economy. I could see such a law not only reducing the effectiveness of this rescue operation, but having some real unintended consequences in driving financial operations out of the U.S. Given that our financial sector is one of the cornerstones of our economy, I would really appreciate it if Dodd would keep his pudgy little socialist mitts off that one.

And it would allow him to act with utter and absolute impunity – without review by any agency or court of law. After reading this proposal, I can only conclude that it is not just our economy that is at risk, Mr. Secretary, but our Constitution, as well.

What about this puts our Constitution at risk. Sen. Dodd appears quite the drama queen here. That said, probably the best idea I have seen on this is McCain's idea of appointing a three man panel of experts to oversee this operation.

. . . In my view, any plan to address this crisis must embody three principles. First, American taxpayers must have some assurance that their hard-earned money is being used correctly and responsibly.

Hmmm, wish you had thought of this one ten years ago, Chris. Or even three years ago.

Second, we must put in place proper oversight so that the executors of this plan are accountable and their actions transparent.

I agree here, though I have real problems if Congress is involved in the oversight given the origins of this mess. Indeed, Senator Dodd has some clear conflicts of interest. He is the leading recipient of campaign contributions from Fannie Mae. That is not illegal, but what is illegal is Senator Dodd accepting a below market mortgage from that he received as a “friend of Angelo” – the chairman of Countrywide. Countrywide is the subprime lender very closely tied to Fannie Mae. Dodd made $75,000 on that transaction.

Finally, we must address the root cause of this crisis by putting an end to the rising number of foreclosures sweeping across the nation. . . .

Wow. I had to wait for my tourettes to pass before responding to that one. The foreclosures are a symptom of the crisis, not a cause. And unless we are going into socialism full tilt, they obviously need to occur. May I submit that the first root cause that needs to be addressed to correct this crisis is the resignation of Senator Chris Dodd.

Other posts related to Subprime Crisis (from oldest to newest):

1. McCain, The Fannie and Freddie Crisis, and Obamafuscation - Obama and the entire Democratic Party are trying to blame Republicans for the subprime crisis. But this crisis was created by Bill Clinton and protected against Republican efforts to reign it in over a decade – until it failed, nearly pulling out entire economic system into a depression.

2. A Washington Post Front Page Hack Job - The Washington Post does a hit job on McCain, grossly distorting his record on regulatory matters and ignoring his cosponsoring of legislation to establish much stronger regulation of Fannie Mae and Freddie Mac.

3. Dodging a Depression - The NYT and WSJ document just how serious is the subprime crisis. Quite literally it brought us to the point of a complete and catastrophic stoppage of our financial systems. This was not a stock market crash, it was a lending and credit crash. The WSJ describes the events of the week leading up to the crisis point.

4. Obama & The "Family" Of Fannie Mae - Documenting Obama’s relationship to Fannie Mae.

5. The Origins – And Foreseeability – Of the Subprime Crisis - A 1999 article in the NYT describes the Clinton Administration forcing subprime loans onto America and also forecasts that this will create a house of cards that will fall apart in a down market.

6. Covering The Left’s Fannie - The NYT tries to play up old ties of a McCain campaign worker with Fannie Mae while minimizing the fact that McCain himself, in 2005, co-sponsored legislation that may well have prevented the fiscal crisis we are in now.

7. The Left’s Subprime Meltdown - A post by the Anchoress discusses this subprime crisis as a creation of the left and a system that was protected to the end by the left. She adds additional sites, quotes and links to explain the mosaic.

8. Fannie & Freddie, McCain & Obama, Subprime & Wall St.The WSJ discusses both how the subprime loan market came about and how Democrats, including Obama, were both the cause of the problem and the roadblock to a solution that would have averted this catastrophe. Dafydd at Big Lizard's explains how Mortgage Backed Securities worked on Wall Street.

9. A Doddering Fool & Charlatan - Chris Dodd is up to his ears in the subprime crisis. With our economy teetering on an actual depression due to the Fannie/Freddie/subprime loan crisis, it was not merely surreal to watch Senator Chris Dodd chair an emergency hearing of the Senate Banking Committee to evaluate the Treasury's proposed rescue plan, it was obscene.

10. Finally – Oversight - The FBI has finally announced criminal investigations at Fannie and Freddie.

11. When Will They File As A 527 – The NYT continues its wholly biased reporting on the subprime crisis, refusing to report on the genesis of the crisis and instead, reporting on the relationship between Fannie Mae and Rick Davis of McCain’s campaign team.

12. McCain The Chessmaster - Opining on the potential risks and rewards of McCain's decision to cancel campaigning, return to Washington to take part in negotiations over a response to the subprime crisis, and tentatively cancel the Friday debate.

13. The President Addresses The Nation - Bush explains the stakes involved for America with the subprime crisis.

14. McCain The Chessmaster Part II - McCain was responding to a 3 a.m. phone call in returning to Washington. He is given political cover and support by Bill Clinton.

15. A Spotlight On The Left's Subprime Crisis - A video summary of the origins of the subprime crisis with lots of footage of Rep. Barney Frank and others protecting Fannie Mae from regulation by the Bush Administration and McCain.

