Lax Oversight Caused Crisis

To the pure, all things are pure, but to  those who are corrupted and do not believe, nothing is pure. In fact, both their minds and consciences are corrupted.

Titus 1:15                                  

Lax Oversight Caused Crisis, Bernanke Says, this was the headline in today's New York Times on the front page.  As I was reading the article, I couldn't help but think, "Duh," and whose fault is that? I remember reading in the article previously mentioned in my blog about the Democrats' role in the failing Fannie Mae and Freddie Mac escapade, and how now they like to blame someone else for their mishaps. They think no one will figure out the truth and go back and look because we have all grown into such a complacent population, too lazy to take the time to research it, believing everything we hear.

The article by Catherine Rampell continued, ...Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.  If Mr. Bernanke would only take the time to look back at the hearings in 2005 when Congress was trying to do just what he is saying, according to and the article, Regulting Fannie Mae and Freddie Mac: Now It Gets Serious By Peter J. Wallison in the May 2005 article http://www.aei.org/outlook/22514, he would find that the problem was already being addressed, but the Democrats were blocking it every step of the way.

Bernanke went on to state that, "Stronger regulation and supervision aimed at problems with underwriting practises and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates..."  However, that was exactly what Congressman Richard Baker (R-LA) tried to do in 2000 when he became concerned with the risks created by Fannie and Freddie and he first introduced legislation to augment the powers of the regulator. He couldn't get the support for his bills, and neither could two other bills that were brought to the Senate's attention in 2002 and 2003. But the threat of legislation, according to the article, brought Fannie and Freddie to agree to modest changes in their financial procedures and voluntary registration of their equity securities under the Securities Exchange Act of 1934.

In 2003, new auditors found that Freddie had manipulated its earnings in order to reduce reported volatility and--perhaps more important--one of Freddie's senior managers seemed to have taken steps to obstruct the investigation. Regulation was tried through the bills that failed to build momentum in the House and Senate as it hit opposition from the Democrats when the companies called in their chits. Then again in the fall of 2004, the Office of Federal Housing Enterprise Oversight (OFHEO) reported that Fannie Mae had also manipulated its accounting, and to a degree far more significant than what Freddie had done. Franklin Raines was the chairman of Fannie Mae at that time and stood by the company's accounting, claiming that Fannie was  being victimized by an overzealous regulator and its accounting position would eventually be vindicated by the Securities and Exchange Commission.  Later, the SEC's chief accountant dismissed Raines' claims, and emphasising the deceitfulness by Raines and Fannie Mae, held up a piece of paper, telling Raines to his face that Fannie's position on the relevant accounting was not even "on the page" of allowable interpretations. I wonder how much he made off the deal. How many of our wonderful Congressmen came out of the housing bubble smelling like not just a rose, but rather the whole rose bush?

Who said everyone has the right to own a home?  That's not true, everyone has the right to work hard, put back their money, and earn the ability to purchase a new home, but it doesn't give you the right to purchase a house that you know you could never truly afford.

In the closing of Wallison's article, he states, If Congress cannot take this essential step, however, no amount of additional authority--given to a purported "world class regulator"--will significantly change the course of events. Fannie and Freddie will continue to grow, and one day--as Alan Greenspan has predicted--there will be a massive default with huge loses to the taxpayers and systematic effects on the economy.  What happened in 2008? Just what was predicted happened, so whose fault is it now?  Think about it.