How George Bush and the Private Mortgage Market Created The Perfect Storm

This article is a factual examination of the historical causes for the economic collapse that began in 2006.

Here are some obvious facts about the economic crisis:

It occurred in 2006.  President Bush had been president for six years.  The Republicans had controlled both the Senate and the House for six years.

The last four years of the Clinton administration there was an annual budget surplus.  The last time this occurred was in 1969.[i]  It has not happened since.  To be fair, the Republicans took control of the House of Representatives in 1994.

Certainly, a significant event that started the collapse happened during the last few years of the Clinton administration.  The Gramm–Leach–Bliley Act of 1999, known as financial services deregulation,

repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies. The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.[ii]

The bill was a compromise between the Clinton Administration and the House Republicans:

The bill then moved to a joint conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill after Republicans agreed to strengthen provisions of the anti-redlining Community Reinvestment Act and address certain privacy concerns; the conference committee then finished its work by the beginning of November. On November 4, the final bill resolving the differences was passed by the Senate 90-8, and by the House 362-57. This legislation was signed into law by Democratic President William Jefferson “Bill” Clinton on November 12, 1999.[iii]

The law allowed the traditional investment brokers to create and sell High Risk Investment Products to traditionally Low Rise Investment Banks that led to sub-prime mortgage fiasco and Hedge Fund meltdown of 2007. Historically, the combined industry has been known as the “financial services industry”.[iv]

This post will document, reference and detail how the mortgage meltdown occurred.

This is what the data will show:

  • The increase of low income housing, sub-prime loans in the Clinton and Bush administration were NOT the prime factor in the economic crisis although they did contribute in a small way.
  • A large ramp up in purchasing of Mortgage Backed Securities (MBS) under pressure from the Bush administration to meet the 56% low income housing requirement of President Bush contributed more significantly to the collapse.
  • The market demand created by the MBS in the private sector for 30 trillion dollars of unregulated, credit default swaps was the final and most significant factor in the mortgage meltdown.

In 2008 a Washington Post article stated,

In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.  Banks typically back prime loans with customers’ deposits. But subprime lenders often rely on money from Wall Street investors , who buy packages of loans as investments called mortgage-backed securities.[v]

Many folks quote this article but here is the history that proceeded President Clinton’s action:

Conventional loans are low risk.  Sub-prime loans are higher risk, non-conventional loans.

How did non-conventional, sub-prime loans get started[vi]?

Fair Housing Act[vii] of 1968 – President Lyndon B. Johnson

It was a follow-up to the Civil Rights Act of 1964. While the Civil Rights Act of 1866 prohibited discrimination in housing, there were no federal enforcement provisions.

[viii] of 1974 – President Gerald Ford

It made it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age.

Home Mortgage Disclosure Act[ix] of 1975 (HMDA) – President Gerald Ford

It requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. It also requires branches and loan centers to display a HMDA poster.

HMDA was designed by the Federal Reserve Board in order to:

Help public officials to distribute public-sector investments

Discover if financial institutions are serving housing needs of communities

Identify where there are discriminatory lending practices

Community Reinvestment Act of 1975[x] – President Jimmy Carter

It was designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.

The Questionable Authority is a blog that explains redlining well,

Let’s start with the Community Reinvestment Act and the reasons that it was passed. For decades prior to the law’s passage, banks engaged in a process known as redlining, where they declined to write loans in certain geographic areas – typically low-income areas with large minority populations. They did not decline to write bad loans in these areas; they refused to write any loans at all. For example, in 1975 the largest bank in the Bronx wrote a grand total of 32 loans in the entire borough (Rooney 1995, p.50). No loans means no new businesses, no new housing, no opportunity. [xi] 

Here is a historical chart based on The American Institute of Policy Research and the Government Accounting Office.[xii] [xiii] The columns are:

the total sub-prime loans as a percentage of all loan originations (Col 1).  The total includes Government Sponsored Enterprises (GSEs are Freddie, Fannie and FHA) and private mortgage companies.  Freddie and Fannie are not government agencies.

the percent of GSE sub-prime loans (Col 2).  For example, 1997 the GSE sub-prime loans were 51% of the total originations of 19%.

the total in billions of all of all loan originations (Col 3).

the total in billions of all sub-prime loans (Col 4) including private sector, GSE and FHA.

the total in billions of sub-prime, GSE and FHA loans (Col 5).

the percent of the total market of GSE and FHA, sub-prime loans (Col 6)

the default percentage of the total market (Col 7)

the amount in billions of the total market defaults (Col 8 )

Note: All currency amounts in billions

Year    Col 1    Col 2    Col 3    Col 4  Col 5  Col 6  Col 7  Col 8

1997    19%     51%     $926    $176    $90      10%     0.9%    $8

1999    22%     61%     $1050  $231    $141    13%     0.9%    $12

2001    19%     65%     $1437  $273    $177    12%     0.7%    $17

2003    17%     67%     $1765  $300    $201    11%     0.6%    $21

2005    26%     43%     $1042  $271    $117    11%     1.5%    $9

2007    18%     70%     $2033  $366    $256    13%     0.5%    $28

Column 1 show that, for the years shown, all private sector and public sector sub-prime loans which includes low income loans peaked in 2005 at 26%.

Column 2 shows that, for the years shown, all

The American Institute of Policy Research further states,

 

Subprime Loans as a percentage of total originations were fairly constant for the period 1997-2003, averaging about 19.5%. The percentage averaged 26% for 2004-2006, before declining to 18% in 2007.[xiv]

Conclusion:

Non-conforming, sub-prime loans were a small percentage of all mortgage originations. 

Fannie, Freddie and FHA were an even smaller percentage of all sub-prime loans.

Defaults on all mortgages were even smaller

In 1997, two years after the Clinton and HUD issue, GSE and FHA sub-prime loans represented about 10% of the total market.  Even in the Bush administration this only grew 13%.

This is a historical chart based on a paper presented to the Financial Crisis Inquiry Commission.[xv] The columns are:

GSE new mortgage business as a percentage of total single family mortgage originations (Col 1)

FHA new mortgage business as a percentage of total single family mortgage originations (Col 2)

Private, sub-prime new mortgage business as a percentage of total single family mortgage originations (Col 3)

Private, high risk (stated income, etc.) new mortgage business as a percentage of total single family mortgage originations (Col 4).  High risk was not tracked until 2002.

Year    Col 1    Col 2    Col 3    Col 4

1997    32%     9%       14%     NA

1999    42%     9%       12%     NA

2001    44%     6%       9%       NA

2003    51%     4%       10%     21%

2005    30%     2%       32%     42%

2007    30%     2%       34%     45%

The report further states,

It thus appears that the subprime lending innovations over this period actively displaced GSE and FHA activity, leading to the declines in their market shares. [xvi]

Conclusion: From 2003 to 2006 GSEs and FHA new market share went down significantly while private mortgage company’s market share on sub-prime, high risk loans went up significantly.

MBS are packages of mortgages (sort of like mutual funds) that are bought and sold on in the stock market.  They are mortgages bought from private companies and bundled into packages by huge trading firms (you know the ones we bailed out) and sold on the stock exchange.

In 1997 the GSEs owned about 12% of the total market share of these securities. In 2001 the GSEs owned about 15% of the total market share of these securities.  In 2008 this percentage had grown dramatically to 40%. 

In intervening years it was much more.  President Bush directed his HUD director to pressure the GSEs into buying massive amounts these MBS on the open market.  This created huge market for these securities and encouraged more and more risky private sector mortgages so they could be bought, bundled and sold on the open market largely to Fannie and Freddie.

As the Washington Post article states,

But by 2004, when HUD next revised the goals, Freddie and Fannie’s purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

That year, President Bush’s HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and “must do more.”

For Wall Street, high profits could be made from securities backed by subprime loans. Fannie and Freddie targeted the least-risky loans. Still, their purchases provided more cash for a larger subprime market.

“That was a huge, huge mistake,” said Patricia McCoy, who teaches securities law at the University of Connecticut. “That just pumped more capital into a very unregulated market that has turned out to be a disaster.”[xvii]

How did the GSE’s accomplish this?  As the article further states:

In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion — 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.

“The market knew we needed those loans,” said Sharon McHale, a spokeswoman for Freddie Mac. The higher goals “forced us to go into that market to serve the targeted populations that HUD wanted us to serve,” she said.

But because Fannie and Freddie were buying mortgage-backed securities rather than the actual subprime loans, their involvement came too late to require stiffer standards from lenders.

Fannie and Freddie “made no progress in civilizing the market,” said Sandra Fostek, a senior regulator at HUD.

