Freddie & Fannie, a brief history on financial regulation

I've been reading a lot of praise by those on the left for the Obama administration regarding their push for financial reform.

Its ironic for me to hear them blaming George Bush for 'not doing' anything. Particularly when he was the force that tried to get something done.

The New York Times was the first one to give the Bush administration credit for trying to oversee Freddie and Fannie. They did so way back on September 11, of 2003.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

Most of us know what happened during that attempt to regulate the industry. But in case you don't, here's a short video lesson:

The Wall Street Journal was kind enough to sum up the whole sordid saga in a commentary provided by Karl Rove. Some highlights:
Because of this, the Bush administration warned in the budget it issued in April 2001 that Fannie and Freddie were too large and overleveraged. Their failure "could cause strong repercussions in financial markets, affecting federally insured entities and economic activity" well beyond housing.
I like to fact check, so I looked it up.
After all, if you're going to quote Karl Rove, someone isn't going to believe you. This is what the 2002 FY budget of George Bush said, in his first year in office [my emphasis in red, added]:

Uncertainties about the Federal Government’s liability
have increased in some areas. Consolidation has
increased bank size, and deregulation has allowed
banks to engage in many risky activities. Thus, the
loss to the deposit insurance funds can turn out to
be unusually large in some bad years. The potential
loss needs to be limited by large insurance reserves
and effective regulation. The large size of some GSEs
is also a potential problem. Financial trouble of a large
GSE could cause strong repercussions in financial markets,
affecting Federally insured entities and economic
activity.

Interesting, huh?
Its almost like... Republicans were on top of this the entire time.
Not convinced yet?
Read this quote:

There is some evidence that the mortgage industry
has seen an increase in the number of predatory loans.
Predatory loans, which carry excessive fees or other
unfair pricing structure, harm unsuspecting buyers.
Predatory loans are more prevalent in the subprime
market where conventional loans are made to higher risk
borrowers. The Government can improve mortgage market
efficiency by squeezing out predatory practices
through increased regulation and disclosure. In addition
to predatory lending, the mortgage industry also has
seen increased incidences of fraud.

Sound familiar?

Rahm Emanuel

I've blogged about Rahm before, but its a good time to remind everyone who he is.

Rahm is currently the chief of staff for Obama. Before that:

• He worked for Mayor Daley as a fund raiser.
• He worked for Bill Clinton as a campaign adviser, and was instrumental in his defense during impeachment.
• Rahm earned $320,000 working 14 months, starting in 2000, for Freddie Mac. He was appointed by Bill Clinton.
  
• After that, he was hired by a fund raiser for Clinton to work as an Investment banker for Wasserstein Perella. He made $16.2 million in 2 1/2 years.
• Then Rahm became a state senator. While he was doing that, he worked as a campaign strategist for Governor Blagojevich.

That makes him the first person I know of who has worked for both an impeached president and an impeached governor.

I'm important to remind you; when he worked for Clinton, he was appointed to the board of Freddie Mac in 2000. In 14 months, Rahm earned $320,000, or about 1/3rd of a million dollars in a little over a year.

So to me, it came as no surprise that Rahm's name came up when Blago was suspected of bribing people. I even told several people that I expected Rahm to be indicted as a person who was complicit in the scandal.

I was, however, surprised to read this headline in Politico as the indictment came down for Blagojevich:

Indictment suggests Rahm, brother were victims of extortion attempt

Rahm was a 'victim' of extortion???

Its time to remind everyone that Rahm worked as a campaign strategists for Blago.
Rahm was apparently looking for $2 Million for 'athletic facilities' at a school. This leads to the obvious question: how was Rahm being punished?
Unless, of course, Rahm was looking to profit somehow off of the two million dollars worth of 'athletic improvements' on one school.

But I digress.

When Blago was first indicted, Rahm ducked reporters.
The Obama administration was quick to say that they had to be quiet, because a criminal investigation was under way.
Then things got weird.
It was discovered that Rahm had spoken to Blago on a number of occasions.

I believe that Rahm had pitched a 'senate candidate' to Blago. Blago, being Blago, would have asked for something in return.

I know I have to convince some people, so let's start with the section of the criminal complaint that everyone has heard.
This is on page 68, number 104:

ROD BLAGOJEVICH suggested starting a 501(c)(4) organization (a non-profit organization that may engage in political activity and lobbying) and getting “his (believed to be the President-elect’s) friend Warren Buffett or some of those guys to help us on something like that.” HARRIS asked, “what, for you?” ROD BLAGOJEVICH replied, “yeah.”
[snip]
Later in the conversation, ROD BLAGOJEVICH said he knows that the President-elect wants Senate Candidate 1 for the Senate seat but “they’re not willing to give me anything except appreciation. Fuck them.”

