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October 15, 2008
Exclusive: For McCain to Win, He Must Name Names on the Mortgage Meltdown
John McCain has belatedly started to name names – pointing to the role that Democrats like Barney Frank and Chris Dodd played in the collapse of the mortgage giants Fannie Mae and Freddie Mac, which helped trigger the U.S. economic meltdown
To be sure, Republicans are hardly blameless. Although the White House points out that it repeatedly tried to get Congress to reform Fannie and Freddie, the Bush Administration doesn’t talk about its own role in the manic, bipartisan push to “expand homeownership” – whether the beneficiaries were prepared for it or not. Under HUD Secretaries Mel Martinez and Alphonso Jackson in particular, the administration constantly took credit for increases in minority ownership over the past seven years. Of course, we now know that much of this “success” was a sham, padded by Fannie and Freddie’s work to make loans to people who were terrible credit risks – the very people who can’t pay their mortgages today.
But the Republican role in creating the mess pales by comparison with the Democrats’. The problem is that McCain behaves almost as if it were beneath him to talk about what Barack Obama and his political allies have done to create today’s financial disaster, although he will do so on occasion – as in Wisconsin on Thursday, when a fiery, middle-aged conservative man denounced the Democrats, and a crowd of angry McCain partisans urged the senator to name names. McCain (who introduced legislation in 2005 to reform those agencies that was thwarted by the Democrats) responded by mentioning Frank, the Massachusetts lawmaker who chairs the House Financial Services Committee, and Dodd, who chairs the Senate Banking Committee. But the senator looked like he would rather be doing something else. He still seems more comfortable voting for $700 billion bailouts and rounding up conservative House Republican votes for it and advocating his own $300 billion plan to have the government pay off people’s mortgages. (You know things are bad for the Republicans when Obama aides are distributing to reporters a National Review critique of McCain’s $300 billion scheme, as they were doing last week.).
The reality, which McCain may be about to learn the hard way, is that Republicans will lose when they try to compete with the Democrats by putting forward less expensive big-spending proposals. His presidential possibilities are fading and threaten to drag down with them the prospects of many of good conservative, pro-defense, low-tax candidates for Congress. McCain’s only real hope of turning things around would be to go negative in a very big way: that is, factually and forcefully, to tell the American people how the country got into this mess and to spotlight the roles of Obama and his fellow Democrats. McCain is absolutely right to talk about subjects like Obama’s connections to Weather Underground terrorist Bill Ayers and should continue doing so. But right now, the economic situation is the number one issue for Americans, and unless McCain can put forward a credible narrative about what has gone wrong and how to fix it, voters will tune out his message on everything else, whether it is Obama’s connections with Ayers or his appeasement-oriented approach to Iranian President Mahmoud Ahmadinejad.
McCain and his surrogates need to make the mortgage-meltdown issue a top priority, taking their case to conservative talk radio, the liberal mainstream media and everything in between. Following are some factual points that McCain needs to make – about what went wrong, who profited financially from it, and who sought political advantage by demagoguing the subject and covering up the looming debacles at Fannie Mae and Freddie Mac. If John McCain (as of this writing 10 points behind Obama, according to a Washington Post/ABC News poll) is to make the race more competitive, here are some points he needs to make about who brought us the current economic implosion:
1) Obama, ACORN and the Community Reinvestment Act. The long road to today’s mortgage meltdown began with the passage of the Community Reinvestment Act (CRA) in 1977 – the very purpose of which was to encourage banks to make loans to high-risk buyers in “underserved” neighborhoods (typically poor, unstable inner-city ones). Groups like the Association of Community Organizations for Reform Now (ACORN) utilized the CRA to deny banks the ability to merge. Soon, Fannie and Freddie (acting in response to pressure from the Clinton Administration to increase minority homeownership rates) got involved in buying these bad loans. One of the most dedicated Left-wing activists pushing this process forward was Madeline Talbott, the longtime director of Chicago ACORN. Writing in the Sept. 29, 2008, New York Post, Stanley Kurtz details the pressure she placed on banks to weaken strict financial requirements in order to create what officials of one bank referred to as an “affirmative-action l ending policy.” Obama worked for Talbott and trained her personal staff, and later was involved in funding her operation through the Woods Foundation and the Chicago Annenberg Challenge. McCain should ask Obama about his links with a woman who helped generate the political pressure that led to the financial implosion at Fannie and Freddie.
2. Barney Frank: Since his disastrous television interview with Bill O’Reilly of Fox News Channel several weeks ago, this Massachusetts lawmaker has become a veritable poster boy for what went wrong – and for good reason. Today, Frank reprehensibly suggests that that Republican criticism of the CRA is motivated by racial bigotry. He has continuously attempted to reassure the American public that Fannie and Freddie’s work to encourage “affordable” (below-market-price, low-income housing) and homeownership outweighed their distortions of the housing market.
And he has been disastrously wrong time and again. In September 2003, Frank dismissed concerns about the firms’ financial situation: “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see of affordable housing.”
“I’m not worried about Fannie and Freddie’s health. I’m worried that they won’t do enough to help the economy,” Frank, chairman of the House Financial Services Committee, said last year, when Fannie was given permission to purchase an additional $40 billion in subprime loans. In August – just weeks before the federal government assumed control of Fannie and Freddie, Frank told Money magazine that “Fannie and Freddie are better off than the market thinks” and that part of their problem was just “rumor-mongering.” McCain should be demanding that Obama answer this question: With this kind of record, should Barney Frank be heading the Financial Services panel next year?