William C. Apgar Jr., who was an assistant HUD secretary under Clinton, said he regrets allowing the companies to count subprime securities as affordable.

“It was a mistake,” he said. “In hindsight, I would have done it differently.”[xviii]

Conclusion: Even though Fannie, Freddie and FHA had much less to do with new loans in the Bush administration they bought huge amounts of MBS in those years to meet President Bush’s 56% housing requirement. 

Additionally, the President encouraged the GSEs to “focus” their “core housing mission” “with respect to low-income Americans and first-time homebuyers” in the following statement from the White House,

The Administration strongly believes that the housing GSEs should be focused on their core housing mission, particularly with respect to low-income Americans and first-time homebuyers. Instead, provisions of H.R. 1461 that expand mortgage purchasing authority would lessen the housing GSEs’ commitment to low-income homebuyers.[xix]

Conclusion:  President Bush had directed HUD to require the GSEs to meet the 56% low income housing requirement.  This pressured the GSEs to buy massive MBS.  This created a massive market for junk mortgages.

Credit Default Swaps are insurance policies on mortgages, sort of like the futures market for commodities for MBS.  Credit Default Swaps are not regulated.  The government did not own credit default swaps.  This was purely a private market commodity.

Between 2000 and 2008, the market for such swaps ballooned from $900 billion to more than $30 trillion.[xx]

This is what brought AIG down.

Goldman Sachs played both sides MBS and Credit Default Swaps.

When the Fannie and Freddie bought huge amounts of MBS, pressured by the Bush administration, the market for credit default swaps went astronomical.  This is ultimately what broke them and resulted in tax payers having to bail them out. [xxi]

If you do not believe me what about Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome,

In September 2002, Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome wrote a letter to members of Congress to note their opposition to legislation that would regulate derivatives. They wrote:

We believe that the [over-the-counter] derivatives markets in question have been a major contributor to our economy’s ability to respond to the stresses and challenges of the last two years. This proposal would limit this contribution, thereby increasing the vulnerability of our economy to potential future stresses….

We do not believe a public policy case exists to justify this governmental intervention. The OTC markets trade a wide variety of instruments. Many of these are idiosyncratic in nature….

While the derivatives markets may seem far removed from the interests and concerns of consumers, the efficiency gains that these markets have fostered are enormously important to consumers and to our economy.

Greenspan and the others urged Congress “to be aware of the potential unintended consequences” of legislation to regulate derivatives.

They got it exactly wrong. Swaps and derivatives ended up undermining, not bolstering, the economy.[xxii]

This data clearly shows that:

The increase of low income, sub-prime loans and the low overall default rate of all loan originations (1.5% in 2005 was the highest tracked in this data, through 2007).  This dispels that myth that the crisis was caused by loan defaults of low-income folks.

The huge increase of MBS purchased by the GSEs from 2003 through 2006 under pressure from the Bush administration to meet the 56% affordable housing requirement along with the 30 trillion dollar credit default swap fault market it created in the private sector was the cause of the housing bubble that burst into the subsequent economic crisis.  Even Alan Greenspan, a Republican, admitted in his interview Brian Naylor,

BRIAN NAYLOR: The man once known as the maestro for his direction of the nation’s economy as Fed chairman sat for four long hours yesterday, watching lawmakers who once cheered his performances turn into harsh critics. Testifying before the House Oversight Committee, Greenspan didn’t down play the severity of the crisis in the nation’s markets.

 

Mr. ALAN GREENSPAN (Former Chairman, Federal Reserve): We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures.

 

NAYLOR: Under questioning from Democrats on the panel, Greenspan conceded he might have been, as he put it, partially wrong in not moving to regulate trading of some derivatives that are among the root causes of the credit crisis. He also admitted his free market ideology may be flawed. This exchange with committee chairman, Democrat Henry Waxman of California, verged on the metaphysical.

 

Representative HENRY WAXMAN (Committee Chairman, Democrat, 30th District of California): You found a flaw in the reality…

 

Mr. GREENSPAN: Flaw in the model that I perceived is a critical functioning structure that defines how the world works, so to speak.

 

Rep. WAXMAN: In other words, you found that your view of the world, your ideology was not right. It was not working.

 

Mr. GREENSPAN: How it – precisely. That’s precisely the reason I was shocked, because I’ve been going for 40 years or more with very considerable evidence that it was working exceptionally well.[xxiii]

This is what happens when the private sector and government work in collusion with each other.  Between the Democrats and the Republican’s who do you suppose would have the explicit, stated purpose of doing that?  Hint: Who wants to privatize Social Security[xxiv] and Medicare?  Who do you think is going to pay for it?


[i]Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public,

1968 to 2007, in Billions of Dollars

Sources: Congressional Budget Office; Office of Management and Budget.

Date        Deficit (-) or Surplus           Debt Held by the Public

1968                -25.2                            289.5

1969                3.2                               278.1

1970                -2.8                              283.2

1971                -23.0                            303.0

1972                -23.4                            322.4

1973                -14.9                            340.9

1974                -6.1                              343.7

1975                -53.2                            394.7

1976                -73.7                            477.4

1977                -53.7                            549.1

1978                -59.2                            607.1

1979                -40.7                            640.3

1980                -73.8                            711.9

1981                -79.0                            789.4

1982                -128.0                          924.6

1983                -207.8                          1,137.3

1984                -185.4                          1,307.0

1985                -212.3                          1,507.3

1986                -221.2                          1,740.6

1987                -149.7                          1,889.8

1988                -155.2                          2,051.6

1989                -152.6                          2,190.7

1990                -221.0                          2,411.6

1991                -269.2                          2,689.0

1992                -290.3                          2,999.7

1993                -255.1                          3,248.4

1994                -203.2                          3,433.1

1995                -164.0                          3,604.4

1996                -107.4                          3,734.1

1997                -21.9                            3,772.3

1998                69.3                             3,721.1

1999                125.6                           3,632.4

2000                236.2                           3,409.8

2001                128.2                           3,319.6

2002                -157.8                          3,540.4

2003                -377.6                          3,913.4

2004                -412.7                          4,295.5

2005                -318.3                          4,592.2

2006                -248.2                          4,829.0

2007                -160.7                          5,035.1

http://www.cbo.gov/budget/data/historical.pdf

[ii]Gramm–Leach–Bliley Act

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[iii]Gramm–Leach–Bliley Act

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[iv]Gramm–Leach–Bliley Act

 http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[v]How HUD Mortgage Policy Fed The Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

[vi] Community Reinvestment Act

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

[vii]FAIR HOUSING ACT

 http://www.justice.gov/crt/housing/title8.php

[viii]US Code, 15 U.S.C. § 1691

 http://www.law.cornell.edu/uscode/15/1691.html

[ix] Home Mortgage Disclosure Act of 1975

http://www.fdic.gov/regulations/laws/rules/6500-3030.html#6500hmda1975

[x] Community Reinvestment Act

http://www.fdic.gov/regulations/laws/rules/6500-2515.html#6500hcda1977

[xi]http://scienceblogs.com/authority/2008/09/the_subprime_mortgage_crisis_a.php

[xii]Table 3: Detail for Subprime Loans – see endnotes for sources (page 10 pdf)

http://www.aei.org/docLib/Pinto-High-LTV-Subprime-Alt-A.pdf

Figure 1: GSE Investment Portfolio and MBS ($ Billions, Left Axis),

GSE % of Total Outstanding Single Family Mortgages (Right Axis)

http://www.fcic.gov/hearings/pdfs/2010-0227-Jaffee.pdf

[xiii]  GAO report (page 18 for sub-prime data and page 21 for default rates data in pdf):

http://www.mortgagebankers.org/files/News/InternalResource/57640_GAOReportInformationonRecentDefaultandForeclosureTrends.pdf

[xiv]http://www.aei.org/docLib/Pinto-High-LTV-Subprime-Alt-A.pdf (page 12 pdf)

[xv]Figure 1: GSE Investment Portfolio and MBS ($ Billions, Left Axis),

GSE % of Total Outstanding Single Family Mortgages (Right Axis)

http://www.fcic.gov/hearings/pdfs/2010-0227-Jaffee.pdf

[xvi]Figure 2: GSE, FHA, Subprime, and High Risk New Mortgage Activity as Percentage of Total Single‐Family Mortgage Originations (page 9 pdf)

http://www.fcic.gov/hearings/pdfs/2010-0227-Jaffee.pdf

[xvii]How HUD Mortgage Policy Fed The Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

[xviii]How HUD Mortgage Policy Fed The Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

[xix]Statement from the White House (President Bush) October 26, 2005:

http://georgewbush-whitehouse.archives.gov/omb/legislative/sap/109-1/hr1461sap-h.pdf

http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_default_swaps/index.html?inline=nyt-classifier

