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To: Oral Roberts who wrote (276203)	10/23/2008 10:55:46 AM
From: ManyMoose	3 Recommendations Respond to of 793914

If you listen to his speeches, they are like eating sawdust made out of exquisite furniture.

To: Oral Roberts who wrote (276203)	10/23/2008 12:54:27 PM
From: KLP	Read Replies (1) \| Respond to of 793914

Meltdowns and Myths: Did Deregulation Cause the Financial Crisis? by James L. Gattuso October 22, 2008 heritage.org WebMemo #2109 "The trouble with the world is not that people know too little, but that they know so many things that aren't true."--attributed to Mark Twain Easy answers are seldom correct ones. That principle seems to be at work as the nation struggles to discover the causes of the financial crisis now rocking the economy. Looking for a simple and politically convenient villain, many politicians have blamed deregulation by the Bush Administration. House Speaker Nancy Pelosi, for instance, stated last month that "the Bush Administration's eight long years of failed deregulation policies have resulted in our nation's largest bailout ever, leaving the American taxpayers on the hook potentially for billions of dollars."[1] Similarly, presidential candidate Barack Obama asserted in the second presidential debate that "the biggest problem in this whole process was the deregulation of the financial system."[2] But there is one problem with this answer: Financial services were not deregulated during the Bush Administration. If there ever was an "era of deregulation" in the financial world, it ended long ago. And the changes made then are for the most part non-controversial today. Basic Regulatory Structures Never in Doubt In a literal sense, financial services were never "deregulated," nor was there ever a serious attempt to do so. Few analysts have ever proposed the elimination of the regulatory structures in place to ensure the soundness and transparency of banks. Simply put, the job of bank examiner was never threatened. More typically, of course, the word deregulation has been used as shorthand to describe the repeal or easing of particular rules. To the extent there was a heyday of such deregulation, it was in the 1970s and 1980s. It was at this time that economists--and consumer activists--began to question many longstanding restrictions on financial services. The most important such restrictions were rules banning banks from operating in more than one state. Such rules were largely eliminated by 1994 through state and federal action. Few observers lament their passing today, and because regional and nationwide banks are far better able to balance risk, this "deregulation" has helped mitigate, rather than contribute to, the instability of the system. Gramm-Leach-Bliley and Beyond The next major "deregulation" of financial services was the repeal of the Depression-era prohibition on banks engaging in the securities business. The ban was formally ended by the 1999 Gramm-Leach-Bliley Act, which followed a series of decisions by regulators easing its impact. While not without controversy, the net effect of Gramm-Leach-Bliley has likely been to alleviate rather than further the current financial crisis. In fact, President Bill Clinton--who signed the reform bill into law--defended the legislation in a recent interview, saying, "I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."[3] In 2000, Congress also passed legislation that, among other things, clarified that certain kinds of financial instruments were not regulated by the Commodity Futures Trading Commission (CFTC). Among these were "credit default swaps," which have played a role in this year's meltdown. Whether this law constituted "deregulation" is not clear, since the pre-legislation status of these instruments was uncertain. Nor is it a given that CFTC regulation of their trading would have avoided the financial crisis. In fact, many policymakers, including Clinton Treasury Secretary Robert Rubin, argued that their regulation would do more harm than good. In the nine years since that legislation--including the eight years of the Bush presidency--Congress has enacted no further legislation easing burdens financial services industry. Regulatory Agency Trends But what of the regulatory agencies? Did they pursue a deregulatory agenda during the Bush Administration? Again, the answer seems to be no. In terms of rulemaking--the promulgation of specific rules by regulatory agencies--the Securities and Exchange Commission (SEC) is by far the most active among agencies in the financial realm. Based on data from the Government