Wednesday, October 1, 2008

Barney Frank In Bed With Fannie Mae


Barney Frank, one of the prime architects of our nation's fiscal destruction, spent the last two decades in bed with Fannie Mae, both figuratively and, it would seem, literally.
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This from an exceptional article by Jeff Poor at the Business & Media Institute, documenting some of Barney Frank's efforts to drive our nation into the subprime swamp while maintaining an intimate relationship with a Fannie Mae executive:

Prominent Democrats ran Fannie Mae, the same government-sponsored enterprise (GSE) that donated campaign cash to top Democrats. And one of Fannie Mae’s main defenders in the House – Rep. Barney Frank, D-Mass., a recipient of more than $40,000 in campaign donations from Fannie since 1989 – was once romantically involved with a Fannie Mae executive.

The media coverage of Frank’s coziness with Fannie Mae and his pro-Fannie Mae stances has been lacking.

. . . The July 3, 1998, Reliable Source column in The Washington Post reported Frank, who is openly gay, had a relationship with Herb Moses, an executive for the now-government controlled Fannie Mae. The column revealed the two had split up at the time but also said Frank was referring to Moses as his “spouse.” Another Washington Post report said Frank called Moses his “lover” and that the two were “still friends” after the breakup.

Frank was and remains a stalwart defender of Fannie Mae, which is now under FBI investigation along with its sister organization Freddie Mac, American International Group Inc. (NYSE:AIG) and Lehman Brothers (NYSE:LEH) – all recently participants in government bailouts. But Frank has derailed efforts to regulate the institution, as well as denying it posed any financial risk. Frank’s office has been unresponsive to efforts by the Business & Media Institute to comment on these potential conflicts of interest.

While the relationship reportedly ended 10 years ago, Frank was serving on the House Banking Committee the entire 10 years they were together. The committee is the primary House body which along with the Office of Federal Housing Enterprise Oversight (OFHEO) has jurisdiction over the government-sponsored enterprises.

He has served on the committee since becoming a congressman in 1981 and became the ranking Democrat on the committee in 2003. He became chairman of the committee, now called the House Financial Services Committee, in 2007.

Moses was the assistant director for product initiatives at Fannie Mae and had been at the forefront of relaxing lending restrictions at the company for rural customers, according to the Feb. 23, 1998, issue of National Mortgage News (NMN).

“Herb Moses, who helped develop many of Fannie Mae’s affordable housing and home improvement lending programs, has left the mortgage industry,” Darryl Hicks wrote for NMN. “Mr. Moses - whose last day was Feb. 13 - spent the past seven years at Fannie Mae, most recently as director of housing initiatives. Over the course of time, he played an instrumental role in developing the company’s Title One and 203(k) home improvement lending programs.”

Hicks explained in his story how Moses orchestrated a collaborative effort between Fannie Mae and the Department of Agriculture.

“The Dartmouth grad also played a crucial role in brokering a relationship between Fannie Mae and the Department of Agriculture,” Hicks wrote. “This led to the creation of Fannie Mae’s rural housing program where the secondary marketing agency agreed to purchase small farm loans insured through the department.”

While Moses served at Fannie Mae and was Frank’s partner, Frank was actively working to support GSEs, according to several news outlets.

In 1991, Frank and former Rep. Joe Kennedy, D-Mass., lobbied for Fannie to soften rules on multi-family home mortgages although those dwellings showed a default rate twice that of single-family homes, according to the Nov. 22, 1991, Boston Globe.

. . . Moses left Fannie in 1998 to start his own pottery business. National Mortgage News called Moses a “mortgage guru” and said he developed “many of Fannie Mae's affordable housing and home improvement lending programs. Moses ended his relationship with Frank just months after he left Fannie.

Even after the relationship ended, however, Frank was a staunch defender of Fannie Mae even as other experts suggested there were serious problems building in Fannie Mae and Freddie Mac.

According to an article by Kathleen Day in the Oct. 8, 2003, Washington Post, Frank opposed giving the Bush administration the right to approve or disapprove business activities that “could pose risk to the taxpayers.” He told the Post he worried the Treasury Department “would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks.”

Just a month before, Frank had aggressively thwarted reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were “exaggerated,” a gross miscalculation some five years later with costs estimated to be in the hundreds of billions.