[xxi]Interesting Article

http://money.cnn.com/magazines/fortune/fortune_archive/2005/01/24/8234040/index.htm

See also,

http://www.nytimes.com/2005/08/29/opinion/29krugman.html

http://blogs.reuters.com/felix-salmon/2010/05/03/did-greenspan-try-to-quash-a-housing-bubble-debate/

[xxii]http://motherjones.com/politics/2008/10/alan-shrugged

[xxiii]http://www.npr.org/templates/story/story.php?storyId=96070766

[xxiv]To those that say they could invest their Social Security dollars I can tell you as an active trader that even professionals rarely do better than market.  I wouldn’t mind if the Congress did allow folks to do their own investing but it is sort of like people that do not have health insurance…when they do need medical care they end up in the emergency room and cost all of us more money.  However, if we could figure out a way for people that invested their own Social Security dollars and lost it all to keep from ending up on the taxpayer’s bill I would have no problem with it.  It is true that the Bush Administration was only pushing for a lower percentage of Social Security dollars that could be invested privately but this debate goes back many decades to the beginning of Social Security.  The Republicans since FDR would like to get rid of or never have had Social Security.  Since they have failed to get rid of it in previous decades their current effort is to make a fundamental change to the trust fund (which can only be done through a very difficult act of Congress) to allow a small percentage of individual investment.  If they could accomplish this subsequently increasing the allowed percentage would be a much easier Congressional task.

Here are more references for the Republican attempts to privatize Social Security in this decade:

Assorted articles concerning Republican’s plans to privatize Social Security:

Republican Privatization to Eliminate Medicare and Social Security

What are Republicans trying to privatize Social Security?

Social Security Privatization

Pelosi blasts Republican plan to privatize Social Security

National Review: Social Security Privatization a Winning Issue

Social Security Still Needs to Be Privatized

Social Security

Republican bills aimed at privatization:

Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007.http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

Page CRS-18:

In the 109th Congress, 10 Social Security reform bills were introduced as follows: H.R. 440 (Representative Kolbe and Representative Boyd), H.R. 530 (Representative Sam Johnson), H.R. 750 (Representative Shaw), S. 540 (Senator Hagel), S. 857 (Senator Sununu), H.R. 1776 (Representative Paul Ryan), H.R. 2472 (Representative Wexler), S. 1302 (Senator DeMint), H.R. 3304 (Representative McCrery), and S. 2427 (Senator Bennett). All but two of the measures (H.R. 2472 and S. 2427) would have established individual accounts to supplement or replace traditional Social Security benefits, among other changes.

Report: “Social Security: The Chilean Approach to Retirement.” By Christopher Tamborini. Congressional Research Service, Library of Congress, May 17, 2007. http://assets.opencrs.com/rpts/RL34006_20070517.pdf

Page CRS-3: “During the 109th Congress, 10 Social Security reform bills were introduced; all but two of these would have allowed workers to invest some part of their earnings in individual retirement accounts, either to supplement the Social Security system (often referred to as add-on accounts) or to replace part of the system (often referred to as carve-out accounts).13 No legislation received congressional action.”

Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007. http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

Page CRS-18: “In the 109th Congress, 10 Social Security reform bills were introduced as follows: H.R. 440 (Representative Kolbe and Representative Boyd), H.R. 530 (Representative Sam Johnson), H.R. 750 (Representative Shaw), S. 540 (Senator Hagel), S. 857 (Senator Sununu), H.R. 1776 (Representative Paul Ryan), H.R. 2472 (Representative Wexler), S. 1302 (Senator DeMint), H.R. 3304 (Representative McCrery), and S. 2427 (Senator Bennett).”

Web page: “Biographical Directory of the United States Congress 1774-Present.” United States Congress. Accessed September 17, 2008 at http://bioguide.congress.gov/biosearch/biosearch.asp

{This site was used to determine the party affiliations of the sponsors of the following bills:}

H.R. 440 – Representative Kolbe (R-AZ) and Representative Boyd (D-FL)

H.R. 530 – Representative Sam Johnson (R-TX)

H.R. 750 – Representative Shaw (R-FL)

S. 540 – Senator Hagel (R-NE)

S. 857 – Senator Sununu (R-NH),

H.R. 1776 – Representative Paul Ryan (R-WI)

S. 1302 – Senator DeMint (R-SC)

H.R. 3304 – Representative McCrery (R-LA)

Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007. http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

Page CRS-23:

During the 110th Congress, two comprehensive Social Security reform measures have been introduced: H.R. 1090 (Social Security Guarantee Plus Act of 2007) and H.R. 2002 (Individual Social Security Investment Program Act of 2007). H.R. 1090, which is the same as H.R. 750 in the 109th Congress, would establish voluntary individual accounts funded with general revenues, among other program changes. H.R. 2002, which is the same as H.R. 530 in the 109th Congress, would establish individual accounts funded with a redirection of current payroll taxes, among other program changes.

{H.R. 1090 was sponsored by Rep. Ron Lews (R-KY). H.R. 2002 was sponsored by Rep. Samuel Johnson (R-TX).}

Bill: “S.2765, Saving Social Security Act of 2008.” United States Senate, March 13, 2008. http://thomas.loc.gov/

Sec. 101. Establishment of an investment-based option for social security benefits.

 Bill: “H.R.4922: Savings Account for Every American Act of 2007.” United States House of Representatives, December 19, 2007. http://thomas.loc.gov/

 {This bill calls for the establishment of individual “S.A.F.E.” savings accounts through payroll deduction to be used in retirement. A S.A.F.E. account has meaning as provided for by section 222 (c) of the IRS Code of 1986.}

 Bill: “H.R.1090: Social Security Guarantee Plus Act of 2007.” United States House of Representatives, February 15, 2007. http://thomas.loc.gov/

 [March 13, 2007: Referred to House Subcommittee on Social Security.]

 Bill: “H.R.2002: Individual Social Security Investment Program Act of 2007.” United States House of Representatives, April 23, 2007. http://thomas.loc.gov/

  [April 25, 2007: Referred to House Subcommittee on Social Security.]

 Bill: “S.2765: Saving Social Security Act of 2008.” United States Senate, March 13, 2008. http://thomas.loc.gov/

  [March 13, 2008: Referred to Senate Committee on Finance.]

 Bill: “H.R. 4922: Savings Account for Every American Act of 2007.” United States House of Representatives, December 19, 2007. http://thomas.loc.gov/

 [December 19, 2007: Referred to Committee on Ways and Means and Committee on Oversight and Government Reform.]

Report: “2008 Republican Party Platform.” Republican National Committee, September 2008. http://www.gopplatform2008.com/2008Platform.pdf

Page 19: “Comprehensive reform should include the opportunity to freely choose to create your own personal investment accounts which are distinct from and supplemental to the overall Social Security system.”

Web page: “Obama ’08, Seniors and Social Security” Obama for America. Accessed November 11, 2008 at http://www.barackobama.com/issues/socialsecurity/

“In the midst of the 2005 debate over Social Security privatization, Obama gave a major speech at the National Press Club forcefully arguing against privatization. He also repeatedly voted against Republican amendments that aimed to privatize Social Security or cut benefits.”

Transcript: “The Republican Debate on Fox News Channel,” New York Times, October 21, 2007. http://www.nytimes.com/2007/10/21/us/politics/…

“And you have to go to the American people and say we don’t — we won’t raise your taxes. We need personal savings accounts, but we got to fix this system.”

Report: “Strengthening Social Security and Creating Personal Wealth for All Americans.” The President’s Commission to Strengthen Social Security, December 21, 2001. http://www.csss.gov/reports/Final_report.pdf

Page 11: “Personal accounts improve retirement security by facilitating wealth creation and providing participants with assets that they own and that can be inherited, rather than providing only claims to benefits that remain subject to political negotiation.”

11 thoughts on “How George Bush and the Private Mortgage Market Created The Perfect Storm

  1. Administrator

    Me:

    Thanks you for dealing with the argument (finally)…

    First, let me say that I have gone through and made this more of an article instead a collection of research data. I have foot noted and cleaned up the format so it is an easier read now. I also put direct quotes in bold.

    Second, it is not “my” data. It is the GAO (Government Accounting Office), American Enterprise Institute for Public Policy Research and Haas School of Business to name a few. You can check the data with the source foot notes. I have also included more references from leading Republican figures in the Bush administration.

    BerettaOwner – “the facts are W. tried to get FNMA under control as early as 2003. Sure it was under the Treasury and not the proposed FHFA (later created by W.’s signature), but so what?”