16. WaMu Swallowed Up In The Left's Subprime Swamp - Washington Mutual goes under because of toxic mortgage debt.

17. Great Moments In Leadership - Obama phones it in on the subprime crisis.

18. The "No Deal" - McCain Responds - The left is blaiming McCain for failure of a deal on the subprime crisis. McCain answers in a memo.

19. Dodd, ACORN, and the Penultimate Screwing of the Taxpayers - The left, the people responsible for the subprime crisis, proposed a deal that would have used the return on rehabilitated investments not for the benefit of taxpayers but to fund progressive advocacy organizations that are fundamentally corrupt.

20. Krauthammer On The Subprime Crisis: Time For A Return To Public Executions - America is livid over this fiscal crisis and wants a pound of flesh to satiate its cravings before beginning the job of putting our financial house back in order. Krauthammer things we should give it to them and suggests a return to the auto de fe, this time as a reality show.

21. The Subprime Crisis, Dems, Obama & McCain - a great video giving the history of the subprime crisis.

22. Subprime Crisis: Spin versus C-Span - a video of 2004 hearings in which the House Democrats heaped scorn on the idea that Fannie Mae and Freddie Mac were a disaster waiting to happen and fighting tooth and nail to preven any further regulation of Fannie and Freddie.

23. Thomas Sowell On The Subprime Crisis & Proposed Bailout - Economist Thomas Sowell weighs in on the need for the proposed bailout to stabilize the market and the politics at the root of this fiscal crisis.

7 comments:

vinny said...

Great review of Dodd's speech. However if a tree falls in the forest and the fall is unheard by anyone, will this fall enter anyone's mind? Will it affect anyone's thoughts?

Dodd's speech receives a large audience and unless you analyze what he said, it appears that this senator is acting on behalf of American citizens. A newspaper with large distribution should print a front page story exposing this nonsense. If I had a paper, I wouldn't change a thing you wrote and print your article's title on the front page, and in huge lettering. Unfortunately, this review will only be seen by few loyal readers who are already likeminded. GW, send this analysis to WSJ and anyone else who might publish it; you need a much greater audience?

suek said...

"There is a real question of how and why those with large holdings of these subprime mortgages bought them up as investments. These are sophisticated people who I could not imagine knowingly purchasing an asset as risky as these have turned out to be."

It seems to me that they were assured that in fact, there _was_ no risk.

Unrelated thought - or maybe not no unrelated:

Seems like a very sneaky way to end up with a nationalized finance/housing system. As in give a man enough rope and he'll hang himself sort of thing. "Come into my parlor said the spider to the fly"...that sort of thing. And we seem to have fallen for it.

The question is...is there a way out of the trap?

GW said...

Vinny - thank for the kind words. Unfortunately, your analogy is all too accurate. My readership has doubled per day over the past month - which now puts me in double digits. Hmmmm, I do need to figure out how to get some more play. I have sent out a few posts to various places, but no takers.

Suek - your points are well taken.

suek said...

gw...

Are you registered to comment at either HotAir, MM or both? I'd happily turn over my passwords to you - you would benefit more than I, and so would those who might follow your links back. Or your sign off URL. I don't go to HA because they use so many youtube articles, and I don't have sound set up. MM has gotten so big that I don't even read all the comments anymore - and I like the comment sections of blogs about as much as I do the blog, usually. But if you want traffic...that's a good place to "plant" your URL.

Ymarsakar said...

Wolf, you ever wonder if the Democrats were talking about themselves when they said that we were cheerleaders for Bush's war and that no matter who screwed up, we would cover for them, make them more powerful, give them more positions, and so forth?

Ymarsakar said...

Hmmmm, I do need to figure out how to get some more play. I have sent out a few posts to various places, but no takers.

Try Grim Beorn's place or Villainous Company.

Ymarsakar said...

The way I see it, politics is like war.

At the bottom, you have your folks who know nothing about it (war). They constitute the majority. Then you have a minority, less than 40% but more than 20%, that know generally what is what on a theoretical plane (2nd or third hand observations). This is where you also find the armchair generals.

Further up in the chain, you have the 10 percenters, who are usually the soldiers and officers who have been in war and dealt with it in one fashion or another. Mixed up in that percentage are the people with talent but never faced combat. Michael Yon and Michael Totten would count by now.

Then further up the hierarchy chain, you have leaders that not only know what is what in wars but know how to fight them. Knowing and doing are two different things, and that is as true for the military as it is true for civilians. You can have a jack load of book tacticians and strategists but only a couple of actual tacticians and strategists worth a bullet or two. This would apply to Michael Totten, for example, since he doesn't actually know how to fight a war or even a small firefight but Totten is still Up There (tm).

And then you have at the very top, the geniuses like Petraeus, Pershing, Sherman, Lee, Scipio, Hannibal Barca, and what not. By a weird combination of luck, talent, ability, and determination, they got things done.

Plenty of people like them had all of the above except luck. They died. Or they got wounded and missed the chance for promotion in battle like Sam Houston.

Still, the people that make it are very very rare as a percentage of the total population.

For politics it is much the same thing. For people that are interested in it and that want to know, they will try their hardest to find folks like you Wolf. Whether they succeed or not, whether they rise in the ladder of the hierarchy or not, depends on their ability, determination, luck, and talent.