“These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis,” Frank said to the Times. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

. . . In a July 23 op-ed, Wall Street Journal Editorial Page Editor Paul Gigot put the blame for the GSEs’ collapse firmly on the members of the liberal establishment who took money from Freddie and Fannie. “Fan and Fred also couldn't prosper for as long as they have without the support of the political left... This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. [Paul] Krugman and the Washington Post's Steven Pearlstein in the press.”

. . . [O]n Sept. 17, 2008, former Bush administration Deputy Chief of Staff Karl Rove elaborated on the Bush administration’s efforts to curb abuses at the two GSEs in 2003. He told Fox News’ “Hannity & Colmes” that Frank was among the most aggressive opponents of White House attempts to reform Fannie Mae and Freddie Mac.

“All of this bad stuff on Wall Street happened because people got greedy and the greed started at Fannie Mae and Freddie Mac,” Rove said. “And I know this because five years ago, the administration was alerted by the regulator, James Lockhart, that there was insufficient authority and that these institutions – particularly Fannie – were out of control.”

Rove said the Bush administration’s efforts to reform Fannie and Freddie were opposed by congressional Democrats – specifically Frank and Senate Banking Committee Chairman Christopher Dodd, D-Conn.

“And I got to tell you, for five years, I was part of an effort at the White House to fight this and our biggest opponents on the Hill who blocked this every step of the way were people like Chris Dodd and Barney Frank. And Fannie and Freddie are the $200 billion contagion at the center of this.”

Frank has been quick to blame deregulation for some of the problems in the financial environment, as he did on Bloomberg television’s Sept. 19 “Political Capital with Al Hunt.” However, as earmark crusader Rep. Jeff Flake, R-Ariz. pointed out – it’s not deregulation, but it was the structure of Fannie Mae and Freddie Mac that had been guarded by Frank and other members of Congress.

“Some people point at deregulation,” Flake said to the Business & Media Institute on Sept. 23. “It’s not deregulation at all. We have for far too long shielded Fannie and Freddie for example, with the implicit and now explicit guarantee. I just found it humorous.”

Flake specifically named Frank as one of the members behind letting allegations of transgressions at the two GSEs for slipping by without oversight from Congress.

“Just a few minutes ago, a reporter was asking me about this and saying, ‘Barney Frank is saying that’s just – because there were allegations,’ correct ones – ‘that Fannie and Freddie have been the playground for politicians for years and now the other side is saying Fannie and Freddie were just a small part of this and this goes far beyond.’ It does, but these same people a couple of weeks ago said, ‘You got to bail out Fannie and Freddie because they touch everything out there. They touch nearly every mortgage out there.’ And because of that explicit guarantee – that we would come and bail them out, nobody has been subject to market discipline.”

. . . The red flags were raised long before the government bailed out the two GSEs in August 2008. The first egregious scandal involving Fannie Mae occurred in 2004. A 2004 Wall Street Journal editorial was first to point out claims in an OFHEO report that showed accounting malpractices by the GSE.

“For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility, the Oct. 4, 2004, editorial, “Fannie Mae Enron?” said. “Now, thanks to Fannie’s regulator, we know the answer. The company was cooking the books. Big time.”

Read the entire article. One wonders if Barney Frank's relationship with a Fannie Mae executive was not a huge conflict of interest? Irregardless, Frank's now claiming that the subprime crisis is wholly the responsiblity of Republicans or that the problem is deregulation is insipid. Barney Frank would have us believe he bears no responsibility for his own lifetime of actions aimed at lowering lending standards, driving us into the subprime swamp, and doing all he could to - succesfully - keep us there. Further, he would have America ignore the fact that all of the policies leading to the subprime crisis were put in place by Democrats.

(H/T Dr. Sanity)







4 comments:

vinny said...

Great post, as always, but your use of the word "irregardless" takes away some of the respect I have for your writing. Double negatives are a great way to discredit your argument, rather than to make a point.

Larry said...

The notion of Barney Frank "in bed" with anything with a feminine name is surly going to have you brought up on charges.

Dinah Lord said...

I wouldn't go to bed with Barney Frank irregardless.

Hah!

GW said...

Alas, Vinny, you have me on this one. While being wholly unable to spel poperly, I have always thought myself a passable wordsmith. In this case however, I have fallen below standard. Your observation is well taken.