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Wednesday, September 24, 2008

Barney Frank: Lies And Damned Lies About Freddie And Fannie

So, what does a left-wing socialist do when confronted with a financial crisis caused by the government? He incorrectly blames it on the private sector.

That is precisely what Rep. Barney Frank (D-MA) did when he blamed the current Wall Street crisis on the free market. Here is exactly what he said:

"The private sector got us into this mess… The government has to get us out of it. We do want to do it carefully."

Now, there is no spinning this nor is there any taking it out of context. Rep. Frank was clear and unambiguous in what he said.

But, he is making false accusations. In fact, he is either deliberately lying or he has the worst memery in the history of the House of Representatives.

On September 9, 2008, the Wall Street Journal published an excellent article which details Frank's history of comment and action on the Freddie Mac and Fannie Mae meltdowns. Here is the history:

In 2000, then-Rep. Richard Baker proposed a bill to reform Fannie and Freddie's oversight. Mr. Frank dismissed the idea, saying concerns about the two were "overblown" and that there was "no federal liability there whatsoever."

Apparently, Frank doesn't seem to think that they are "overblown" now.

Two years later, Mr. Frank was at it again. "I do not regard Fannie Mae and Freddie Mac as problems," he said in response to another reform push. And then: "I regard them as great assets." Great or not, we'll give Mr. Frank this: Their assets are now Uncle Sam's assets, even if those come along with $5.4 trillion in debt and other liabilities.

Again in June 2003, the favorite of the Beltway press corps assured the public that "there is no federal guarantee" of Fan and Fred obligations.

A month later, Freddie Mac's multibillion-dollar accounting scandal broke into the open. But Mr. Frank was sanguine. "I do not think we are facing any kind of a crisis," he said at the time.

I don't believe that anyone even remotely familiar with the situation as it exists today would deny that this was "any kind of crisis."


Three months later he repeated the claim that Fannie and Freddie posed no "threat to the Treasury." Even suggesting that heresy, he added, could become "a self-fulfilling prophecy."

In April 2004, Fannie announced a multibillion-dollar financial "misstatement" of its own. Mr. Frank was back for the defense. Fannie and Freddie posed no risk to taxpayers, he said, adding that "I think Wall Street will get over it" if the two collapsed.

Good! Then we don't need this bailout nor do we need any Federal oversight, now do we?

Frank wasn't done yet. Read on:

By early 2007, Mr. Frank was in charge of the House Financial Services Committee, arguing that he had long favored some kind of reform. "What blocked it [reform] last year," Mr. Frank said then, "was the insistence of some economic conservative fundamentalists in the Bush Administration who, to be honest, don't think there should be a Fannie Mae or a Freddie Mac." What really blocked it was Mr. Frank's insistence that any reform be watered down and not include any reduction in their MBS holdings.

In January of last year, Mr. Frank also noted one reason he liked Fannie and Freddie so much: They were subject to his political direction. Contrasting Fan and Fred with private-sector mortgage financers, he noted, "I can ask Fannie Mae and Freddie Mac to show forbearance" in a housing crisis. That is to say, because Fannie and Freddie are political creatures, Mr. Frank believed they would do his bidding.

And this is exactly what Mr. Frank attempted to prove when the housing market started to go south. He encouraged the companies to guarantee more "affordable" mortgages, thus abetting their disastrous plunge into subprime and Alt-A loans. He also pushed for, and got, an increase in the conforming-loan limits to allow Fan and Fred to securitize and guarantee larger mortgages. And he pressured regulators to ease up on their capital requirements -- which now means taxpayers will have to make up that capital shortfall.

But the biggest payoff for Mr. Frank is the "affordable housing" trust fund he managed to push through as one political price for the recent Fannie reform bill. This fund siphons off a portion of Fannie and Freddie profits -- as much as $500 million a year each -- to a fund that politicians can then disburse to their favorite special interests.

Ahh! Now we are getting to the real truth here. As long as special interests were getting a good share of the profits, all the mismanagement by Rep. Frank & Co. was okay. But once that mismanagement culminated in a financial crisis, it was all the fault of the "private sector," or so Barney Frank claims.

They always say to give credit where credit is due. Well, Barney Frank certainly deserves his share of the credit for helping to bring about the current financial crisis.

You can access the complete article on-line here:

Fannie Mae's Patron Saint
The Wall Street Journal Op-Ed
September 9, 2008

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