Origin of the credit crisis; fake "drilling"

Tag : housing bearings
By Wes Vernon

Both presidential candidates took a few days to get their bearingsand talking points in order after the beginning of the wild week onWall Street.

McCain

McCain's quick comment: Fire Chris Cox, Chairman of the SEC. Thateffort to find a convenient scapegoat misses the mark and is alsounfair. Cox has responded with a ten-point rebuttal pinpointingspecific SEC actions  including strengthened investor protections,targeting fraud, emergency orders against naked short-sellinginvolving Fannie Mae and Freddy Mac, "sweeping" and "landmark"enforcement actions, etc.

It is understandable that McCain wants to distance himself fromPresident Bush. That does not justify beating up on Cox.

Obama

Obama's offering: Raise taxes in the teeth of an economic slump.That kneejerk and discredited idea betrays Obama as woefullyignorant of the economic facts of life. Bush '41 raised taxes inthe teeth of a recession in 1990 (albeit without Obama's demagogicrhetoric demonizing the "rich"  i.e., anyone with a job). Ofcourse, it not only didn't work, but made things worse, and weended up with eight years of Bill Clinton.

Speaking of which...

President Clinton's administration forced mortgage lenders to makeloans to high-risk buyers. It amounted to an "affirmative action"home ownership plan. Normal sound business policies were out. Anylender who didn't cooperate ran the risk of stiff governmentpenalties. A house for everyone appeared to be the mantra. This wasreminiscent of the old Herbert Hoover slogan "Two chickens in everypot."

Hmm, let's see. Obama wants to mimic Bush '41. Clinton brings backthe guts of a Hoover slogan. What is it about Democrats thatattracts them to failures in past Republican presidencies, but notto GOP successes?

The blame

There is plenty of bipartisan blame to go around. That does notmean nobody was responsible. Greed and overleveraging to gin up thehousing market? You bet. Wrong turns in both parties? Absolutely.Fault Alan Greenspan  now blaming everyone but himself  forslashing interest rates to grease the skids even further? Ofcourse.  But the seeds were planted in the Clinton era of"anything to keep the the good times rolling to keep the approvalratings up."

A case in point

The government-sponsored operations Fannie Mae and Freddy Macenabled the politically-connected to fatten their wallets.

Franklin Raines

After serving as Clinton's budget director, Franklin Delano Raineswent on to become CEO of Fannie Mae. After five years, he took"early retirement," accused by federal auditors of aiding andabetting accounting errors "which included the shifting of lossesso senior executives, such as himself, could earn large bonuses." ( Wikipedia ).

The feds sued him for $110 million in penalties and $115 million inreturned bonuses. Ultimately, the settlement yielded fines of $3million from Raines and his cronies, paid by Fannie's insurancepolicy. He also agreed to give up $5.3 million in "other benefits."He gave up $1.8 million on Fannie stock and forfeited worthlessstock options. The Wall Street Journal called this "a paltry settlement." Investors Business Daily says Raines used Fannie Mae as "his personal piggy bank."

Did we mention that Franklin Raines is an economic advisor to theObama campaign? Oh  almost forgot that tidbit. Obama says it's notso. But even the liberal Washington Post says it is.

James Johnson

Raines' predecessor as Fannie Mae CEO was Jim Johnson. Federalauditors charged that during his tenure, "Fannie Mae hadsubstantially under-reported Johnson's compensation. Originallyreported as $6-7 million, Johnson actually received approximately$21 million" (again Wikipedia )

Earlier this year, Johnson stepped down from his position aschairman of Obama's search committee for finding avice-presidential running mate. The reason? He had received loansdirectly from Angelo Mozilo, CEO of Countrywide Financial, acompany "implicated in a subprime mortgage lending crisis" (againWikipedia).

Among others of the politically-connected in this rip-off was JanetReno aide Jamie Gorelick, who walked off with a cool $75 million.

All of the above are cheerleaders in the Obama campaign to go after"the rich."

As of this writing, McCain was largely back on message  callingout Obama on the likes of Raines and Johnson, and recalling thatthe Arizonan tried to take action a few years ago to rein in FannieMae and Freddy Mac, but was ignored by both Obama and the WhiteHouse.

This past weekend, the White House and Congress were forging abailout that appeared to be calming the markets but would take usone step closer to European-style socialism.

Phony "drilling" bill

Former House Republican leader Tom Delay predicted that a Pelosi"oil drilling" bill would be 1% drilling and 99% stupid. How righthe was. Ronald Reagan used to say members of Congress never solveproblems. "They only rearrange them." How right he was.

Speaker Nancy Pelosi has rammed through the House a measure thatkeeps viable Outer Continental Shelf areas off limits. No mentionof drilling in ANWR or shale oil in the Rockies.

It increases taxes on the oil companies. Americans for Tax Reform(ATR) says it will cost American jobs. The bill allows drilling onOCS, but only 100 miles or more off the Atlantic and Pacificcoasts. Areas closer to land are richer in oil and far easier toaccess. And the oil-rich Gulf of Mexico is still off limits. The Wall Street Journal opines that the measure claims to allow drilling while makingdrilling all but impossible. A key House Republican told thiscolumn it is like a contractor getting the green light to build ahouse, "provided that he builds only the second floor."

The measure imposes a mandate on states regarding "renewable"energy sources  a mandate that realistically cannot be met (a 28%surcharge) on rate-paying consumers.

Once again, Congress  under Pelosi's "leadership," may have solvedthe politics of the problem without solving the problem. They knowit won't pass the Senate. But Democrat House members can go homeand say, "Don't look at us. We did something about it." If yourcongressman tells you the House voted to drill for oil to loweryour price at the pump, you can tell him/her to peddle that fraudelsewhere.

Behind the Weyrich McCain endorsement

Free Congress President Paul Weyrich  widely honored at a recentWashington dinner as the father of the modern conservative movement now has made to the "reluctant" decision to support John McCainfor president.

Last winter (see this column " Conservative leader to bolt ," 1/28/08), Weyrich told me if McCain were nominated, he wouldeither not vote the top of the ticket or vote third party. (Infact, until recently, he planned to vote for Libertarian Bob Barr.)

A recent meeting where Senator McCain asked for  and secured Weyrich's support was arranged by pollster Lance Terrance, who haddone some work for the McCain campaign, and was loyal to Weyrich.McCain and Weyrich had a disdain for each other going back nearlytwenty years. For the duration of the campaign at least, that gaphas been bridged. Terrance convinced the senator it was in hisinterest to make things right with the conservative leader. Thishappened before Sarah Palin was added to the ticket. "That, ofcourse, sealed the deal for me," Weyrich told this writer.

Weyrich disagrees with McCain's opposition to Amtrak and railtransit in general. He told this column if a President McCain issworn in January 20th, "I will seek a meeting with him to presentthe conservative case for transit. He will have the option of beingreasonable or getting into a fight with an increasing number ofconservative members of Congress who support transit."

© Wes Vernon