Barney Frank: 2009 Archives

It's pretty clear that Chatham, like other cities and towns in Massachusetts and across the country, will have a tough time over at least the next year or two.

It all started with the collapse of the U.S. housing bubble fueled by the explosion in subprime mortgage loans to folks who couldn't afford them. When those defaults started showing up in the U.S. government-backed Fannie Mae and Freddie Mac securities sold to governments and other investors around the world it caused panic and triggered the worldwide credit freeze. As a result, securities markets tanked and hundreds of billions if not trillions of dollars in the life savings of Americans vanished. Job losses multiplied, As housing values also sank, Americans had good reason to feel poorer and began to dig in to start the long, hard process of cutting expenses to make ends meet.

What has happened is just another example of well-meaning, do-good Democratic policies that foul up the working of the economy. FDR's government programs turned a severe recession into the Great Depression with unemployment rocketing to 25% and staying there until the build-up for World War II got the economy moving ahead.

Mortgage loans for the neglected minorities had a nice ring to it when President Carter floated the idea and had the Community Reinvestment Act passed. Over the years pressure built to make riskier and riskier loans to those with questionable credit. Indeed, President-Elect Obama himself had a hand in that: In the early 1990s in Chicago he was teaching radicals in ACORN, the Marxist community agitator group, how to intimidate banks and banks into making mortgage loans they shouldn't.

The Clinton Administration turned the screws tighter by creating a scorecard for banks: Those who weren't "doing enough" found they couldn't get approvals for mergers and other normal business activity. Banks understandably didn't want to make bad loans and hold them on their books, fearing defaults. This is where Fannie Mae and Freddie Mac came in. Congressional Democrats on financial services committees like Massachusetts Congressman Barney Frank and Connecticut Senator Chris Dodd pressed these government-sponsored agencies to buy those subprime loans from banks and mortgage lenders eager to get rid of them. That they did, and packaged the risky paper into morgage-backed securities and sold them to the regular buyers of U.S. government securities around the world.

With the new money from Fannie and Freddie, banks and mortgage lenders now could make ever more loans to iffy borrowers. Subprime loans as a percentage of total loans soared from 2% to 30% from 2002 to 2006 and Fannie and Freddie were the biggest buyers of them. President Bush and Senate Republicans called for a reform of the madness in 2003, 2004, 2005 and 2006, but Barney Frank and Chris Dodd successfully led Congressional Democrats in blocking reform. Everything was fine, said Frank. Of course, when the subprime collapse came, Frank blamed Wall Street, which was just doing its job of selling what Fannie Mae and Freddie Mac gave them to sell. But it was government meddling that has created the mess in the first place.

Now the government is poised to do everything to solve the problem except let the economy sort itself out as it ultimately has to do. Past evidence, such as in the Great Depression, doesn't support the idea that massive government intervention is the answer. Now Democrats argue FDR, who did a lot, just didn't do enough. So they will pump trillions into programs they think are neat and nifty, saddling taxpayers with massive debt for generations to come. But the world will be saved.

We can hope.

We have detailed on several occasions that the present worldwide financial crisis can be traced to Democratic housing policies encouraging and then requiring banks to make mortgage loans to people who really couldn't afford them. Present in the early stages of the drive to force banks to make such loans was Barack Obama, then a schooled community organizer training ACORN operatives in Chicago how to intimidate banks and bankers into making loans they shouldn't. That was back in 1991. Obama-supporting ACORN was among the organizations that pressed the Clinton Administration to toughen up the penalties on banks that "weren't making enough" subprime loans. (ACORN worked for Obama in his first run for Illinois Senate in 1996.)

Understandably, banks didn't want to make loans that had a strong chance of going bad. They wanted to get rid of them. So ACORN spent tens of thousands of dollars lobbying Fannie Mae and Freddie Mac to buy up subprime loans and sell them around the world as U.S. government securities. Also pressing Fannie and Freddie was Barney Frank, Democrat of Massachusetts, and the top Democrat in the House of Representatives on financial matters. Subprime loans rocketed from 2% of total mortgage loans in 2002 to 30% in 2006. Internal reports at Fannie warned that Fannie was getting in too deep with these risky loans, but top brass ignored the warning as Congressional Democrats led by Frank and Democratic Senator Dodd of Connecticut urged them to buy up more.

