Fox News Blames Democrats for Financial Crisis, Bill Clinton Agrees
Who's responsible for the Freddie/Fannie mess?
Going very much against the media meme that the current financial crisis is all George W. Bush and the Republicans' fault, Bill Clinton on Thursday told ABC's Chris Cuomo that Democrats for years have been "resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac" (video available here, relevant section at 2:45).
Fannie/Freddie/Housing - STOP THE BAILOUT
UPDATED: Bunning Questions Wisdom of Fannie-Freddie Buyout
BRIT HUME, HOST: In the recent spate of government bailouts, buyouts and rescues, the federal takeovers of mortgage giants Fannie Mae and Freddie Mac are arguably the biggest of them all. And those two firms are also arguably the biggest reason for the credit crisis in the first place. So the question arises -- how did this come to be? Chief Washington correspondent Jim Angle reports.
JIM ANGLE, CHIEF WASHINGTON CORRESPONDENT (voice-over): There is one nagging question behind all the debate over how to get out of this mess.
CHRIS DODD (D-CT), SENATE BANKING COMMITTEE CHMN: American taxpayers are angry and they demand to know how we arrived at this moment.
ELIZABETH DOLE (R), NORTH CAROLINA SENATOR: My constituents, and indeed taxpayers across the nation are asking how we arrived at this crisis. It is infuriating.
ANGLE: But Senator Dole and others think they know the answer, and it's something the Senate tried to fix three years ago but was thwarted.
DOLE: To the mismanagement of Fannie Mae and Freddie Mac, which was made possible by weak oversight and little accountability.
MEL MARTINEZ (R), FLORIDA SENATOR: A lot of what we're dealing with today has its origins in Fannie Mae and Freddie Mac.
ANGLE: Fannie Mae and Freddie Mac, backed by the federal government, buy mortgage loans from the lenders who make them. But four years ago, both were in trouble over shoddy accounting. Fannie Mae Chief Franklin Raines, President Clinton's former budget director, was fired. To placate those in Congress who watched over them, Fannie and Freddie promised to do more to help poor people get mortgages. That led them to buy riskier and riskier home loans from private lenders creating incentives for everyone to make shakier loans.
PETER WALLISON, AMERICAN ENTERPRISE INSTITUTE: The problem is that they encouraged very bad mortgages to be made by banks and other institutions, because Fannie and Freddie would buy them.
ANGLE: Eventually, they bought trillions of dollars worth of mortgages, a substantial portion of them based on poor credit, then resold many of them to financial institutions who thought they were safe because the federal government was behind them.
WALLISON: As a result of this appearance that they were backed by the government, people never paid very much attention to the assets they were acquiring or the risks they were taking.
ANGLE: And so shaky mortgages spread throughout the system. But in 2005, the Senate Banking Committee, then chaired by Republican Richard Shelby, tried to rein in the two organizations bypassing some strong new regulations.
WALLISON: Which would have prevented Fannie and Freddie from acquiring this bad -- these bad mortgages. It actually gave a new regulator for Fannie and Freddie the kinds of powers that a bank regulator had.
ANGLE: All the Republicans voted for it. All the Democrats, including the current chairman, Senator Chris Dodd, voted against it, and that was after Fed Chairman Alan Greenspan had issued a stark warning to senators that Fannie and Freddie were playing with fire. Greenspan said without stronger regulations, "We increase the possibility of insolvency and crisis. Without restrictions on the size of Fannie Mae and Freddie Mac, we put at risk our ability to preserve safe and sound financial markets in the United States."
ANGLE: Which turned out to be exactly right, but because Democrats blocked it, those new regulations never got consideration by the full Senate and died. So that's how we got into this mess, and how we missed a chance to avoid it. Getting out of it now, of course, will be a lot more difficult -- Brit.
HUME: Oh, boy. Thanks, Jim.
Two days later, former President Clinton agreed:
CHRIS CUOMO, ABC NEWS: A little surprising for you to hear the Democrats saying, "This came out of nowhere, this is all about the Republicans. We had nothing to do with this." Nancy Pelosi saying it. She signed the '99 Gramm Bill. She knew what was going on with the SEC. They're all sophisticated people. Is that playing politics in this situation?
BILL CLINTON: Well, maybe everybody does that a little bit. I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.
Kudos to Cuomo for asking the question, and kudos to Clinton for being so honest, especially in an election year.
The only question remains whether other news outlets will follow suit and begin telling the American people just how many proposals Republicans have made in the past decade to impose tighter regulations and oversight on Fannie Mae and Freddie Mac, and how such efforts were routinely thwarted by Democrats.