On 12-17-09, BOB KLAHN said to TIM RICHARDSON:


TR> G.W. Bush wasn't even on the political horizon when the
TR> groundwork was laid for the housing mortgage meltdown.

BK>Yet he bought into it big time. He had 8 years in office, the
BK>first 6 he could have done a lot to stop it, instead he
BK>contributed to it.

Al Hubbard and Noam Neusner - Where Was Sen. Dodd? - washingtonpost.com


By Al Hubbard and Noam Neusner


Friday, September 12, 2008


Taxpayers face a tab of as much as $200 billion for a government takeover of
Fannie Mae and Freddie Mac, the formerly semi-autonomous mortgage finance
clearinghouses. And Sen. Christopher Dodd, the Democratic chairman of the
Senate Banking Committee, has the gall to ask in a Bloomberg Television
interview: "I have a lot of questions about where was the administration over
the last eight years."


We will save the senator some trouble. Here is what we saw firsthand at the
White House from late 2002 through 2007: Starting in 2002, White House and
Treasury Department economic policy staffers, with support from then-Chief of
Staff Andy Card, began to press for meaningful reforms of Fannie, Freddie and
other government-sponsored enterprises (GSEs).


The crux of their concern was this: Investors believed that the GSEs were
government-backed, so shouldn't the GSEs also be subject to meaningful
government supervision?


This was not the first time a White House had tried to confront this issue.


During the Clinton years, Treasury Secretary Larry Summers and Treasury
official Gary Gensler both spoke out on the issue of Fannie and Freddie's
investment portfolios, which had already begun to resemble hedge funds with
risky holdings.


Nor were others silent: As chairman of the Federal Reserve, Alan Greenspan
regularly warned about the risks posed by Fannie and Freddie's holdings.



President Bush was receptive to reform. He withheld nominees for Fannie and
Freddie's boards -- a presidential privilege. While it would have been
valuable politically to use such positions to reward supporters, the president
put good policy above good politics.


In subsequent years, officials at Treasury and the Council of Economic
Advisers (especially Chairmen Greg Mankiw and Harvey Rosen) pressed for the
following:


Requiring Fannie and Freddie to submit to regulations of the Securities and
Exchange Commission; to adopt financial accounting standards; to follow bank
standards for capital requirements; to shrink their portfolios of assets from
risky levels; and empowering regulators such as the Office of Federal Housing
Oversight to monitor the firms.


The administration did not accept half-measures. In 2005, Republican Mike
Oxley, then chairman of the House Financial Services Committee, brought up a
reform bill (H.R. 1461), and Fannie and Freddie's lobbyists set out to weaken
it. The bill was rendered so toothless that Card called Oxley the night before
markup and promised to oppose it. Oxley pulled the bill instead.


During this period, Sen. Richard Shelby led a small group of legislators
favoring reform, including fellow Republican Sens. John Sununu, Chuck Hagel
and Elizabeth Dole. Meanwhile, Dodd -- who along with Democratic Sens. John
Kerry, Barack Obama and Hillary Clinton were the top four recipients of Fannie
and Freddie campaign contributions from 1988 to 2008 -- actively opposed such
measures and further weakened existing regulation.


The president's budget proposals reflected the nature of the challenge. Note
the following passage from the 2005 budget: Fannie, Freddie and other GSEs
"are highly leveraged, holding much less capital in relation to their assets
than similarly sized financial institutions. . . . A misjudgment or unexpected
economic event could quickly deplete this capital, potentially making it
difficult for a GSE to meet its debt obligations. Given the very large size of
each enterprise, even a small mistake by a GSE could have consequences
throughout the economy."


That passage was published in February 2004. Dodd can find it on Page 82 of
the budget's Analytical Perspectives.


The administration not only identified the problem, it also recommended a
solution. In June 2004, then-Deputy Treasury Secretary Samuel Bodman said: "We
do not have a world-class system of supervision of the housing government-
sponsored enterprises (GSEs), even though the importance of the housing
financial system that the GSEs serve demands the best in supervision."


Bush got involved in the effort personally, speaking out for the cause of
reform: "Congress needs to pass legislation strengthening the independent
regulator of government-sponsored enterprises like Freddie Mac and Fannie Mae,
so we can keep them focused on the mission to expand home ownership," he said
in December. He even mentioned GSE reform in this year's State of the Union
address.





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*Durango b301 #PE*