The demand for housing mushroomed with all the mortgage loan availability. In 2003 President Bush called Congress to rein in Fannie and Freddie, but Democrats led by Frank said everything was fine and no new regulation was needed. Senate Repubicans pushed legisation in 2004, 2005 and 2006, but again Democrats led by Barney Frank said all was peachy keen and no new regulation was needed. All told, Frank and fellow Democrats blocked reform efforts in 2003, 2004, 2005 and 2006. (In 2005 and 2006 Obama was in the U.S. Senate supporting Democratic efforts to block Fannie/Freddie reform. Obama in just two years became the number two recipient of Fannie/Freddie campaign contributions of all time. They must have known he was present at the creation of the subprime mortgage loan boom that resulted in many millions of bonuses for Fannie/Freddie top officials as business skyrocketed.)

The sorry tale is detailed in, among other places on this site, here. The housing bubble collapsed, subprime mortgage loan defaults exploded and rippled through Fannie and Freddie securities around the world. Financial panic ensued, all triggered by the subprime mortgage mirage dissolving.

Yesterday Rush Limbaugh reported that Barney Frank had appeared on MSNBC to discuss the financial crisis and how it all started. In many interviews, Frank had shamelessly blamed it all on Wall Street greed. Now Frank gave Joe Scarborough a different view. Limbaugh's transcript follows:

RUSH: Barney Frank. I want to go to yesterday's audio sound bite roster. Actually, we have stuff from today and yesterday. Yesterday he was on with Chris Cuomo on Good Morning America, and I'll tell you, Barney is getting more and more contentious with his buddies. I mean, the people in the Drive-By Media are Barney's buddies, and he's getting contentious with them, often for no reason (which means he's defensive). But first from MSNBC today, Joe Scarborough's morning show. Scarborough said, "How do we stop the next big bust on Wall Street? We had the '87 crash. We had the Asian crash. We had the dotcom crash and the telecom crash, and now we got the housing bubble crash." I'll tell you the next crash. I just said, folks. We are insane. It was just two months ago that we learned that massive debt that can't be repaid causes bubbles to burst big time. And now we've got trillion-plus dollar or trillion-dollar deficits, promised by Obama, for years. So that's the next one to bust, and Scarborough is asking Barney Frank, "How do we figure out what the hell we're doing on Wall Street?"

FRANK: It's not deregulation. That was not the problem. It was the failure to adopt new regulation for a new phenomenon, the securitization. The biggest part of this problem was subprime loans: money lent to people to make them homeowners who couldn't afford the loans, who should not have been considered to be, in many cases, capable financially of homeowning. Now... Eh... You've gotta recognize reality. We have begun to adopt legislation to prevent that. We can stop the last problem from recurring. Nobody can know what the next problem will be.

RUSH: This is... (laughing) He created the problem! This... Folks, this is more than chutzpah. He created the problem. This is a sound bite that gets you out of your chair. I don't believe I just heard this. He created it. His definition of "affordable housing" was to make sure that people who couldn't pay the loans back got the loans, the mortgages. He forced Fannie Mae, Freddie Mac to do this. ACORN was involved, Obama's group. This was a Democrat Party operation through and through! Instead of answering questions from Joe Scarborough, Barney Frank ought to be answering them as a witness before some other congressional committee. So now we have begun to adopt legislation to prevent this? (laughing) All you can do is laugh. I know some of you people are put out with me because I'm laughing at this, but what are we going to do? You can't go through your life angry all the time like the liberals do, but this...

Trillions of dollars have been lost as a result. Most 401(k)s and other savings have been decimated. Retirements are being postponed. Housing values have shriveled. People have lost their homes. And who was responsible? Know-it-all do-good Democrats who ignored the realities of economics.