    Markdart – fannie has never been “under” (“Sure it was under the Treasury”) the treasury, HUD or FHFA as you allude to when you wrote, “HUD doesn’t buy any MSB’s, but it does set the “affordable housing” goals for the GSE’s”. Yes Bush did try to get it under the Treasury but actually there is a long history to that that did not start with Bush or Clinton but has a lot to do with the Congress over the decades. I did not get into that in this paper. Additionally in 2008 Bush did put the GSE under government conservatorship and the Treasury Department under Paulson directly bought more Mortgage Backed Securities but I did not address that in this paper.BerettaOwner – “You also state W. directed the HUD buy MSB’s.”Markdart – I agree this was awkward. Here is the correction:

    In 1997 the GSEs owned about 12% of the total market share of these securities. In 2001 the GSEs owned about 15% of the total market share of these securities. In 2008 this percentage had grown dramatically to 40%. In intervening years it was much more. President Bush directed his HUD director to pressure the GSEs into buying massive amounts these Mortgage Backed Securities on the open market. This created huge market for these securities and encouraged more and more risky private sector mortgages so they could be bought, bundled and sold on the open market largely to Fannie and Freddie.

    As the Washington Post article states,

    But by 2004, when HUD next revised the goals, Freddie and Fannie’s purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising. That year, President Bush’s HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and “must do more.”For Wall Street, high profits could be made from securities backed by subprime loans. Fannie and Freddie targeted the least-risky loans. Still, their purchases provided more cash for a larger subprime market. “That was a huge, huge mistake,” said Patricia McCoy, who teaches securities law at the University of Connecticut. “That just pumped more capital into a very unregulated market that has turned out to be a disaster.” [8]

    How did the GSE’s accomplish this? As the article further states:

    In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion — 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.”The market knew we needed those loans,” said Sharon McHale, a spokeswoman for Freddie Mac. The higher goals “forced us to go into that market to serve the targeted populations that HUD wanted us to serve,” she said.But because Fannie and Freddie were buying mortgage-backed securities rather than the actual subprime loans, their involvement came too late to require stiffer standards from lenders. Fannie and Freddie “made no progress in civilizing the market,” said Sandra Fostek, a senior regulator at HUD. William C. Apgar Jr., who was an assistant HUD secretary under Clinton, said he regrets allowing the companies to count subprime securities as affordable. “It was a mistake,” he said. “In hindsight, I would have done it differently.” [8]

    Conclusion: Even though Fannie, Freddie and FHA had much less to do with new loans in the Bush administration they bought huge amounts of mortgage backed securities in those years to meet President Bush’s 56% housing requirement. Additionally, the President encouraged the GSEs to “focus” their “core housing mission” “with respect to low-income Americans and first-time homebuyers” in the following statement from the White House,

    The Administration strongly believes that the housing GSEs should be focused on their core housing mission, particularly with respect to low-income Americans and first-time homebuyers. Instead, provisions of H.R. 1461 that expand mortgage purchasing authority would lessen the housing GSEs’ commitment to low-income homebuyers. [9]

    Conclusion: President Bush had directed HUD to require the GSEs to meet the 56% low income housing requirement. This pressured the GSEs to buy massive Mortgage Backed Securities. This created a massive market for junk mortgages.

    BerettaOwner – You ignore that the GSE’s purchasing of subprime MSB’s started in 1995 (Clinton). Under Bush, the affordable housing goal went from 50% to 57%, which is not a subprime MSB goal but in any case one can hardly attribute the “massive” adjective as you have done. Also, not all MSB’s are junk, there are various qualitative ranks, with subprime being just one.

    Markdart – This is not true. I did bring this up vis-à-vis the Washington Post article at the beginning of the piece. Make sure you are looking at the updated version on my web site. I also included the financial data that came out of this. There is a four year period where these changes can be made in the GSEs so the effect in not immediate but it is in the ’97 data. The word “massive” apples to the MBS purchased by the GSEs to meet Bush’s directive. I also pointed out the default rates through those years which underscores your point that “not all MSB’s are junk” so I don’t know what your issue is. The numbers show that it was not the Clinton policy that resulted in the housing bubble but that subsequent policies of the Bush administration as Greenspan so eloquently pointed in the reference that I have now placed in the conclusion,

    If you do not believe me what about Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome,

    In September 2002, Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome wrote a letter to members of Congress to note their opposition to legislation that would regulate derivatives. They wrote:We believe that the [over-the-counter] derivatives markets in question have been a major contributor to our economy’s ability to respond to the stresses and challenges of the last two years. This proposal would limit this contribution, thereby increasing the vulnerability of our economy to potential future stresses….We do not believe a public policy case exists to justify this governmental intervention. The OTC markets trade a wide variety of instruments. Many of these are idiosyncratic in nature….While the derivatives markets may seem far removed from the interests and concerns of consumers, the efficiency gains that these markets have fostered are enormously important to consumers and to our economy.Greenspan and the others urged Congress “to be aware of the potential unintended consequences” of legislation to regulate derivatives. They got it exactly wrong. Swaps and derivatives ended up undermining, not bolstering, the economy. [12]

    This data clearly shows that:

    1) The increase of low income, sub-prime loans and the low overall default rate of all loan originations (1.5% in 2005 was the highest tracked in this data, through 2007). This dispels that myth that the crisis was caused by loan defaults of low-income folks.

    2) The huge increase of Mortgage Backed Securities purchased by the GSEs from 2003 through 2006 under pressure from the Bush administration to meet the 56% affordable housing requirement along with the 30 trillion dollar credit default swap fault market it created in the private sector was the cause of the housing bubble that burst into the subsequent economic crisis. Even Alan Greenspan, a Republican, admitted in his interview Brian Naylor,

    BRIAN NAYLOR: The man once known as the maestro for his direction of the nation’s economy as Fed chairman sat for four long hours yesterday, watching lawmakers who once cheered his performances turn into harsh critics. Testifying before the House Oversight Committee, Greenspan didn’t down play the severity of the crisis in the nation’s markets.

    Mr. ALAN GREENSPAN (Former Chairman, Federal Reserve): We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures.

    NAYLOR: Under questioning from Democrats on the panel, Greenspan conceded he might have been, as he put it, partially wrong in not moving to regulate trading of some derivatives that are among the root causes of the credit crisis. He also admitted his free market ideology may be flawed. This exchange with committee chairman, Democrat Henry Waxman of California, verged on the metaphysical.

    Representative HENRY WAXMAN (Committee Chairman, Democrat, 30th District of California): You found a flaw in the reality…

    Mr. GREENSPAN: Flaw in the model that I perceived is a critical functioning structure that defines how the world works, so to speak.

    Rep. WAXMAN: In other words, you found that your view of the world, your ideology was not right. It was not working.

    Mr. GREENSPAN: How it – precisely. That’s precisely the reason I was shocked, because I’ve been going for 40 years or more with very considerable evidence that it was working exceptionally well. [13]

    BerettaOwner – “You pretend to be a philosopher, and frequently reference Plato, yet you abuse the Socratic method as you’re not interested in the truth, only projecting your own ideas.”

    Markdart – I could care less if you think I “pretend” or my writing is not “True academic writing” because all I care about are the facts based on data and first-hand accounts. You can dismiss me but you cannot dismiss that no matter how much you would like to make me the case.

    Also, I never implied that I was even using the “Socratic method”. I don’t understand why that disqualifies me as a philosopher. Do I HAVE to use the “Socratic method” to be a philosopher? If three graduate schools on philosophy and 40+ years of reading and discussing philosophy (you can take a look on my website at writings about Hegel, Heidegger and the Greeks) does not make me a philosopher then you must be right. It really means little to me what you think regarding that.

    However, I do sincerely appreciate your comments as they certainly helped me make the piece better. Thanks!

    Reply
  2. Administrator

    Blogger:

    markdart asked: Thank you Ray (are you the Ray these other folks talk of so much?)
    ___
    No mark, but I am his non-evil counterpart.
    ray (small r intended out of lack of respect) is a fire breathing liberal extremist.
    I am a moderate Republican.
    ray finds it necessary to post the most idiotic lies and fear mongering posts to try to scare people into voting democrat. Most would be laughable if you could stop shaking your head at them.
    I find it necessary to dispute his lies and fear mongering mainly just to pi$$ him off and make him lose his mind.
    ray is ugly.
    I am very good looking. (See my picture)

    You apparently went to great lengths and a whole lot of work to put together your ideas in the form of your presentation.
    Sorry to say, for the most part, it is wasted on this meat and potatoes crowd. Not that they are not all excellent people. It’s just that on this site the yawn factor is fairly low.
    I do applaud your efforts and salute the time and work you obviously put into your post. (not saying I agree with the premise as a whole, but…)

    Your data is not sound nor are the conclusions. You pick and choose the facts to reach your own conclusions. True academic writing presents an objective view, and your biased bloviating is a far, far cry from that.

