It is true that the Repubs were asleep at the switch prior to that point. The unraveling began in earnest in 2007. However, as early as 2003 Bush asked for reform but little was done. Read this for more detail:
http://uspolitics.about.com/b/2008/09/18/republican-congress-talked-about-financial-reform-but-did-nothing.htm
This report ha seven more details abiout who did what and why reform was not attempted:
http://bellalu0.wordpress.com/2008/09/17/bush-and-mccain-proposed-oversight-of-fannie-mae-and-freddie-mac/

Lots of blame to go around. That should not stop us from learning from the mistakes of the past and
doing better as we move forward.

Well I didn’t really accuse you of saying anything about Fannie and Freddie.

I will note that the following sentence:

“The warnings were brushed off by assurances from Frank and Dodd, two chairmen who were supposed to know whereof they spoke.”

is a little off.

Frank and Dodd were NOT chairmen during this scam. They were in the minority and could not have stopped initiatives by Republican Chairmen, none of whom brought anything to the floor of either chamber.

They have, however, been managed very poorly. Mostly by democrats who managed to pay themselves very richly for their efforts. Anyone who has spent time analyzing this knows that you are correct. Fannie and Freddie got greedy and started buying up some of the Wall Street Mortgage Backed Securities (MBSs). There were warnings from both the Bush administration and John McCain. The warnings were brushed off by assurances from Frank and Dodd, two chairmen who were supposed to know whereof they spoke. I know. I watched Barney Frank assure Larry Kudlow on CNBC that Fannie and Freddie were sound about a week before they were taken over by the Treasury. Had I not trusted his word, I could have sold my Fannie Mae preferred shares for a lot more than I got a week later. Stupid me, I accepted that good old Barney wouldn’t lie on financial TV. Well, I’m poorer but wiser now. It has become my opinion that when Barney’s mouth is moving he is either spinning or outright lieing. Too bad he has a lifetime position in his district in Massachusetts. He has wrought much damage and will continue to be a poison apple in the barrel as long as he is there.

Fannie and Freddie are now in the process of trying to repair their balance sheets just like all our financioal institutions are. They do need to be reformed and probably privatized. They are a huge potential liability for the tax payers. We don’t need more liabilities when the government is in such a huge deficit spending mode. What we need is fiscal sanity. Will Barney, Nancy, Chris and Harry provide it? I don’t think so.

Even if this were true, it is true for reasons that have NOTHING to do with Fannie Mae and Freddie Mac loan programs. The loans in those programs did NOT cause the meltdown.

Fannie and Freddie, like other private institutions, have financial investment portfolios containing stocks and bonds.

But those portfolios don’t have anything to do with Fannie and Freddie housing programs.

Some of the stocks in Fannie and Freddie’s portfolios turned out to be worthless. Those stocks contained loans having NOTHING to do with Fannie and Freddie loan programs.

If a company like Microsoft issued stock that turned out to be worthless as the result of fraud, and Fannie and Freddie had Microsoft stock in their portfolios, it would be utterly absurd to blame Fannie and Freddie for Mircrosoft’s behavior.

Yet that is what is being attempted by certain partisan Republicans with predictable results — skepticism of Republican Party operatives and their honesty.

TARP was absolutely necessary to unclog the banking system, which had nearly locked up. It was a “Hail Mary ” pass to restore enough confidence to forestall a complete collapse. Everyone seems to have forgotten that the purpose was to buy collateralized debt (CD) securities from banks and insurance companies to allow the banks breathing room to shore up their capital. It soon became clear that buying the securities was impossible because there was no cogent way of determining their value in a short period of time. Thus, the investments in preferred stock in the banks and insurance companies. Except for the auto companies and a few other banks, the TARP funds have been paid back and, in the end, the government will come close to breaking even or making a small profit. IMO, actually a great result when you consider what might have happened.

