Fannie and Freddie...Who's Fault Is It?

I must admit, I'm not a financial genius, and trying to wrap my mind around the complicated intricacies of America's latest economic downfall has me spinning. I first went to my brilliant financial-CPA-husband, whom so graciously explained the fiasco. My first question was: "Whose brilliant idea was it to get the Government involved with a lending corporation?" Upon further investigation here is what I discovered:

Eamonn Butler at the Adam Smith Institute blog offers his answer:
It started with the Community Reinvestment Act of 1977, which aimed to support community groups, but in 1995 the Act was extended and beefed up, giving regulators far more powers to punish banks who refused to lend to people in poor urban neighbourhoods – so-called ‘redlining’ – because they considered the risks too high in those particular areas.Congress's idea, obviously, was to extend to poorer people the same rights and enjoyment of home ownership that the middle-class majority possessed. But in fact it precipitated the banks into giving loans to some rather shaky people. Quite simply, they feared retribution by the regulators if they did not.As a result, sub-prime loans mushroomed in the late 1990s. Not too bad for as long as the US economy was booming. But booms inevitably burn out and then the banks started to realize the magnitude of their dodgy contracts. And now, the whole world is being sucked into this crisis, and ordinary, prudent bank customers find themselves and their money frighteningly exposed.

2003 NY Times article:
According to the NY Times article, the Bush administration proposed new regulation of Fannie Mae and Freddie Mac, which would have tightened up loose lending, but Democrats opposed it because it would make it harder for poor people (read NAMs if you prefer) to own homes:
Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' Representative Melvin L. Watt, Democrat of North Carolina, agreed. ''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

That's rich. Liberal Democrat Barney Frank said that Fannie and Freddie "are not facing any kind of financial crisis." Had Democrats voted for this legislation, a financial crisis and expensive government bailout might have been averted.

The New York Times also said there was a "lobbying battle" over Bush's proposal to reign in Fannie Mae and Freddie Mac...so, lets follow the money! Over the last ten years, from 1989 to 2008, the top three recipients of Fannie Mae and Freddie Mac campaign contributions are...drum roll please: (1) Democratic Senator Christopher Dodd and Chairman of the Senate Banking Committee, (3) Democrat Senator John Kerry. What about number 2 you ask? I think someone stepped in number two because, in less than four years in office, a certain inexperienced, junior Senator from Illinois somehow managed to rise to the number (2) spot in most campaign contributions received from the, now under Federal conservatorship, Fannie Mae and Freddie Mac: Democratic Senator Barack Obama. Change!

So in essence, Jimmy Carter in 1977 started it, and Bill Clinton "revised" it, Bush tried to change it (but it didn't pass a Democratic Congress) and now Obama is benefiting from it. Great. Now the tax payers will have to pay for it.

So much for NOT living in a socialized society. Thanks, Democrats, once again!