Accountability Office, the SEC completed 23 proceedings since the beginning of the Bush Administration that resulted in a substantive and major change (defined as an economic effect of $100 million or more) in regulatory burdens. Of those, only eight--about a third--lessened burdens. [4] Perhaps surprisingly, the Bush record in this regard is actually less deregulatory than that of the Clinton Administration, which during its second term lessened burdens in nine out of 20 such rulemaking proceedings. Other financial agencies have been far less active in making formal rule changes. The Federal Reserve reports five major rulemakings in the database since 1996--four of which were deregulatory. The only rule change reported by the Federal Deposit Insurance Corporation and the Controller of the Currency is the 1997 adoption of new capital reserve standards, an action with mixed consequences. Of course, much of the work of regulators takes place in day-to-day activities rather than in formal rulemaking activities. For that reason, it is also helpful to look at the budgets of regulators. These also show little sign of reduced regulatory activity during the Bush years. The total budget of federal finance and banking regulators (excluding the SEC) increased from approximately $2 billion in FY 2000 to almost $2.3 billion in FY 2008 in constant 2000 dollars. The SEC's budget during the same time period jumped from $357 million in 2000 to a whopping $629 million in 2008. During the same time period, total staffing at these agencies remained steady, at close to 16,000.[5] A False Narrative In the wake of the financial crisis gripping the nation, it is tempting to blame "deregulation" for triggering the problem. After all, if the meltdown were caused by the ill-advised elimination of necessary rules, the answer would be easy: Restore those rules. But that storyline is simply not true. Not only was there was little deregulation of financial services during the Bush years, but most of the regulatory reforms achieved in earlier years mitigated, rather than contributed to, the crisis. This, of course, does not mean that no regulatory changes should be considered. In the wake of the current crisis, debate over the scope and method of regulation in financial markets is inevitable and, in fact, necessary. But this cannot be a debate over returning to a regulatory Nirvana that never existed. Any new regulatory system would be just that--complete with all the uncertainty and prospects for unintended consequences that define such a system. Policymakers must not pretend otherwise. James L. Gattuso is Senior Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

To: Oral Roberts who wrote (276203)	10/23/2008 1:19:45 PM
From: KLP	2 Recommendations Respond to of 793914

The Dems and their media haven't printed this: House Republicans Call on Justice Department to Investigate Actions of Fannie Mae, Freddie Mac FOR IMMEDIATE RELEASE: October 21, 2008 \| PERMALINK CONTACT: Michael Steel, Kevin Smith, Steve Forde – (202) 225-4000 house.gov House Republicans Call on Justice Department to Investigate Actions of Fannie Mae, Freddie Mac Boehner: “Today’s financial crisis was triggered by a Washington culture that allowed executives at Fannie Mae, Freddie Mac, and elsewhere to run amok” WASHINGTON, D.C. – Joining Judiciary Committee Ranking Republican Lamar Smith (R-TX), Oversight & Government Reform Committee Ranking Republican Tom Davis (R-VA), Financial Services Ranking Republican Spencer Bachus (R-AL), Transportation & Infrastructure Committee Ranking Republican John Mica (R-FL), and several GOP colleagues, House Republican Leader John Boehner (R-OH) today wrote to Attorney General Michael Mukasey to request that the Justice Department appoint a special counsel to investigate the actions taken by Fannie Mae and Freddie Mac executives as part of its ongoing investigation into the mortgage industry. Earlier this year, the Justice Department announced “Operation Mortgage Fraud,” a broad series of investigations and prosecutions involving the subprime mortgage crisis. Fannie Mae and Freddie Mac – two government-sponsored enterprises funded by taxpayers – are widely accepted as being at the heart of today’s housing and economic turmoil. Boehner issued the following statement: “Today’s financial crisis was triggered by a Washington culture that allowed executives at Fannie Mae, Freddie Mac, and elsewhere to run amok – throwing into peril not just the mortgage industry, but our nation’s economy. Now families, seniors, and small businesses are paying the price. It is critical that those