    As an example, the facts are W. tried to get FNMA under control as early as 2003. Sure it was under the Treasury and not the proposed FHFA (later created by W.’s signature), but so what? You also state W. directed the HUD buy MSB’s. Well, the HUD doesn’t buy any MSB’s, but it does set the “affordable housing” goals for the GSE’s. You ignore that the GSE’s purchasing of subprime MSB’s started in 1995 (Clinton). Under Bush, the affordable housing goal went from 50% to 57%, which is not a subprime MSB goal but in any case one can hardly attribute the “massive” adjective as you have done. Also, not all MSB’s are junk, there are various qualitative ranks, with subprime being just one.

    You pretend to be a philosopher, and frequently reference Plato, yet you abuse the Socratic method as you’re not interested in the truth, only projecting your own ideas.

    Reply
  3. Administrator

    Me:

    Well, maybe you could invest your SS dollars better although as an active trader I can tell you that even professionals rarely do better than market. I wouldn’t mind if they did allow folks to do their own investing but it is sort of like people that do not have health insurance…when they do need medical care they end up in the emergency room and cost all of us more money. However, if we could figure out a way for people that invested their own SS dollars and lost it all to keep from ending up on the taxpayers bill I would have not problem with it.

    Also, to Dinty, the only thing I cut and paste are quotes. I even do not cut and paste the charts but simplify them for readers. I try to make my own conclusions clear. I also make every effort to take the data from credible sources. I firmly believe that folks are not entitled to their own facts. You are not high on my list either but I try to take everything, even mere opinions without supporting evidence, as a critque of how I can communicate better. I am sure I can do better. However, a lot of what I do on-line is find out where people think the issues are and try to do the research to find out the real story. It is rarely what people think it is and takes a lot of work to get to the truth.

    Oh, one more thing, I agree a lot of this is in raw form, not a finished product but the data is sound and I think the conclusions. I am not publishing perfect journalistic articles by any means but I get the data and idea out there and get feedback. I continually revise and eventually I will come out with a foot noted article and a much smaller body. I like academic writing and understand how much work and thought it takes to write a good, well researched article. I am grateful for any feedback even even the insulting remarks as they make me think what I can do better. It may take a while (I do have a life) but it will get there and I could care less if it changes anyone’s mind, offends or keeps us from being BFF…only that I make a sound argument and do the best I can. Give me a better argument and I will change my position. I have no professional or as Socrates would call it, sophistic, interest in always being correct only sound conclusions based on facts and always being open to change.

    Reply
  4. Administrator

    Blogger:

    AAAAAAARRRRGGGG! I can’t read your regurgitated stuff anymore! I knew I shouldn’t have even responded in the first place. Volume of content, especially cut and paste, does not constitute substance. And you have proven that in spades. You are now on my “shhhht” list. Hopefully others will follow my example. Bye!

    I wish the republicans would privatize Social Security. Then, I would be able to invest MY money the wasy I see fit. I don’t like that Democrats raid the social security fund, to finance their ‘projects’. I’m thirty, and only a fool could count on social security being viable when I’m 72. I’d rather be a slave to ‘evil corporations’ then to the ‘evil government’, and let me tell you, that the government is just as evil and corrupt as those ‘nasty corporations.’

    Markdart, your posts are too long, a link to an article and a synopsis might make this a more friendly environment towards you. The republican logic behind the so-called ‘privatization’ of social security as you put it, is that only a portion (not all) of your monthly contribution could – upon YOUR discretion – be diverted to funds other than those controlled by the government. Invested in bonds or mutual funds similar to a 401k. I happen to think that i personally can managed my money better than Uncle Sam, last time I checked, I am not running my life in a deficit, or running up debt for my children and grandchildren to repay.

    Reply
  5. Administrator

    Me:

    Thank you Ray (are you the Ray these other folks talk of so much?) for actually reading the post. You are right I did not explicitly mention that but I meant to because that was the whole purpose of going through the history. When folks bring that up they often do so without knowing the prior history. It was discussed on the Washington Post article but I have made changes to highlight your point and the impact of your point. I also modified one of the charts to show the impact better and to include some new GAO data. Additionally, I added information about Credit Default Swaps. I am not going to update the post here because I do not want to go through all the re-formatting required but it is all updated on my blog at http://mixermuse.com/blog/2010/10/14/how-george-bush-and-the-private-mortgage-market-created-the-perfect-storm/. Here are some of the additions:

    There are two things that fall out the data

    1) The amount of sub-prime loans is NOT the prime factor in the economic crisis
    2) The Mortgage Backed Securities spike in the Bush administration was the prime factor

    “In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders. Banks typically back prime loans with customers’ deposits. But subprime lenders often rely on money from Wall Street investors , who buy packages of loans as investments called mortgage-backed securities.”

    http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

    Many folks quote this article but here is the history that proceeded President Clinton’s action:

    Here is a historical chart of:

    – the total sub-prime loans as a percentage of all loan originations (Col 1). The total includes Government Sponsored Enterprises (GSEs are Freddie, Fannie and FHA) and private mortgage companies. Freddie and Fannie are not government agencies.

    – the percent of GSE sub-prime loans (Col 2). For example, 1997 the GSE sub-prime loans were 51% of the total originations of 19%.

    – the total in billions of all of all loan originations (Col 3).

    – the total in billions of all sub-prime loans (Col 4) including private sector, GSE and FHA.

    – the total in billions of sub-prime, GSE and FHA loans (Col 5).

    – the percent of the total market of GSE and FHA, sub-prime loans (Col 6)

    – the default percentage of the total market (Col 7)

    – the amount in billions of the total market defaults (Col 8)

    Note: All currency amounts in billions

    Year Col 1 Col 2 Col 3 Col 4 Col 5 Col 6 Col 7 Col 8

    1997 19% 51% $926 $176 $90 10% 9% $8

    1999 22% 61% $1050 $231 $141 13% 9% $12

    2001 19% 65% $1437 $273 $177 12% 7% $17

    2003 17% 67% $1765 $300 $201 11% 6% $21

    2005 26% 43% $1042 $271 $117 11% 15% $9

    2007 18% 70% $2033 $366 $256 13% 5% $28

    Table 3: Detail for Subprime Loans – see endnotes for sources (page 12 pdf)

    http://www.aei.org/docLib/Pinto-High-LTV-Subprime-Alt-A.pdf

    “Subprime Loans as a percentage of total originations were fairly constant for the period 1997-2003, averaging about 19.5%. The percentage averaged 26% for 2004-2006, before declining to 18% in 2007.”
    Additionally the GAO report (page 18 for sub-prime data and page 21 for default rates data in pdf):

    http://www.mortgagebankers.org/files/News/InternalResource/57640_GAOReportInformationonRecentDefaultandForeclosureTrends.pdf

    Conclusion:

    1) Non-conforming, sub-prime loans were a small percentage of all mortgage originations.

    2) Fannie, Freddie and FHA were an even smaller percentage of all sub-prime loans.

    3) Defaults on all mortgages were even smaller

    4) In 1997, two years after the Clinton and HUD issue, GSE and FHA sub-prime loans represented about 10% of the total market. Even in the Bush administration this only grew 13%.

    Credit Default Swaps are insurance policies on mortgages, sort of like the futures market for commodities for mortgage backed securities. Credit Default Swaps are not regulated. The government did not own credit default swaps. This was purely a private market commodity.

    “Between 2000 and 2008, the market for such swaps ballooned from $900 billion to more than $30 trillion.”

    This is what brought AIG down.

    Goldman Sachs played both sides Mortgage Backed Securities and Credit Default Swaps.

    When the Fannie and Freddie bought huge amounts of Mortgage Backed Securities, pressured by the Bush administration, the market for credit default swaps went astronomical. This is ultimately what broke them and resulted in tax payers having to bail them out.

    http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_default_swaps/index.html?inline=nyt-classifier

    Reply
  6. Administrator

    Me:

    In Response to Re: How George Bush and the Private Mortgage Market Created The Perfect Storm:

    I can accept that both parties have had a hand in the crisis. I cannot accept that after two years of a democratic presidency, and a democratic majority in Congress, little has been accomplished to rectify the situation. I’m even more upset that congress has been deferring these issues till after the elections. That indicates to me that they are going to deliberately upset the voters again after the elections (if they maintain the majority). History is great, but does not serve, IMO, to bury what is happening in the present.
    Posted by Mark1962

    Well, I don’t know what you mean by “done something about it”…If you are referring to the poor not getting loans anymore a lot has been done about it – they aren’t getting them. My wife works for one of the largest real estate offices in the country and even folks that afford them with good credit are having a hard time getting them. If you are referring to President Obama’s failed plan to help those upside down on their loan by appealing to the generosity of bankers, that was a dismal failure. If your issue has to do with people getting loans that could not afford them I didn’t see any party affiliations on the commercials advocating stated loans with no down payment and equity lines of credit up to 120% of the value of the house. However, I suspect most of those business folks were probably good Republicans.

