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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: Peter Dierks who wrote (42632)	4/13/2010 8:35:51 AM
From: Peter Dierks	2 Recommendations Respond to of 71588

How Fannie and Freddie foiled regulators Examiner Editorial April 12, 2010 Armando Falcon, former director of the Office of Federal Housing Enterprise Oversight, testifies Friday on Capitol Hill before the Financial Crisis Inquiry Commission. (Cliff Owen/AP) Mismanagement of Fannie Mae and Freddie Mac and obstruction of their regulators by Congress and successive presidential administrations played a pivotal role in creating and then bursting the housing bubble at the heart of the economic meltdown of 2008, according to testimony of officials before the congressionally chartered Financial Crisis Inquiry Commission. Rather than offer a serious discussion of how to reform the two government-sanctioned enterprises (GSEs), however, President Obama and the Democratic leadership in Congress are only offering legislation to punish bank CEOs and stiffen regulations for private sector banks. In 2006, Dan Mudd, then Fannie Mae's chief operating officer, wrote in an e-mail to Chief Executive Officer Franklin Raines that the GSE desperately needed reform because "the old political reality was that we always won, we took no prisoners ... we used to... be able to write, or have written, rules that worked for us." Mudd's e-mail was cited in testimony last week before the FCIC by James B. Lockhart, who in 2006 was acting director of the Office of Federal Housing Enterprise Oversight (OFHEO), the GSE watchdog. Lockhart said OFHEO's regulatory authority was inadequate because "[Fannie and Freddie] could borrow so cheaply and at unlimited amounts to fund their portfolios because their lenders and rating agencies applied no market discipline." Lockhart told the FCIC that before the housing bubble burst, he recognized that the GSEs faced serious credit risks and recommended freezing Freddie's portfolio. That recommendation ran into "quite intense" pushback, according to Lockhart. The neutered watchdog could barely enact any reform at all, he said: "OFHEO was regulating two of the largest and most systematically important U.S. financial institutions and yet its powers were much weaker than bank or even state insurance regulators ... OFHEO did not have all the necessary powers to deal with these giant housing enterprises." Armando Falcon, Lockhart's predecessor at OFHEO, told the FCIC that when the understaffed regulator needed additional resources to conduct a special examination of Fannie Mae's accounting practices, "we encountered more difficulty and delay. Fannie's lobbyists were on the Hill spreading misinformation about my motives and asserting that the special exam was unnecessary." Whenever faced with a report with negative connotations about the companies, Fannie's supporters would launch an assault on OFHEO -- from a full investigation of the group to demanding Falcon's resignation. So now the question is whether the FCIC will name names in its forthcoming report of those in Congress and the executive branch who protected and advanced Fannie and Freddie, at grievous expense to American taxpayers. Read more at the Washington Examiner: washingtonexaminer.com