When you write about the Democratic Party you must understand that Democrats want to be judged on their intentions and never want to be held accountable for the outcome. Democrats don’t want to be held accountable for the collapse of world economy, but as we shall see, they are.
Who are the four Horsemen plus one? Some of the readers of this column may not be familiar with who the four Horsemen were. They appear in the Bible in Revelation chapter 6 verses 2. According to Revelation the Four Horsemen are Pestilence, War, Death, and Famine.
So who are the 4 horsemen plus one who brought all this upon the world?
First Horseman is “Pestilence”, Bill Clinton. The Clinton Administration changed GSEs’ (Government Sponsored Enterprise) mission to become far more active, but did nothing to adapt the regulatory structure to the new mission. Congress essentially controlled OFHEO, because Congress had life or death control over OFHEO’s funding. Fannie Mae was one of the most powerful Washington lobbyists– for OFHEO to take on Fannie Mae would have been like an entry level employee openly accusing a senior executive.
The Second Horseman is “Death”, Maxine Waters, Congresswoman from the 43rd District in California. She is the ranking member on the House Financial Services Committee, and we will see later why that was such an important position.
Our third Horseman is “War”, Barney Frank. Mr. Frank is the former Congressman from the second District of Massachusetts where he served for 16 terms and was also a member of the House Financial Services Committee.
Horseman number 4 “Famine”, is Christopher Dodd. He served in Congress from 1974 until he retired from the Senate in 2010; he served at Chairman of the Senate Committee on Banking an important position in our story.
The Plus Horseman is the Secretary of Housing and Urban Development, Mr. Andrew M. Cuomo the current Governor of New York.
In 1977, Congress passed The Community Reinvestment Act, which was in response to “Red Lining” and other problems in housing and mortgages. Red Lining was a process whereby lenders could mark off sections of a city and not make loans to individuals or businesses in the Red Lined area because of the potential for default on loans. Most of the time these areas were in the poor areas of a city and most of the residences or business owners were black or other minorities.
Clinton offered, shouldn’t everybody own a home, isn’t that the American dream? Let’s take the Community Reinvestment Act and suggest to the lenders they need to be making more loans to poor people.
Our next player is a very important player in the scandal. That player is Franklin Raines, Head of Fannie Mae. Raines was the CEO of Fannie Mae. Raines made millions in bonuses when Fannie Mae manipulated earnings to meet the highest profit and “affordable housing” targets. He settled with the SEC in a sweetheart deal that cost him little or nothing out of his own pocket, even though Fannie Mae was slapped with the biggest fine in SEC history for overstating Fannie Mae’s profits by $6.3 billion over several years.
Raines went through the standard litany of success such as “providing $2 trillion for 18 million underserved families” but he did not oppose modernizing GSE oversight.
Why it happened.
At the turn of the century, the Dot COM bubble burst and the equity markets collapsed. Millions of investors, large and small, lost trillions of dollars in this speculation. Chairman Greenspan, in trying to save the economy, dropped interest rates to 1%. People and institutions that needed to invest what they had left were looking at alternatives and decided that real estate is safer than stocks and offered better.
For many decades banks have made mortgage loans for their own portfolio. That means they loan the money and keep the loan and service it in the bank. The GSE and the investment banks figured out that lower interest rates and the demand for mortgages could accelerate. If a bank could sell its loans instead of holding them then they could turn over their money many times in the year and make a great deal more profit. If they held the loan for 45 days and the borrower made the first payment, they could sell the loan to an investor. Who was the most interested investor Fannie Mae and Freddie Mac?
The GSE’s told Wall Street and the mortgage originators, we will take all the loans you have. The banks sold all their loans and started making more. The prices of real estate continued to rise and more and more people wanted to get in on the action, but the banks were running out of the best credits to lend money. In the drive to feed the appetite of the GSE, riskier loans, or what became known as sun-prime loans, were made.
What happened, what did they do?
Credit standards were reduced and the juggernaut continued to turn out riskier and riskier mortgages. Some in Congress and the Bush Administration were becoming concerned about the financial risk of many of these loans and the overall risk to the credit markets on a global basis, because of the size of the mortgage market. We all know what happened and the trillions of dollars lost all over the world. But when many on the Republican side raised their concern as to the risk to world financial markets, this is what the Horsemen said.
Horseman number 3, Barney Frank, said in September 10, 2003 at a hearing on the risk and further regulation of the mortgage giants, he said, “I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger… Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country.”
Horseman 2, Waters, seemed particularly proud to say “since the inception of goals from 1993 to 2002, loans to African-Americans increased 219 percent and loans to Hispanics increased 244 percent, while loans to non-minorities increased 62 percent. Additionally, in 2001, 43.1 percent of Fannie Mae’s single-family business served low-and moderate-income borrowers…” She then said, “The GSEs are working” and reiterated her opposition to more oversight.
Maxine Waters at the same hearing, said, “Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission, a mission that has seen innovation flourish from desktop underwriting to 100 percent loans.
How about the Horseman number 4, Chris Dodd. On July 13, 2008 the Associated Press reported that Dodd said, Hoping to bolster confidence, Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, told CNN on Sunday that Fannie and Freddie are financially sound.
“What’s important here are facts,” Dodd said. “And the facts are that Fannie and Freddie are in sound situation. They have more than adequate capital — in fact, more than the law requires. They have access to capital markets. They’re in good shape. The chairman of the Federal Reserve has said as much.” Six weeks later the government took control of Fannie and Freddie.
The continued support was really about the money. From 1989 to 2008 Chris Dodd received more campaign contributions than anybody else in the Congress from Fannie and Freddie. Barney Frank and Maxine Waters also received money from Fannie and Freddie. Bill Clinton received $425,000 from both mortgage operations for his election campaign.
Our plus 1 is Andrew Cuomo the current governor of the State of New York; he was in charge of the Department of Housing and Urban Development from 1997 to 2001. CNBC in a story of May 3, 2010 Dick Bove called him the “Father of the Subprime Crisis.” Mr. Bove said, “one of the key reasons why Fannie Mae and Freddie Mac are bankrupt today, and why the government is spending hundreds of millions of dollars in supporting them, is because of the edicts pushed through by Mr. Cuomo.”
Couldn’t admit they were wrong.
Democrats staved off numerous attempts by Republicans to solve the problem and the greatest irony of this whole story is that the bill that became law to fix the problem was named after the of the people who were instrumental in creating the problem, the legislation is called, “The Dodd–Frank Wall Street Reform and Consumer Protection Act.”
This story is how the Democrats started off with good intentions, that turned into a nightmare and then they created a new law to clean up their mess. A terrible price to pay for ego, by the end of 2011 over 8.2 million homes were foreclosed on and people lost their homes. America lost almost $17 Trillion of net worth and other nations also lost trillions more. It has taken 10 years for the average price of a home to get back to its pre-crash price. I think the title is a fair representation of the outcome of the Great Recession. If you look at the events I and others have told in the story and I think you will find that the 4 Horsemen of Pestilence, War, Death, and Famine affected millions of people all over the world.
One has to ask, “What will be the cost to fix Obama Care?” Is it the next good intention by the Democrats gone badly?