How we got here: the warnings…
April 2001: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."
September 2003: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.
November 2003: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)
April 2005: Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSE's and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)
---> what is really interesting here, is that in the middle of a very healty economy, and strong stock market, these people had the foresight to know what could happen. O wait, i forgot they are idiots, oh
never mind, back to our regularly scheduled program ---
Greenspan Warns:
May 2005
"The strong belief of investors in the implicit government backing of the GSE's does not by itself create problems of safety and soundness for the GSE's but it does create systemic risks for the U.S. financial system as the GSE's become very large."
money.cnn.com
The author shows that she was paying attenion and has some rather chilling foresight: In the longer-run, if such a move were to make Fannie and Freddie's investment base less risky, it could mean that the U.S. financial system is able to weather storms like recession or a big pullback in the housing market without any kind of meltdown. That's the kind of thing everyone is nervous about, but almost no consumer is taking seriously enough to change their homebuying behavior. Maybe that's why Greenspan's warning should not fall on deaf ears.
At least one Democrat got it.
September 2005
Federal Reserve Chairman Alan Greenspan is once again warning that the multibillion-dollar holdings of Fannie Mae and Freddie Mac must be cut, because their huge debt could imperil the U.S. financial system.
forbes.com
2005 Legislation to Regulate Freddie and Fannie similar to banks:
In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill,
introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it.
There was a similar house bill. With a filibuster looming, the legislation died there.
online.wsj.com
the Democrats blocked the most important financial legislation of our time.
Take the time to watch, and listen, to Barney Frank and Greenspan,
youtube.com |