at the root of this crisis are investigated and held accountable. While Congress has the responsibility to enact pro-growth, pro-jobs policies to help our economic get back on track, we also must have a full understanding of how we got into this mess in the first place. The Democrats who control Congress have refused to delve into these issues in a serious manner because they’re afraid of political fallout. It is now clear the picture will never truly be complete until the actions of those at Fannie Mae and Freddie Mac are fully investigated by the Justice Department.” The House Republicans’ letter to Attorney General Mukasey follows and is available here. The Honorable Michael Mukasey U.S. Department of Justice 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530 October 20, 2008 Dear Attorney General Mukasey: As we write this letter, our Nation and the global economy confront a financial crisis of historic proportions. There appears to be sufficient evidence already on the public record to conclude that fraud, misfeasance and malfeasance in the mortgage and mortgage-backed securities markets lie at the root of this international crisis. The contagion spread by those responsible has placed our financial system on the brink, wiping out trillions of dollars in investments, retirement savings and other vital personal and institutional resources. At the center of the troubles in the mortgage-related markets may lie a cluster of maladies that never should have taken hold – fraud and mismanagement at Fannie Mae and Freddie Mac, missed opportunities to rein in these Government Sponsored Enterprises, and overzealous lending under the auspices of the Community Reinvestment Act (CRA). As House Republican leaders recently put it: [T]he economic crisis is a failure of a broken Washington, and a government culture that allowed executives at Fannie Mae and Freddie Mac and other firms to run amok, ultimately imperiling our nation’s economy. For years, Republicans warned of this danger and advocated reform of these so-called government-sponsored enterprises (GSEs). And for years such reforms were thwarted by Democratic lawmakers with deep political ties to the worst offenders, putting the companies’ interests ahead of the interests of our country. The culpability of Fannie Mae and its leaders is clear. Franklin Raines, J. Timothy Howard and Leanne G. Spencer – Fannie’s former chairman, chief financial officer and comptroller – all have entered into settlements with federal regulators based on charges that they mismanaged Fannie. The total value of the settlements is reported to be over $30 million. See David S. Hilzenrath, Raines, Federal Regulators Reach Settlement, Washington Post (Oct. 15, 2008) (http://blog.washingtonpost.com/washbizblog/2008/04/regulator_to_dismiss_charges_a.html). Take, too, the example of the Department of Justice’s former Deputy Attorney General (DAG), Jamie S. Gorelick. While serving as the Clinton Administration’s DAG, Ms. Gorelick actively promoted Community Reinvestment Act enforcement that pressured lenders to make risky loans to borrowers who did not meet sound lending standards. These loans often found their way into Fannie Mae’s mortgage-backed securities offerings. After completing her tenure at Justice, Ms. Gorelick went on to become vice chairwoman of Fannie Mae – a position for which she had no obvious previous training or experience; indeed she had had no prior experience at all in finance. She served at Fannie Mae from 1997 to 2003, alongside former Clinton Administration official and Fannie Mae chairman Franklin Raines. Troublingly, during that period, Fannie Mae developed a $10 billion accounting scandal. Yet, according to the Wall Street Journal, a May 2006 Report of the Special Examination of Fannie Mae shows that Ms. Gorelick earned $26,466,834.00 from 1998 to 2003. Along the way, Ms. Gorelick and other Fannie Mae officials also happened to obtain preferential loans from Countrywide Financial Corp., the Nation’s largest mortgage lender. Unfortunately, this litany of failure does not reflect the limits of Ms. Gorelick’s wrong turns at Fannie Mae. On the contrary, with Mr. Raines, she also began laying the ground work for the current financial crisis. In 2001, in a speech before the Mortgage Bankers Association (MBA), Ms. Gorelick announced that Fannie Mae’s acquisition volume of specially-targeted CRA loans had passed the $10 billion threshold in the second quarter of that year – reaching that milestone more than one and a half years ahead of the schedule Fannie Mae had set. Describing Fannie Mae’s plans to the MBA, Ms. Gorelick