The CRA and people in Congress like Dodd and Frank were resonsible for pushing for sub-prime loans. Wall street firms picked it up and began packaging sub-primes with prime loans providing a debt instrument with superior payouts. It was all driven by a quant’s formula that proved all was well unless real estate prices dropped more than 6%. The conventional wisdom was that real estate would never fall by that much. (The old, “This time it’s different,” meme.) When the real estate market went south the realization that many of the sub-primes were defaulting hit the financial industry like a flood. The FASB required that holders of collateralized debt units “mark them to market.” That was disastrous because there was no auction market for those instruments. The shorts soon recognized their big chance and began circulating rumors that all of those debts were esentially worthless. The selling of the bank and insurance stocks began and the shorts piled in with the SEC unable to police all the naked shorting that was going on. In no time, the banks capital ratios plummeted and reached levels where they needed to raise more capital. Unable to sell stcok or bonds to raise capital they were paralyzed and began hoarding what cash they had. Thus did the banking system slow almost to a standstill. The TARP, coupled with the FASB cancelling the mark to market rule, gave the financial system the time to begin to work out of the problem. The problem still exists, but is being worked off. (Orderly write offs, liquidations, valuing CD instruments according to current income, etc.)

No one except maybe Paulsen and Bernanke understood how desperate the situation was, but they convinced Bush and enough members of Congress to vote yes on the TARP bill. There is lots of blame to go around concerning the financial meltdown. Dems protected and ecouraged sub-prime borrowing. The FED kept interest rates too low and then raised them too quickly. Wall Street dreamed up and sold the risky CD instruments. The SEC and ratings agencies failed to see that the risk in these was based on a poor assumption about the real esate market. The short traders, the FASB, and the SEC all collaborated in their own ways in the attack on the banks that almost brought the system down.

So, I think people are just not knowlegable enough when they attack the TARP. However, for the TARP funds used for thr auto bailouts, that is another issue. Those were done in a stupid, ant- business, anti-investor fashion that rewarded the unions at everyone else’s expense. Only the dems and the unions liked that maneuver.

On the other hand, the $787 billion stimulus bill was poorly conceived because it did nothing to incentivize new hiring and business expansion. Yet President Obama and the dem controlled Congress want to do more of the same. My take on all this, vote for fiscal conservatives in November.

There is no free market when private sector institutions can engage in fraud with impunity.

In those cases, the police (government), must remove such forces and make sure the free market continues to operate. That didn’t happen here.

Well the private sector was certainly the cause.

The overwhelming percentage of transactions in this scam involved private sector institutions selling to other private sector institutions. And the transactions would have occurred regardless of the existence of Fannie and Freddie.

The only way Fannie and Freddie were indirectly involved in this scam were as a couple of the many buyers of phony securities which they bought for their portfolios.

The securities themselves contained loans that had NOTHING to do with the CRA or Fannie and Freddie loan programs. If fact the loans in the phony securities were beneath the standards Fannie and Freddie had for underwriting their loans.

I don’t think Fannie and Freddie programs, and the loans they underwrite, are a good use of taxpayer dollars. I just know that those loans didn’t cause the meltdown.

The Community Reinvestment Act forced private banks to give mortgages to people who were not creditworthy. Naturally the bankers found ways to game the system to their own advantage.

So how come none of those bank executives have been sent to prison for their crimes? Hint: They also gave copious campaign contributions to the politicians who were supposed to be regulating them.

Explain to me again how this was strictly a “private sector” problem.

If loans underwritten, bundled, and sold by Fannie and Freddie were the cause of the meltdown, then the institutions that bought the mortgage backed securities from Fannie and Freddie would be suffering insolvency.

Fannie and Freddie would be perfectly fine. They would have been the cause, but they would not be suffering financial hardship. They would not require a bailout.

The fact is that Fannie, Freddie, and a number of other institutions, bought worthless mortgage backed securities from the private sector. Those securities contained loans that didn’t have anything to do with Fannie and Freddie. That’s why Fannie and Freddie needed a bailout.

Republican House Vote on TARP

“Republicans 91 yea 108 nay”

There’s something to be said for this — but not much.

The Republican House leadership, Boehner and Cantor, supported it. The Republican House leadership is incompetent. Yet there has been NO challenge from other Republicans for the leadership positions.

Voting no on something your Whip has already told you will pass is not a profile in courage. Challenging the House Republican leadership is how you demonstrate you are principled.

A lot of Conservatives will be voting Republican this fall — but only to put a check on Obama. You can hardly get excited about a Speaker Boehner.