Tuesday, September 30, 2008

More acronyms

Here’s a primer on the bailout acronyms:
MBS – Mortgage-Backed Securities. The surprise package of all those mortgages with volatile risk, guaranteed by the government.
GSE – Government Sponsored Enterprise. This is a favorite of community organizers where Uncle Sam becomes the bank. We think about Fannie Mae and Freddie Mac, but it could also be the Small Business Administration. They are the darlings of our liberal legislators.
CRA – Community Reinvestment Act. The authority the government gives to itself to assume the responsibility of self-reliance for all sorts of inner-city folks. The best way to do that is to force lenders to give them loans they can’t afford.
OFHEO – Office of Federal Housing Enterprise Oversight. These are the folks who smelled a rat way back in 2003 but were run out of DC for picking on the do-gooders. Now, these folks aren’t sharp tools either. Remember Enron and World Com? If they hadn’t blown up, Arthur Anderson would have still been the auditor at Freddie Mac. It was the NEW auditor who blew the whistle on the problem…then OFHEO climbed on board. His Majesty Alan Greenspan showed up in early 2005 to agree with OFHEO and give them some credibility.

So, I read in the paper that opinionist Cynthia Tucker cautions us NOT to blame the bailout on minorities. The culprits are greed, recklessness, and myopia according to Tucker.

But if you watch this video I think you’ll see that all sorts of people were covering for minorities, minorities who benefited from the program.

Frank Raines, then CEO of Fannie Mae told Congress in 2004: “Congress chartered Fannie Mae to expand access to homeownership for low- and moderate-income Americans. And we are committed to that mission. Earlier this year we announced a commitment to create six million first time homebuyers-including 1.8 million minority first-time homebuyers over the next decade, and do our part to raise the minority homeownership rate to 55 percent.”

So, in an effort to assume more responsibility for individuals in this country, our Congress ignored the warnings over and over again. Here’s an account from May of 2005 of the alarm being sounded THREE YEARS AGO, provided by the American Enterprise Institute for Public Policy Research:
“To place this in some perspective, all Treasury debt held by the public totals $4.4 trillion, and all corporate bonds outstanding total $2.9 trillion. Fannie's and Freddie's liabilities--including both their MBS guarantees and their borrowings--come in right in the middle, at $3.7 trillion. Thus, only two companies--both of which are GSEs and implicitly backed by the U.S. government--account for more default risk than all other U.S. corporations combined. The risks for the taxpayers are obvious, but as many commentators have also pointed out, risk of this size, if concentrated in only two companies, poses a danger to the U.S. economic system as a whole--a danger known as systemic risk.”

And we live with this warning today: “After years of trimming around the edges of the GSE problem, Congress--with the help of Chairman Alan Greenspan--has finally come to the nub of the issue. If Congress can bring itself to overcome the furious political opposition of the GSEs and their supporters, it will direct the new GSE regulator to reduce the size of Fannie's and Freddie's portfolios and endorse a workable standard by which to measure the proper size of the smaller portfolios that result. This will solve, finally, the problem of two entities using their implicit government backing to control the residential mortgage market, which creates massive risks for the taxpayers and the economy in general.

“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 losses to the taxpayers and systemic effects on the economy. We should be grateful that Congress finally has before it a serious proposal that is equal to the seriousness of the problem. But we should also worry about whether Congress can find within itself the political will necessary to see the task through to its logical conclusion.”

I lied. That isn’t the warning today. That was the warning in May of 2005. (This is a great link to give some perspective from three years ago: http://www.aei.org/publications/pubID.22514/pub_detail.asp )

Is there any doubt our Congress is in way over its head? Government so needs to get back to basics and stop pretending to manage our lives.

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