confidently stated that “Fannie Mae will buy CRA loans from lenders' portfolios; we’ll package them into securities; we’ll purchase CRA mortgages at the point of origination; and we’ll create customized CRA-targeted securities. This expanded approach has improved liquidity in the secondary market for CRA product, and has helped our lenders leverage even more CRA lending.” While Fannie Mae was pursuing this strategy, its leaders spent tens of millions of dollars paying lobbyists to line up their Democratic allies to prevent a Republican Congress from regulating its activities. We all know how this plan worked out. Earlier this year, as the mortgage crisis deepened, the Department of Justice announced a broad series of investigations and prosecutions of mortgage fraud. We applaud that effort, known as “Operation Malicious Mortgage.” We write today, however, to ask that you be sure to include within the Department’s investigative efforts the issues bearing on Fannie Mae, Freddie Mac and the Community Reinvestment Act that lurk behind so much of the mischief in the mortgage and mortgage-backed securities markets. Specifically, we ask: 1. whether the Department’s current mortgage-related investigations encompass investigation of mortgage fraud, mortgage-backed securities fraud, and/or accounting fraud committed or aided and abetted by Fannie Mae and Freddie Mac or their officials; 2. whether the Department’s current mortgage-related investigations specifically encompass the Friends of Angelo/Countrywide VIP mortgage program, including Countrywide Financial Corp.’s sweetheart loans to Fannie Mae officials such as Jamie Gorelick, Daniel Mudd and James Johnson, as well as Countrywide’s sweetheart loans or other favors tied to Fannie Mae’s congressional patrons; 3. whether the Department is separately investigating accounting and executive compensation fraud at Fannie Mae during the tenures of Jamie Gorelick and Franklin Raines, including specifically accounting fraud that enabled extravagant bonuses and other compensation to be paid to Gorelick and Raines; 4. whether Jamie Gorelick’s promotion of the Department’s discretionary enforcement of the Community Reinvestment Act while serving as the Clinton Administration’s Deputy Attorney General were either corrupted by Fannie Mae’s influence or engaged in to pave the way for Gorelick’s lucrative tenure as Vice Chairman at Fannie Mae – a position for which she had no relevant financial industry background; and 5. the degree to which the Department’s enforcement efforts under the Community Reinvestment Act, whether unwittingly or not, contributed to the causes of the current financial meltdown, particularly by contributing to a climate in which lenders felt compelled to write mortgage loans to uncreditworthy applicants and in which Fannie Mae and Freddie Mac felt encouraged to purchase those mortgages and bundle them into ultimately toxic mortgage-backed securities. In addition to seeking your responses to these matters, we also wish to ensure that the manner in which these and other allegations are investigated nationwide is strategic and coordinated. Because of the depth, sophistication and far-reaching impact of potential wrongdoing, we ask that you seriously consider the formation of an Enron-like task force or the appointment of a special counsel to spearhead the investigation. We are aware that, earlier this year, you “rejected . . . the idea of creating a national task force to combat the country’s mortgage fraud crisis, calling the problem a localized one akin to ‘white-collar street crimes.’” Eric Lichtblau, Mukasey Declines to Create a U.S. Task Force to Investigate Mortgage Fraud, New York Times (June 6, 2008). Given the subsequent course of events – which has shocked the financial system across the Nation and the globe – we believe that a more urgent and focused effort led by a task force or special counsel is necessary in order to ensure that the wrongdoers do not profit from their actions and to restore public confidence in this sector of the financial markets. Thus, we hope that you will reconsider your initial decision. We appreciate your attention to these important problems, and look forward to your reply. Answers to questions such as these are important to the Congress’s identification of measures that can be taken to assure that the Nation does not travel again down the dangerous road that produced the current crisis. More important still, answers are critical to the reassurance of the public that our government can be trusted to police those who would place our economic system in peril.