    In Response to Re: How George Bush and the Private Mortgage Market Created The Perfect Storm:

    markdart, thank you for your lengthy, out of context, hullaballoo of a text. I printed it and put it in an appropriate place. Bird cage liner for my parrot. Thanks again. By the way, any relation to roninwesty?
    Posted by RAYDUNKSTER

    Hey, thanks…happy to help…some of us think rational discussion is better than war and some think it is better for bird cages…maybe your bird will enjoy the reading…careful it might be toxic though…I have no idea who ron what’s his name is…

    You liberals just keep on blaming bush and vomitting out more propaganda.. All the while I will rejoice as republicans keep walloping your delusional democrats at the polls! How sweet it is!!

    markdart,
    I didn’t see anything in your post on how the Clinton Administration revamped the home loan rules for people to be able to borrow more than they could possibly ever hope to pay back. Did you forget that or, as Al Gore would say, was that an inconvenient truth?

    Reply
  7. Administrator

    Blogger:

    I can accept that both parties have had a hand in the crisis. I cannot accept that after two years of a democratic presidency, and a democratic majority in Congress, little has been accomplished to rectify the situation. I’m even more upset that congress has been deferring these issues till after the elections. That indicates to me that they are going to deliberately upset the voters again after the elections (if they maintain the majority). History is great, but does not serve, IMO, to bury what is happening in the present.

    markdart,
    thank you for your lengthy, out of context, hullaballoo of a text.
    I printed it and put it in an appropriate place.
    Bird cage liner for my parrot.
    Thanks again.
    By the way, any relation to roninwesty?

    Reply
  8. Administrator

    Me:

    Concerning GSEs…GSEs are publicly traded companies. They are not a government agency. They are sanctioned by the government but are run like private companies. They are supposed to finance themselves. As such, they do not need to go through the congressional budget process. However, as I previously pointed out their private sector failure resulted in a taxpayer bailout because they are ”sanctioned” by the government and deemed too big to fail. The estimated cost of their bailout is currently 448 billion dollars.

    Social Security Privatization attempts, mostly by the Republicans, go all the way back to the thirties. In the references that follow I stay with this decade but Republicans tried to repeal or make more serious attempts to privatize Social Security in previous decades. They also launched unsuccessful attempts to defeat and get rid of Medicare.

    Both Medicare Advantage and Medicare Part D (prescription drug plan) were mainly Republican plans that were gifts to insurance companies and contributed as much or more to the deficit than the new Health Care Reform package will.
    Medicare Advantage does not offer any new benefits over basic Medicare without increased premiums and costs the government 14% more than the same benefits offered in basic Medicare. For the same benefits, Medicare Advantage hands out wads of case to private insurance companies to offer the same benefits as basic Medicare.

    The prescription drug plan prohibits cost negations based on huge quantities that the government purchases. Bulk negotiations are regularly done in private business but the Republicans in the Bush administration wanted to make sure the drug companies got a sweetheart deal that cost you as much money over the next ten years as the cost of the Health Reform Bill.

    http://www.nytimes.com/2010/02/12/opinion/12krugman.html

    http://www.americansforcoordinatedhealthcare.org/the_next_healthcare_battle_cutting_medicare_advantage/pid:5

    Assorted articles concerning Republican’s plans to privatize Social Security:

    Republican Privatization to Eliminate
    Medicare and Social Security
    What are Republicans trying to privatize Social Security?
    Social Security Privatization
    Pelosi blasts Republican plan to privatize Social Security
    National Review: Social Security Privatization a Winning Issue
    Social Security Still Needs to Be PrivatizedSocial Security

    Republican bills aimed at privatization:

    Note: I am going to put all the references in the comment section (along with some of yours) of my blog…it is a bit too long for this format…

    http://www.mixermuse.com/blog/2010/10/14/how-george-bush-and-the-private-mortgage-market-created-the-perfect-storm/

    In Response to Re: How George Bush and the Private Mortgage Market Created The Perfect Storm:

    That’s funny. Today I read a headline about how the lobbyist Obama just appointed to be National Security Advisor, Tom Donilon, blocked any pending reforms of Fannie Mae when he was a Primary Counsel there. That was prior to his appointment to be Gen. Jim Jones assistant in the Obama White House. You know the Obama White House? Their the one’s who PROMISED not to appoint lobbyists.
    Posted by imboTheJoker

    Maybe you should watch something other than Fox News. Here was the promise President Obama made:

    John Podesta, Obama’s White House transition co-chair, today promised the “strictest, most far-reaching” ethics rules “ever applied” to a presidential transition. Podesta made that promise in a press briefing at his staff’s offices in Washington, DC.

    Those rules prevent federal lobbyists from working for the transition in the fields of policy for which they lobbied in the last 12 months. They must also “cease all lobbying activities” while working for the transition, and they can’t lobby on their transition-team issues for 12 months after ending their service. A gift ban similar to the one recently passed in Congress also has been instituted.

    http://firstread.msnbc.msn.com/_news/2008/11/11/4437606-obama-team-unveils-lobbyist-restrictions

    I don’t see how this appointee contradicts this…

    Yea, I don’t like his Fannie May involvement but he was being a “good” lawyer for the company as far as “good” goes with lawyers.

    Agreed, politics is a dirty business on both sides of the fence. I remember some really nasty Reagan appointees. Bush 2 had his own appointee issues as well.

    I guess you can look at it from a Machiavellian perspective and just say to the winner go the spoils.

    I don’t expect heroics or virtues in politics only policies that move in the ideological directions I care about.

    In Response to Re: How George Bush and the Private Mortgage Market Created The Perfect Storm:

    THE PREVIOUS POST IS ABSOLUTE UNMITIGATED BALONEY!!!! And here is why:- Presidents don’t pass money laws, Congress does. And the Democrats controlled the Congress when this Perfect storm was set up:- They passed the first NINJA (No income, no job) Mortgage Act in 1992 under Clinton. The Democrats amplified it under Clinton in 1998. When George Bush attempted to modify the act, the DEMOCRATS guaranteed it would not happen by filibustering any attemps. There you have it, folks. The DEMOCRATS created this economic storm, not George Bush or the Republicans. And it typifies the stupidity of the Democrats:- You CANNOT give mortgages to people who CANNOT AFFORD THEM. WHO DON’T MAKE ENOUGH MONEY OR WHO DON’T HAVE JOBS. But that is exactly what THE DEMOCRATS did. And yes, Wall Street packaged these poisonous mortgages and tried to pass them on. Who can blame them. The banks were forced by THE DEMOCRATS to accept these mortgages. They sure as hell did not want them That is the truth of the matter. But since when did truth ever matter to a dyed in the wool democrat???
    Posted by Asodeska

    If you re-read the post you will see that Republicans were just as involved in the history of sub-prime loans as Democrats. You guys do not have to blame me the messenger. Do some research besides listening to Fox. The easy way out is to make it about me personally or the Democrats but anyone that really cares about the truth just has to dig a little to find out what the deal is… Oh, I don’t think Democrats are right about everything either. I just do not think they are the devils some of you think they are. I also like the old style Rockefeller Republicans and the party of Lincoln but the modern Republican Party has lost a lot of that IMO.

    Reply
  9. Administrator

    Blogger:

    In Response to How George Bush and the Private Mortgage Market Created The Perfect Storm:

    What a load of horse****! I really like where you pick and choose your sources, particularly this part:

    Statement from the White House (President Bush) October 26, 2005: “The Administration strongly believes that the housing GSEs should be focused on their core housing mission, particularly with respect to low-income Americans and first-time homebuyers. Instead, provisions of H.R. 1461 that expand mortgage purchasing authority would lessen the housing GSEs’ commitment to low-income homebuyers.” http://georgewbush-whitehouse.archives.gov/omb/legislative/sap/109-1/hr1461sap-h.pdf Conclusion: President Bush had directed HUD to buy massive Mortgage Backed Securities.
    Posted by markdart

    Uh, no, where’s that directive?. Why didn’t you take this quotation from the same response:

    “However, H.R. 1461 fails to include key elements that are essential to protect the safety and soundness of the housing finance system and the broader financial system at large. As a result, the Administration opposes the bill.
    The regulatory regime envisioned by H.R. 1461 is considerably weaker than that which governs other large, complex financial institutions. This regime is of particular concern given that Fannie Mae and Freddie Mac currently hold only about half of the capital of comparable financial institutions. In order for a financial regulator to be respected and credible, it must have the authority and ability to adjust capital requirements of the institutions it oversees as circumstances dictate to ensure prudential operations.”

