I’ve wondered what Sen. Barack Obama did about that Federal Housing Enterprise Regulatory Reform bill that Sen. John McCain co-sponsored in early 2006 to end the dangerously high-risk lending practices of Fannie Mae and Freddie Mac.
It turns out Obama did nothing. And the bill failed in the Senate.
But the odd thing is, so many Americans believe it was Republican deregulation of banks that caused the current financial crisis.
‘Wasn’t it the Republicans?’ A Democratic friend of mine was shocked last week when I said both parties had to share the blame for so many home loans going bad.
“What?” she said. “Wasn’t it the Republicans who dropped all the regulations that let this happen?”
She hadn’t heard of Rep. Barney Frank or Sen. Christopher Dodd’s relentless push, for at least 15 years, to force Fannie and Freddie to make about $1 trillion in high-risk home loans. She hadn’t heard that even President Clinton said last month that the Democrats have to take responsibility for failing to rein in those two giant lending institutions.
All my Democratic friend had heard was Obama’s TV commercials and his claims in the first two debates that it was the Republican philosophy of deregulation that put us in this mess. McCain has done far to little to set the record straight, but when even he has talked of the Democrats’ criminal recklessness here, his argument has been muffled or ignored in the press.
Banks regulated. Peter Wallison of the American Enterprise Institute says the Republicans, who certainly oppose regulation of most industries, nevertheless did nothing to deregulate banking.
If Sen. Obama had been asked for an example of “Republican deregulation,” he would probably have cited the Gramm-Leach-Bliley Act of 1999 (GLBA), which has become a popular target for Democrats searching for something to pin on the GOP. This is puzzling. The bill’s key sponsors were indeed Republicans, but the bill was supported by the Clinton administration and signed by President Clinton. The GLBA’s “repeal” of a portion of the Glass-Steagall Act of 1933 is said to have somehow contributed to the current financial meltdown. Nonsense.
Adopted early in the New Deal, the Glass-Steagall Act separated investment and commercial banking. It prohibited commercial banks from underwriting or dealing in securities, and from affiliating with firms that engaged principally in that business. The GLBA repealed only the second of these provisions, allowing banks and securities firms to be affiliated under the same holding company. Thus J.P. Morgan Chase was able to acquire Bear Stearns, and Bank of America could acquire Merrill Lynch. Nevertheless, banks themselves were and still are prohibited from underwriting or dealing in securities.
Allowing banks and securities firms to affiliate under the same holding company has had no effect on the current financial crisis. …
If Sen. Obama were truly looking for a kind of deregulation that might be responsible for the current financial crisis, he need only look back to 1998, when the Clinton administration ruled that Fannie Mae and Freddie Mac could satisfy their affordable housing obligations by purchasing subprime mortgages. This ultimately made it possible for Fannie and Freddie to add a trillion dollars in junk loans to their balance sheets.
But the public believes “Republican deregulation” caused the crisis, and the news media, with its overwhelmingly Democratic reporters and editors, have done almost nothing to temper that perception with the facts.
Whose fault? Today’s new Los Angeles Times-Bloomberg poll asked:
Who do you think Has close ties to the financial institutions involved in [the current] crisis?
The answer:
McCain: 43 percent
Obama: 25 percent
So McCain gets the blame, in spite of the fact that John McCain and the Republicans have been trying for years to stop Democrats from using Fannie Mae and Freddie Mac as their personal slush fund. The Republicans obviously didn’t try hard enough, but particularly in the Senate, where 60 votes are necessary to pass anything, the Republicans had no chance against Democrats opposed to regulating Fannie and Freddie.
Subprime danger. Wallison returns to Obama himself:
Finally, on the matter of deregulation and the financial crisis, Sen. Obama should consider his own complicity in the failure of Congress to adopt legislation that might have prevented the subprime meltdown.
In the summer of 2005, a bill emerged from the Senate Banking Committee that considerably tightened regulations on Fannie and Freddie, including controls over their capital and their ability to hold portfolios of mortgages or mortgage-backed securities. All the Republicans voted for the bill in committee; all the Democrats voted against it. To get the bill to a vote in the Senate, a few Democratic votes were necessary to limit debate. This was a time for the leadership Sen. Obama says he can offer, but neither he nor any other Democrat stepped forward.
Instead, by his own account, Mr. Obama wrote a letter to the Treasury Secretary, allegedly putting himself on record that subprime loans were dangerous and had to be dealt with. This is revealing; if true, it indicates Sen. Obama knew there was a problem with subprime lending -- but was unwilling to confront his own party by pressing for legislation to control it. As a demonstration of character and leadership capacity, it bears a strong resemblance to something else in Sen. Obama’s past: voting present.
Two candidates. McCain saw the “enormous risk” presented by the Democrats’ abuse of Fannie Mae and Freddie Mac. He acted.
Obama knew, too. He didn’t do a thing.
It’s sad.
Frank Warner
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