Sunday, October 12, 2008
Opinion, Politics

Obama and the Fannie Mae 5

Campaign contributions talked louder than his conscience

By Stephanie Ramage

If you are in a position to keep bad things from happening, morality demands that you muster the courage to do so.

In 2005, Democratic presidential candidate Barack Obama was in a position to prevent much of the financial agony that America is now in but campaign contributions talked louder than his conscience.

The one most decisive factor in creating America’s present financial disaster was the Democrats’ deregulation of Fannie Mae beginning nine years ago under the supervision of Fannie Mae chief Franklin Raines, who is now an economic advisor to Obama (however much the Washington Post’s editorial board might try to distort the truth—but we’ll get to that paper’s shameful behavior in a few). 

In January 2005, a bill was produced in the Senate to stop the approaching disaster, and Obama sided with those who killed the bill.

Let’s go back to the beginning.

On the morning of Sept. 30, 1999, in the last year of the Clinton Administration, the New York Times reported the following: “Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.  The action… will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans... Fannie Mae…felt pressure from stock holders to maintain its phenomenal growth in profits.”

The Times continued: “In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers…borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans …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 1980s.” (Emphasis mine.) 

Peter Wallison a resident fellow at the American Enterprise Institute told the Times, “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'”

That is precisely what happened this year. In the six years he was in office, Franklin D. Raines made $90 million off of his new adjustable rate mortgage program. By the time the carpet bomb of foreclosure signs hit our homes and neighborhoods, he was retired, living large and hobnobbing with Democratic presidential candidates. It was Fannie and Freddie’s bad loans—because they propped up about half of all mortgages in the U.S.—that poisoned Wall Street.

How? Investment banks bought up bundles of securities and mixed in with them were many backed by Fannie and Freddie’s rotten mortgages. But Raines didn’t care about the poor people he had put in peril because he was a greedy, corrupt influence peddler. In 2004, the Office of Federal Housing Enterprise Oversight (OFHEO) investigated Fannie Mae and found that “Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. … over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets.”

In December 2004, in the midst of a $6.8 billion accounting scandal, Raines left Fannie only to resurface this year, according to the Washington Post, which reported on July 16 that Raines had recently taken “calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters.” When the Post’s editorial board realized that what reporter Anita Huslin had uncovered might reflect badly on Obama, its chosen candidate, it made a desperate attempt to discredit its own reporter, going so far as to publicly interrogated her via Mike Dobbs' so-called “Fact Checker” blog, which is little more than a pillory for reporters who don't stay on message. A Sept. 20 blog entry states: “I asked Huslin to provide the exact circumstances of that passage. She said that she was chatting with Raines during the photo shoot, and asked ‘if he was engaged at all with the Democrats' quest for the  White House. He said that he had gotten a couple of calls from the Obama campaign. I asked him about what, and he said, 'Oh, general housing, economy issues.' ('Not mortgage/foreclosure meltdown or Fannie-specific?' I asked, and he said 'no.')" Dobbs had better hide when the circus comes to town—such gifted contortionists are in short supply.

For the sake of moral parity, some would point to Republican candidate John McCain’s campaign manager, Rick Davis, who was paid “more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations,” as reported by the Times on Sept. 21. But a PR consultant like Davis and a quasi-government agency head like Raines are two different things, and being legitimately paid for work (however flimsy), as Davis was, is quite different from bilking taxpayers out of $90 millon, as Raines did.

John McCain tried to stop the disaster.

In 2005, Sen. Chuck Hagel (R-Neb.) sponsored the Federal Housing Enterprise Regulatory Reform Act, with McCain signing on as a co-sponsor in May 2006. The idea behind the legislation was to fix problems cited in the report issued by OFHEO in 2004.

The bill died in the Committee on Banking, Housing, and Urban Affairs where it was targeted for failure by Democrats Chris Dodd, Charles Schumer and Jack Reed, who—along with Obama, and Congressman Barney Frank who had a romantic relationship with Fannie Mae official Herb Moses—were the recipients of Fannie's biggest campaign contributions. 

Obama did nothing to save the bill. In 2006, as the mid-term elections loomed, the Republicans spent their resources defending decisions in Iraq. All the Democrats had to do was wait out the elections. They gained control of both houses of Congress that November, burying the bill for good.

It’s natural to want to find someone to blame for injustice, because someone is always to blame. The people to blame  are Franklin Raines, Barney Frank, Chris Dodd, Charles Schumer and Jack Reed, and every one of them is connected to Barack Obama, not only because they are Democrats, but because they got big contributions from Fannie Mae just like he did. According to Federal Election Commission records, Obama’s contributions from Fannie and Freddie are second only to those given to Dodd, but Obama has pocketed his in less than half the time it took Dodd. 

How many times are we going to make excuses for Obama’s unwise associations? Where there is this much smoke there is bound to be fire. That fire is Obama’s poor judgment and it’s smoldering until it ignites America’s next big crisis. SP