    “Given the size and importance of the GSEs, Congress must ensure that their large mortgage portfolios do not place the U.S. financial system at risk.”

    Sounds like Bush was smart enough to know what was coming and tried to warn Congress. So, who is really to blame?

    Reply
  10. Administrator

    My response…

    You guys are geniuses (Hitler, Mussolini, Satan – isn’t that your name if I am “Ray” – check out my website – do I look like your Ray friend – are you on drugs?). Do you know what HR 1461 was?

    Republican Sponsored Bill

    Rep. Richard Baker [R-LA6]

    http://www.govtrack.us/congress/bill.xpd?bill=h109-1461

    Section 101 –
    Amends the Housing and Community Development Act of 1992 (Act) to establish the Federal Housing Finance Agency (FHFA), which shall have supervisory and regulatory authority over the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (both hereinafter referred to as the “enterprises”) and the Federal Home Loan Banks.

    Section 102 –
    Sets forth duties and authorities of the Director of FHFA, which include regulating and overseeing the operations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (all three of which referred to as “regulated entities”).

    http://www.govtrack.us/congress/bill.xpd?bill=h109-1461&tab=summary

    It wanted to put Fannie and Freddie under government control, the FHFA. If you read the history of this you will find Bush wanted it under Treasury control. This is why he said in the statement, “In order for a financial regulator to be respected and credible, it must have the authority and ability to adjust capital requirements of the institutions it oversees as circumstances dictate to ensure prudential operations. Given the size and importance of the GSEs, Congress must ensure that their large mortgage portfolios do not place the U.S. financial system at risk.”

    He thought FHFA was incompetent but the Treasury department could handle the job. He had more influence through the Treasury Department.

    Why don’t you do a little research?

    Can HUD put pressure and influence Fannie and Freddie? – absolutely, they control the purse strings. How can your more intellectual Republican cohorts make the claim that Clinton put pressure on Fannie and Freddie through HUD in 1994 if Bush could not play the same trick?

    Next time you post let’s see some links, something other than your opinion…what do you say?

    Oh, with regard to privatization…how many decades should I go back? Republicans opposed it from the start and have tried to privatize it ever since…I will put some links up tomorrow since you guys can’t seem to do your own research!

    Concerning GSEs…GSEs are publicly traded companies. They are not a government agency. They are sanctioned by the government but are run like private companies. They are supposed to finance themselves. As such, they do not need to go through the congressional budget process. However, as I previously pointed out their private sector failure resulted in a taxpayer bailout because they are ”sanctioned” by the government and deemed too big to fail. The estimated cost of their bailout is currently 448 billion dollars.

    Social Security Privatization attempts, mostly by the Republicans, go all the way back to the thirties. In the references that follow I stay with this decade but Republicans tried to repeal or make more serious attempts to privatize Social Security in previous decades. They also launched unsuccessful attempts to defeat and get rid of Medicare.

    Both Medicare Advantage and Medicare Part D (prescription drug plan) were mainly Republican plans that were gifts to insurance companies and contributed as much or more to the deficit than the new Health Care Reform package will.
    Medicare Advantage does not offer any new benefits over basic Medicare without increased premiums and costs the government 14% more than the same benefits offered in basic Medicare. For the same benefits, Medicare Advantage hands out wads of case to private insurance companies to offer the same benefits as basic Medicare.

    The prescription drug plan prohibits cost negations based on huge quantities that the government purchases. Bulk negotiations are regularly done in private business but the Republicans in the Bush administration wanted to make sure the drug companies got a sweetheart deal that cost you as much money over the next ten years as the cost of the Health Reform Bill.

    http://www.nytimes.com/2010/02/12/opinion/12krugman.html

    http://www.americansforcoordinatedhealthcare.org/the_next_healthcare_battle_cutting_medicare_advantage/pid:5

    Assorted articles concerning Republican’s plans to privatize Social Security:

    Republican Privatization to Eliminate
    Medicare and Social Security
    What are Republicans trying to privatize Social Security?
    Social Security Privatization
    Pelosi blasts Republican plan to privatize Social Security
    National Review: Social Security Privatization a Winning Issue
    Social Security Still Needs to Be PrivatizedSocial Security

    Republican bills aimed at privatization:

    Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007.http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

    Page CRS-18:

    In the 109th Congress, 10 Social Security reform bills were introduced as follows: H.R. 440 (Representative Kolbe and Representative Boyd), H.R. 530 (Representative Sam Johnson), H.R. 750 (Representative Shaw), S. 540 (Senator Hagel), S. 857 (Senator Sununu), H.R. 1776 (Representative Paul Ryan), H.R. 2472 (Representative Wexler), S. 1302 (Senator DeMint), H.R. 3304 (Representative McCrery), and S. 2427 (Senator Bennett). All but two of the measures (H.R. 2472 and S. 2427) would have established individual accounts to supplement or replace traditional Social Security benefits, among other changes.

    Report: “Social Security: The Chilean Approach to Retirement.” By Christopher Tamborini. Congressional Research Service, Library of Congress, May 17, 2007. http://assets.opencrs.com/rpts/RL34006_20070517.pdf

    Page CRS-3: “During the 109th Congress, 10 Social Security reform bills were introduced; all but two of these would have allowed workers to invest some part of their earnings in individual retirement accounts, either to supplement the Social Security system (often referred to as add-on accounts) or to replace part of the system (often referred to as carve-out accounts).13 No legislation received congressional action.”

    Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007. http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

    Page CRS-18: “In the 109th Congress, 10 Social Security reform bills were introduced as follows: H.R. 440 (Representative Kolbe and Representative Boyd), H.R. 530 (Representative Sam Johnson), H.R. 750 (Representative Shaw), S. 540 (Senator Hagel), S. 857 (Senator Sununu), H.R. 1776 (Representative Paul Ryan), H.R. 2472 (Representative Wexler), S. 1302 (Senator DeMint), H.R. 3304 (Representative McCrery), and S. 2427 (Senator Bennett).”

    Web page: “Biographical Directory of the United States Congress 1774-Present.” United States Congress. Accessed September 17, 2008 at http://bioguide.congress.gov/biosearch/biosearch.asp

    {This site was used to determine the party affiliations of the sponsors of the following bills:}

    H.R. 440 – Representative Kolbe (R-AZ) and Representative Boyd (D-FL)

    H.R. 530 – Representative Sam Johnson (R-TX)

    H.R. 750 – Representative Shaw (R-FL)

    S. 540 – Senator Hagel (R-NE)

    S. 857 – Senator Sununu (R-NH),

    H.R. 1776 – Representative Paul Ryan (R-WI)

    S. 1302 – Senator DeMint (R-SC)

    H.R. 3304 – Representative McCrery (R-LA)

    Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007. http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

    Page CRS-23:

    During the 110th Congress, two comprehensive Social Security reform measures have been introduced: H.R. 1090 (Social Security Guarantee Plus Act of 2007) and H.R. 2002 (Individual Social Security Investment Program Act of 2007). H.R. 1090, which is the same as H.R. 750 in the 109th Congress, would establish voluntary individual accounts funded with general revenues, among other program changes. H.R. 2002, which is the same as H.R. 530 in the 109th Congress, would establish individual accounts funded with a redirection of current payroll taxes, among other program changes.

    {H.R. 1090 was sponsored by Rep. Ron Lews (R-KY). H.R. 2002 was sponsored by Rep. Samuel Johnson (R-TX).}

    Bill: “S.2765, Saving Social Security Act of 2008.” United States Senate, March 13, 2008. http://thomas.loc.gov/

    Sec. 101. Establishment of an investment-based option for social security benefits.

    Bill: “H.R.4922: Savings Account for Every American Act of 2007.” United States House of Representatives, December 19, 2007. http://thomas.loc.gov/

    {This bill calls for the establishment of individual “S.A.F.E.” savings accounts through payroll deduction to be used in retirement. A S.A.F.E. account has meaning as provided for by section 222 (c) of the IRS Code of 1986.}

    Bill: “H.R.1090: Social Security Guarantee Plus Act of 2007.” United States House of Representatives, February 15, 2007. http://thomas.loc.gov/

    [March 13, 2007: Referred to House Subcommittee on Social Security.]