That's section 104 of the criminal complaint. Its the one talking point that the WH apparently pushed to the press... the fact that Rod said "Fuck them." if all they wanted to give was appreciation. But Rod was speculating about what they might say... because he kept talking about working out a deal.

That's clear from the next few notes in the criminal complaint:
From section 105:

Later on November 11, 2008, ROD BLAGOJEVICH talked with Advisor A.
Advisor A indicated that he will stay “on top” of getting the Senate Candidate 5 information leaked to the particular Sun Times columnist. ROD BLAGOJEVICH again raised the idea of the 501(c)(4) organization and asked whether “they” (believed be the President-elect and his associates) can get Warren Buffett and others to put $10, $12, or $15 million into the organization. Advisor A responded that “they” should be able to find a way to fund the organization.

Just so that its clear... Blago hadn't given up on the idea of a deal with the president-elect (Obama.)

The idea of a deal is kept alive from day to day. From Section 106:

ROD BLAGOJEVICH noted that the President-elect can ask Warren Buffett, Bill Gates, and others for money for the organization. ROD BLAGOJEVICH states he will ask “[Senate Candidate 6]” to help fund it as well. HARRIS said that funding the 501(c)(4) would be a lot easier for the President-elect than appointing ROD BLAGOJEVICH to a position.

From section 107:

On November 12, 2008, ROD BLAGOJEVICH talked with Advisor B. ROD
BLAGOJEVICH discussed with Advisor B his idea for a 501(c)(4) organization. Advisor B stated that he likes the idea, but liked the Change to Win option better because, according to Advisor B, from the President-elect’s perspective, there would be fewer “fingerprints” on the President-elect’s involvement with Change to Win because Change to Win already has an existing stream of revenue and, therefore, “you won’t have stories in four years that they bought you off.”

From section 108:

The advisor said he likes the Change to Win idea better, and notes that it is more likely to happen because it is one step removed from the President-elect.

Note how often the advisors are concerned that they stay one step away from the president-elect.
Like... a Chief Of Staff. From note 112 (my emphasis added in Blue):

On November 13, 2008, ROD BLAGOJEVICH talked with JOHN HARRIS.
ROD BLAGOJEVICH said he wanted to be able to call “[President-elect Advisor]” and tell President-elect Advisor that “this has nothing to do with anything else we’re working on but the Governor wants to put together a 501(c)(4)” and “can you guys help him. . . raise 10, 15 million.” ROD BLAGOJEVICH said he wanted “[President-elect Advisor] to get the word today,” and that when “he asks me for the Fifth CD thing I want it to be in his head.” (The reference to the “Fifth CD thing” is believed to relate to a seat in the United States House of Representatives from Illinois’ Fifth Congressional District. Prior intercepted phone conversations indicate that ROD BLAGOJEVICH and others were determining whether ROD BLAGOJEVICH has the power to appoint an interim replacement until a special
election for the seat can be held.).

Who is the President-elect's advisor? He's the same guy who was from the 5th congressional district of Illinois: Rahm.
From section 113:

Also on November 13, 2008, ROD BLAGOJEVICH talked with Advisor A.
ROD BLAGOJEVICH said he wants the idea of the 501(c)(4) in President-elect Advisor’s head, but not in connection with the Senate appointment or the congressional seat. Advisor A asked whether the conversation about the 501(c)(4) with President-elect Advisor is connected with anything else. ROD BLAGOJEVICH replied that “it’s unsaid. It’s unsaid.”

I hope you're following.

Shortly after that, in early December, everything blew up in Rod's face.
The prosecutor, Fitzgerald, had to act before Blago appointed someone. In the meantime, a clear path to the president-elect was being formed... through Rahm Emmanuel.

Now you can interpret this information many ways.
Obama fans will no doubt say that even if "advisor A" spoke to the President-elect's Advisor (who would most likely be Rahm), that any quid pro quo was 'unsaid'.
I would point out that if Blago thought that his former campaign strategist Rahm would go along with such a scheme, he was probably right.

The fact is that Rahm has a lot to answer for... and I don't know why the media is not asking him about it.
Rahm has left a trail of shady dealings with shady people. I find it near impossible that he is innocent in all of this. If he was, it would be the first time that he didn't profit from dealings with a shady character.