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The Banking Crisis – Heads They Win, Tails You Lose
Guest Column | By KT McFarland | October 8, 2008
Remember when you thought you
could pay for your kids’ college tuition? That you could retire and move to Florida for your golden
years?
Guest what? You’ve just lost
your nest egg faster than you would have in Vegas. What have you gotten for it?
Nothing! At least in Vegas they would have thrown in free hotel and floor show!
The American taxpayer just
got mugged – and we can’t figure out what happened, who did it and why no one
protected us. And worst of all, we have no idea how much it will end up costing
us later. At least when you get mugged they only take the cash in your wallet.
The biggest culprit is Fannie
Mae – a quasi-government mortgage enterprise – regulated and guaranteed by
Congress but privately owned. In other words, government sets the rules,
taxpayers cover any losses, and private stockholders keep the profits. It’s
Washington’s
version of heads they win, tails you lose.
For decades, Americans bought
their homes by getting a mortgage, which was usually sold to Fannie Mae. But
you couldn’t get a mortgage unless you had enough savings for a 5-20%
down-payment, proved you could afford the monthly payments, and had a good
credit rating.
But all that changed in the
1990s. With pressure from the Clinton Administration and Democrats in Congress,
Fannie Mae eased credit requirements for home loans. They wanted to curry favor
with low-income voters by helping them buy houses, and with banks, because more
loans meant more profits. They didn’t have to foot the bill if the mortgages
went sour – the taxpayers would do that. Again, heads they win, tails you lose.
American banks went on a
lending spree, and Americans went on a spending spree. They were called ninja loans– “no income, no job, no assets.” It was easy money. As long as
housing prices went up, you could sell the house a year or two later and make a
profit, without risking a dime of your own money.
The risky lending continued,
despite efforts by President Bush to create a new oversight committee to clean
up Fannie Mae, and John McCain’s calls for stricter regulations. Democrats
in Congress, as well as many Republicans, their campaign coffers stuffed with
Fannie Mae donations, refused to put on the brakes. For the six years from 1999
to 2005, Fannie Mae paid millions to 354 congressmen and senators.
By 2004 there were signs of
trouble. An office of Management and Budget investigation found massive fraud
in Fannie Mae’s bookkeeping practices. But those same Senators and Congressmen
refused to hold hearings or hold any of the Fannie Mae leaders responsible. In
fact, Fannie Mae CEO Franklin Raines gave himself a $100 million bonus.
But McCain continued to be
one of the lone voices calling for reform. He introduced the Federal Housing
Enterprise Regulatory Reform in 2005, claiming Fannie Mae posed an enormous
risk to the “housing market, the overall financial system, and the economy as a
whole.”
But Congressional Democrats
blocked it, led by those who received the highest campaign contributions from
Fannie Mae. Barack Obama called
subprime lending a “good idea.”
But the problems couldn’t be
ignored. Franklin Raines and other top executives were forced to resign. But
none were charged with fraud, no one went to jail, and after paying some fines,
Franklin Raines got to keep his $100 million bonus.
Fannie Mae, reeling under a
mountain of bad debt, is now bankrupt. So are most of the banks that issued
those risky mortgages. So is AIG, the company that insured them. But rather
than go belly up, the government stepped in to bail everybody out. Once again,
head they win, tails you lose. But this time you lose big.
The rescue plan will cost at
least $700 billion; some say it could end up costing $2 trillion. Every
American will have to fork over thousands of dollars we could have used for our
kids’ college tuition or our retirement.
Wonder which politicians got
the fattest campaign contributions? The top recipient was Senate Banking
Committee Chairman Chris Dodd. And number two was Barack Obama.
Guess what happened to
Franklin Raines, Mr. One Hundred Million? He’s one of Obama’s top campaign
advisers.
And John McCain, the
whistleblower who tried to reform Fannie Mae? Who pushed through legislation to
limit campaign contributions? Who rails against earmarks and government
corruption every time he opens his mouth? Somehow or other, as loony as it
seems, McCain is getting the blame.
Go figure.
FamilySecurityMatters.org Contributing Editor KT McFarland is a former top Pentagon official in the Reagan Administration and a frequent television and radio commentator on national security issues and foreign affairs.
Guest columns do not necessarily reflect the views of Accuracy in Media or its staff.
3 Comments | Post a Comment
The post is right its like a gambling when you deal with financial problems
”... and it happens because voters and consumers are simply to apathetic to take control of the situations ...”
Congratulations! You got that right!
Big business will not rip off a consumer who is rational and looks after their own self-interest.
Big government will likewise respond when well-learned, rational and logical are the only adjectives that describe our children. Ayers’ vision of the education system will prevent that coming true, unfortunately. It has already succeeded chillingly well.
October 8 at 5:17 pm | #1 | Link
Big Government is ALWAYS going to rip-off the taxpayer - - and Big Business is always going to rip off the consumer - - and it doesn’t matter which political party is in charge. Neither government nor business is sufficiently regulated nor being held sufficiently accountable. Both are instances of the fox guarding the henhouse - - and it happens because voters and consumers are simply to apathetic to take control of the situations.