3. Franklin Raines and Jim Johnson. Johnson, a veteran Democrat Party operative who briefly co-chaired Obama’s vice-presidential selection efforts, was CEO of Fannie Mae until leaving in 1998, when he was succeeded by Raines. Federal investigators found that from 1998 to 2002, senior officials at Fannie received six- and seven-figure bonuses – aided by falsified signatures on accounting transactions that were manipulated to facilitate multimillion-dollar bonuses for top executives including Johnson and Raines. Neither has been charged with criminal wrongdoing, but what went on during their tenure is nonetheless disturbing. In 1998, Johnson received a bonus of $1.932 million, and Raines, his designated successor, got $1.1 million.
Raines, was former chief of the Office of Management and Budget under President Clinton, headed Fannie Mae from 1999 to 2004, when he was forced out by the firm‘s board after regulators charged him with manipulating earnings to boost his bonuses. During his tenure, Fannie overstated its earnings by as much as $12 billion, while paying massive bonuses to Raines and other senior HUD officials, federal regulators responsible for overseeing Fannie and Freddie reported. Raines, who aggressively promoted Fannie’s “affordable housing” mission despite warnings from outside analysts that it could wreck the firm financially, made $90 million during his tenure at Fannie. Raines (who has been contacted by the Obama campaign seeking his advice on housing issues), seems to be doing OK financially. The Washington Post reported in July that Raines “drives a sleek BMW sedan. ‘I buy one every 10 years, whether I need one or not,’” he joked.
4. Bill Clinton and Henry Cisneros. In the mid-1990s, former President Clinton, now campaigning for Obama, joined his former HUD secretary, Henry Cisneros, in putting forward a “National Homeownership Strategy” in putting forward a strategy to reduce “financial barriers to homeownership” for low-income, high-risk borrowers. The plan, as recently reported in Business Week, called for “Financing strategies, fueled by the creativity and resources of the public and private sectors” to address those “barriers.” Thanks to such creativity, the housing sector today is a disaster, the economy is in meltdown, and taxpayers are on the hook for hundreds of billions of dollars.
5. Andrew Cuomo, Clinton’s HUD secretary from 1997 to 2001, was even more irresponsible than his predecessor. Cisneros instituted a goal – that 42% of Fannie and Freddie’s mortgages serve “low- and moderate-income families.” Cuomo raised that to 50% and dramatically increased the firms’ mandates to buy mortgages for the “very-low-income.” Thanks in large part to Cuomo’s push, notes the Village Voice, Fannie went from $1.2 billion in subprime mortgages and securities purchases in 2000 to $15 billion in 2002. Cuomo himself was responding in part to pressure from large banks, who wanted the federal government to saddle Fannie and Freddie rather than the private sector with the burden of financing “affordable housing.”
6. Fannie, Freddie and Obama. According to the nonpartisan Center for Responsive Politics, eight of the top 10 congressional recipients of contributions from Freddie Mac and Fannie Mae PACs and employees dating back to 1989 are Democrats. Number one is Sen. .Christopher Dodd, of Connecticut, who received $133,900. Number two is Sen. John Kerry of Massachusetts ($111,000). Both have been in the Senate for all 19 years covered by the survey. That means Dodd received an estimated $7,000 per year and Kerry just under $6,000. Number three in total dollars received is Obama, at $105,849. That means Obama, who has spent less than four years in the Senate, has received more than $26,450 per year – making him easily the top per annum recipient of largesse from the failed government-sponsored enterprises.
7. Sens. Christopher Dodd, Kent Conrad, and “Friends of Angelo.” Dodd and Sen. Kent Conrad, North Dakota Democrat, take a back seat to no one when it comes to decrying corporate “greed.” Yet both men reportedly got “VIP” mortgages as friends of Angelo Mozilo, CEO of Countrywide Financial – a major player in the subprime mortgage market. The voluble Dodd, in particular, denies receiving preferential treatment. Former Countrywide loan officer Robert Feinberg disagrees, telling the Wall Street Journal (Oct. 10) that Dodd knowingly saved thousands of dollars on his refinancing of two properties in 2003 as part of a special program the mortgage company had for the influential. Feinberg, who oversaw the program from 2000-2004, says he has internal company documents proving that Dodd knew he was receiving preferential treatment. Perhaps McCain could ask Obama to join him in a bipartisan call for a Senate ethics investigation.
8. Reps. Maxine Waters and Gregory Meeks. A widely circulated YouTube video, dating from 2004, shows Waters, a California Democrat, and Meeks, a New York Democrat, praising Raines and harshly upbraiding a federal regulator for telling the truth about Fannie and Freddie’s financial plight. Every American should see this video, and it would be nice if the mainstream media and/or McCain were to put the question to Obama: Do you agree with Waters and Meeks? Do you find their conduct acceptable, in view of what happened to Fannie and Freddie?
9. Rep. Artur Davis of Alabama, a responsible and honorable Democrat. Davis, like Waters and Meeks, a Democrat and member of the Congressional Black Caucus, participated in the 2004 hearing. But he now admits his party was wrong. “Like a lot of my Democratic colleagues,” he said, “I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable homeownership, when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie, we were wrong.”
It would be interesting – and refreshing – if Obama were asked directly whether he agrees with Rep. Davis.
FamilySecurityMatters.org Contributing Editor Joel Himelfarb is an editorial writer for The Washington Times. The views expressed here are his own. Feedback: editorialdirector@familysecuritymatters.org.
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