Yesterday director of economic-policy studies at the American Enterprise Institute and Bloomberg News columnist Kevin Hasset reported at Bloomberg.com that Democrats are the ones who created the current financial crisis that we find ourselves in as a nation. According to his commentary, Fannie Mae and Freddie Mac “exploded” and injured many bystanders (some fatally). “Take away Fannie and Freddie, or regulate them more wisely, and it’s hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.”
Hassett reports that as of the end of June 2008, “Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments.” He continues (emphasis mine).
Some might say the current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”
What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.
If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.
But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.
Hassett suggests that many Democrats may have opposed this bill due to the massive financial contributions they received from Fannie and Freddie. He continues (emphasis mine).
But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.
Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.
Hassett’s conclusion is remarkable (emphasis mine).
There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.
Oh, and there is one little footnote to the story that’s worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.
I’m guessing most of us haven’t heard that Democrats are to blame for the current financial crisis we’re experiencing. It looks to me like Barack Obama and the majority of his Democratic Party were so blinded by money that they put themselves first and failed to do what was best for the country.
Please note that Kevin Hasset is also an adviser to Senator John McCain in the 2008 Presidential election.