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I just watched a video of a news conference on CNN.com.  The Democratic leadership of the House and Senate shared with the news media how hard they worked in bringing about the legislation for the bail out of Wall Street.  Featured was Speaker of the House Pelosi, Senate Majority Leader Harry Reid, Representative Barney Frank (He always looks like he just crawled out of a dryer, like he washes and dries his clothes with them on) and Senator Chris Dodd.  They spent most of the press conference blowing smoke about how much this democratic group did to hammer out this fine piece of legislation from the piece of crap the Administration had proposed.

The big news in this conference was that the Democrats now have found a way to limit the compensation of CEOs of the Wall Street firms.  I know that this has been a very sore point for the Dems for a long time.  They hate the thought of some successful CEO bringing down big bucks.  Well, with this bill they now have a way to limit that.  The compensation for Wall Street firms taking advantage of the government money is limited to $500K.

I don’t have any problem with a CEO of a successful corporation getting a big a paycheck as he can.  I do, however, have a problem with a CEO of a not so successful corporation getting the big paycheck or golden parachute after he has run the company into the ground. In most companies the CEOs bail with the large bonus after a number of the employees have been laid off, sometimes loosing their pensions or 401K.  Yes, I have a problem with that. But now the Dems have the ability to control the paychecks of these CEOs of the companies in the bailout.  Next step, all companies!

Near the end of the news conference Speaker Pelosi made the comment that, “This was the administration’s problem…..” and how the Democrats were just working to protect “main street.”  But, even though the Dems won’t admit it, they are just as responsible for this debacle as they the Republicans and the Bush Administration is.  I heard about the article below on Neil Boortz show during the Boortz Power Lunch segment from Ruth’s Chris Steakhouse.  A friend sent it to me in an email and I think it was worth posting.  It is well worth reading!

Bob

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How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable
By TERRY JONES
INVESTOR’S BUSINESS DAILY | Posted Wednesday, September 24, 2008 4:30 PM PT

One of the most frequently asked questions about the subprime market meltdown and housing crisis is: How did the government get so deeply involved in the housing market?
The answer is: President Clinton wanted it that way.

Fannie Mae and Freddie Mac, even into the early 1990s, weren’t the juggernauts they’d later be.
While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie’s and Freddie’s rules.

In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Home ownership Strategy, which broadened the CRA in ways Congress never intended.

Addressing the National Association of Realtors that year, Clinton bluntly told the group that “more Americans should own their own homes.” He meant it.  Clinton saw home ownership as a way to open the door for blacks and other minorities to enter the middle class.

Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin’s Treasury Department to rewrite the rules in 1995.  The rewrite, as City Journal noted back in 2000, “made getting a satisfactory CRA rating harder.” Banks were given strict new numerical quotas and measures for the level of “diversity” in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.

Loans started being made on the basis of race, and often little else.  “Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance,” wrote Howard Husock, a scholar at the Manhattan Institute.  But those rules weren’t enough.  Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.

Clinton’s HUD secretary, Andrew Cuomo, “made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis,” the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.  Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.  Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.

With incentives in place, banks poured billions of dollars of loans into poor communities, often “no doc” and “no income” loans that required no money down and no verification of income.

By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.  Worse still was the cronyism.  Fannie and Freddie became home to out-of-work politicians, mostly Clinton Democrats.  An informal survey of their top officials shows a roughly 2-to-1 dominance of Democrats over Republicans.   Then there were the campaign donations. From 1989 to 2008, some 384 politicians got their tip jars filled by Fannie and Freddie.  Over that time, the two GSEs spent $200 million on lobbying and political activities. Their charitable foundations dropped millions more on think tanks and radical community groups.

Did it work? Well, if measured by the goal of putting more poor people into homes, the answer would have to be yes.  From 1995 to 2005, a Harvard study shows, minorities made up 49% of the 12.5 million new homeowners.  The problem is that many of those loans have now gone bad, and minority home ownership rates are shrinking fast.

Fannie and Freddie, with their massive loan portfolios stuffed with securitized mortgage-backed paper created from subprime loans, are a failed legacy of the Clinton era.