    Bill: “H.R.2002: Individual Social Security Investment Program Act of 2007.” United States House of Representatives, April 23, 2007. http://thomas.loc.gov/

    [April 25, 2007: Referred to House Subcommittee on Social Security.]

    Bill: “S.2765: Saving Social Security Act of 2008.” United States Senate, March 13, 2008. http://thomas.loc.gov/

    [March 13, 2008: Referred to Senate Committee on Finance.]

    Bill: “H.R. 4922: Savings Account for Every American Act of 2007.” United States House of Representatives, December 19, 2007. http://thomas.loc.gov/

    [December 19, 2007: Referred to Committee on Ways and Means and Committee on Oversight and Government Reform.]

    Report: “2008 Republican Party Platform.” Republican National Committee, September 2008. http://www.gopplatform2008.com/2008Platform.pdf

    Page 19: “Comprehensive reform should include the opportunity to freely choose to create your own personal investment accounts which are distinct from and supplemental to the overall Social Security system.”

    Web page: “Obama ’08, Seniors and Social Security” Obama for America. Accessed November 11, 2008 at http://www.barackobama.com/issues/socialsecurity/

    “In the midst of the 2005 debate over Social Security privatization, Obama gave a major speech at the National Press Club forcefully arguing against privatization. He also repeatedly voted against Republican amendments that aimed to privatize Social Security or cut benefits.”

    Transcript: “The Republican Debate on Fox News Channel,” New York Times, October 21, 2007. http://www.nytimes.com/2007/10/21/us/politics/

    “And you have to go to the American people and say we don’t — we won’t raise your taxes. We need personal savings accounts, but we got to fix this system.”

    Report: “Strengthening Social Security and Creating Personal Wealth for All Americans.” The President’s Commission to Strengthen Social Security, December 21, 2001. http://www.csss.gov/reports/Final_report.pdf

    Page 11: “Personal accounts improve retirement security by facilitating wealth creation and providing participants with assets that they own and that can be inherited, rather than providing only claims to benefits that remain subject to political negotiation.”

    In Response to Re: How George Bush and the Private Mortgage Market Created The Perfect Storm:

    That’s funny. Today I read a headline about how the lobbyist Obama just appointed to be National Security Advisor, Tom Donilon, blocked any pending reforms of Fannie Mae when he was a Primary Counsel there. That was prior to his appointment to be Gen. Jim Jones assistant in the Obama White House. You know the Obama White House? Their the one’s who PROMISED not to appoint lobbyists.
    Posted by imboTheJoker

    Maybe you should watch something other than Fox News. Here was the promise President Obama made:

    John Podesta, Obama’s White House transition co-chair, today promised the “strictest, most far-reaching” ethics rules “ever applied” to a presidential transition. Podesta made that promise in a press briefing at his staff’s offices in Washington, DC.

    Those rules prevent federal lobbyists from working for the transition in the fields of policy for which they lobbied in the last 12 months. They must also “cease all lobbying activities” while working for the transition, and they can’t lobby on their transition-team issues for 12 months after ending their service. A gift ban similar to the one recently passed in Congress also has been instituted.

    http://firstread.msnbc.msn.com/_news/2008/11/11/4437606-obama-team-unveils-lobbyist-restrictions

    I don’t see how this appointee contradicts this…

    Yea, I don’t like his Fannie May involvement but he was being a “good” lawyer for the company as far as “good” goes with lawyers.

    Agreed, politics is a dirty business on both sides of the fence. I remember some really nasty Reagan appointees. Bush 2 had his own appointee issues as well.

    I guess you can look at it from a Machiavellian perspective and just say to the winner go the spoils.

    I don’t expect heroics or virtues in politics only policies that move in the ideological directions I care about.

    In Response to Re: How George Bush and the Private Mortgage Market Created The Perfect Storm:

    THE PREVIOUS POST IS ABSOLUTE UNMITIGATED BALONEY!!!! And here is why:- Presidents don’t pass money laws, Congress does. And the Democrats controlled the Congress when this Perfect storm was set up:- They passed the first NINJA (No income, no job) Mortgage Act in 1992 under Clinton. The Democrats amplified it under Clinton in 1998. When George Bush attempted to modify the act, the DEMOCRATS guaranteed it would not happen by filibustering any attemps. There you have it, folks. The DEMOCRATS created this economic storm, not George Bush or the Republicans. And it typifies the stupidity of the Democrats:- You CANNOT give mortgages to people who CANNOT AFFORD THEM. WHO DON’T MAKE ENOUGH MONEY OR WHO DON’T HAVE JOBS. But that is exactly what THE DEMOCRATS did. And yes, Wall Street packaged these poisonous mortgages and tried to pass them on. Who can blame them. The banks were forced by THE DEMOCRATS to accept these mortgages. They sure as hell did not want them That is the truth of the matter. But since when did truth ever matter to a dyed in the wool democrat???
    Posted by Asodeska

    If you re-read the post you will see that Republicans were just as involved in the history of sub-prime loans as Democrats. You guys do not have to blame me the messenger. Do some research besides listening to Fox. The easy way out is to make it about me personally or the Democrats but anyone that really cares about the truth just has to dig a little to find out what the deal is… Oh, I don’t think Democrats are right about everything either. I just do not think they are the devils some of you think they are. I also like the old style Rockefeller Republicans and the party of Lincoln but the modern Republican Party has lost a lot of that IMO.

    Reply
  11. Administrator

    Some Comments from 9News Bloggers:

    I really hate to give you any undeserved credence by my response. But, Shirley, you can’t be serious. All anybody has to read is your last sentence: “Who wants to privatize Social Security and Medicare?”. The answer is: nobody. Your epistle has no credibility whatsoever, and you take so long to prove it. Do you actually believe that the Federal and socially subsidized aspects of the mortgage market vis a vis Fannie Mae and Freddie Mac, artificially injected by the likes of Barney Frank and Chris Dodd had no affect on the sub-prime mortgage melt down?

    THE PREVIOUS POST IS ABSOLUTE UNMITIGATED BALONEY!!!!
    And here is why:-
    Presidents don’t pass money laws, Congress does.
    And the Democrats controlled the Congress when this Perfect storm was set up:-
    They passed the first NINJA (No income, no job) Mortgage Act in 1992 under Clinton.
    The Democrats amplified it under Clinton in 1998.
    When George Bush attempted to modify the act, the DEMOCRATS guaranteed it would not happen by filibustering any attemps.
    There you have it, folks. The DEMOCRATS created this economic storm, not George Bush or the Republicans.
    And it typifies the stupidity of the Democrats:-
    You CANNOT give mortgages to people who CANNOT AFFORD THEM.
    WHO DON’T MAKE ENOUGH MONEY
    OR WHO DON’T HAVE JOBS.
    But that is exactly what THE DEMOCRATS did.
    And yes, Wall Street packaged these poisonous mortgages and tried to pass them on. Who can blame them.
    The banks were forced by THE DEMOCRATS to accept these mortgages. They sure as hell did not want them
    That is the truth of the matter.
    But since when did truth ever matter to a dyed in the wool democrat???

    In Response to How George Bush and the Private Mortgage Market Created The Perfect Storm:

    What a load of horse****! I really like where you pick and choose your sources, particularly this part:

    Statement from the White House (President Bush) October 26, 2005: “The Administration strongly believes that the housing GSEs should be focused on their core housing mission, particularly with respect to low-income Americans and first-time homebuyers. Instead, provisions of H.R. 1461 that expand mortgage purchasing authority would lessen the housing GSEs’ commitment to low-income homebuyers.” http://georgewbush-whitehouse.archives.gov/omb/legislative/sap/109-1/hr1461sap-h.pdf Conclusion: President Bush had directed HUD to buy massive Mortgage Backed Securities.
    Posted by markdart

    Uh, no, where’s that directive?. Why didn’t you take this quotation from the same response:

    “However, H.R. 1461 fails to include key elements that are essential to protect the safety and soundness of the housing finance system and the broader financial system at large. As a result, the Administration opposes the bill. The regulatory regime envisioned by H.R. 1461 is considerably weaker than that which governs other large, complex financial institutions. This regime is of particular concern given that Fannie Mae and Freddie Mac currently hold only about half of the capital of comparable financial institutions. In order for a financial regulator to be respected and credible, it must have the authority and ability to adjust capital requirements of the institutions it oversees as circumstances dictate to ensure prudential operations.”

    “Given the size and importance of the GSEs, Congress must ensure that their large mortgage portfolios do not place the U.S. financial system at risk.”

    Sounds like Bush was smart enough to know what was coming and tried to warn Congress. So, who is really to blame?

    Reply

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