Endorsing Bad Government

You know, for a gang that claims to be enamoured of regulations and regulating, too many Democrats sure dropped the regulation ball when it came to mortgage guidelines and Fannie and Freddie. One of the more egregious offenders as we now know was Congressman Barney Frank. From September 9's Wall Street Journal.

At least the Massachusetts Democrat is consistent. His record is close to perfect as a stalwart opponent of reforming the two companies, going back more than a decade. The first concerted push to rein in Fan and Fred in Congress came as far back as 1992, and Mr. Frank was right there, standing athwart. But things really picked up this decade, and Barney was there at every turn. Let's roll the audiotape:

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

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

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

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

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

In April 2004, Fannie announced a multibillion-dollar financial "misstatement" of its own. Mr. Frank was back for the defense. Fannie and Freddie posed no risk to taxpayers, he said, adding that "I think Wall Street will get over it" if the two collapsed. Yes, they're certainly "over it" on the Street now that Uncle Sam is guaranteeing their Fannie paper, and even Fannie's subordinated debt.

In their endorsement (yes, endorsement) today of Congressman Frank, the ProJo breezes past all these pesky details and, remarkably, cites the congressman's

pivotal role in negotiating the financial-rescue package approved by Congress this month.

This amounts to commending Jesse James for restocking with taxpayer gold some of the banks he himself knocked over during a decade of quite lucrative holdups. Yes, indeed, public officials who fail to regulate an industry so badly that seven hundred billion one trillion tax payer dollars are needed to correct its collapse is the moral equivalent of a bank holdup in the private sector.

Me, I say to the voters in Massachusetts' Fourth Congressional District, "Be jolly, vote for Sholley". Send Jesse James packing.

ADDENDUM

Michael Graham of the Boston Herald [via Free Republic] last month articulated the critical role that non-regulation of Fannie Mae and Freddie Mac played in the fiscal collapse.

That’s when Freddie and Fannie stepped in. As Kevin Hassett of the American Enterprise Institute put it: “They fueled Wall Street’s efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools.”

Lenders asked themselves, why should I care how shaky these borrowers are or risky the loans if a government-backed body is going to buy them up anyway?

The loans were made, the housing market bubbled, contributions from F&F flowed to Democrats like Chris Dodd and Barack Obama, and everyone was happy. Until they weren’t.

Without Freddie and Fannie’s reckless expansion, the housing bubble doesn’t happen. Without the implied promise behind F&F’s money, investment banks don’t dive into the derivatives market.