By MEPimm - September 25, 2008, 5:01PM
A pattern has emerged in recent days that reveals a nasty narrative the right is using to distort the cause of the financial crisis and lay the blame on "too much Government" rather than "too little regulation."
The culprits? Fannie Mae, Freddie Mac, and poor people who didn't pay their mortgages.
The accomplices? Corrupt Democrats and their cronies who wasted government money by buying votes from poor (read minority) voters who had no business buying a house in the first place.
Accomplices after the fact? Wall Street tycoons who profited from the Government largess.
The fact that the mortgages Freddie and Fannie back are good (sub-prime is by definition a mortgage too risky for Fannie and Freddie to take on directly) is immaterial to this narrative.
The goal is to shield the root causes which have much more to do with lack of regulatory oversight over exotic investments derived from sub-prime-mortgage backed securities. It was the derivatives like Credit Default Swaps that compounded the problems. They multiplied the risks exponentially by spreading unsustainable debt obligations throughout the financial system and it was these instruments (characterized by Warren Buffet as "weapons of financial mass destruction") that poisoned the markets.
Fannie and Freddie were, indeed, mismanaged but the problems lay not in their role in helping people secure mortgages but in the reckless way they speculated in the markets to boost their profits.
As distasteful the lobbying and horse trading that protected Fannie Mae and Freddie Mac's management from proper oversight - those crimes pale in comparison to the deregulatory zeal of the right and the blindness to the danger by the Fed under Greenspan. Freddie Mac and Fannie Mae are symptoms - not causes of this crises.
But not to hear the right tell it as can be seen from these excerpts below. Make no mistake this is a concerted effort by people determined to implement financial reforms that lessen regulatory oversight rather than strengthen it. (Witness Paulson's "wolf in sheep's clothing" regulatory reform proposals last March) The arguments below are the smokescreen that they hope will let them do it.
From John McCain
September 19 speech in Wisconsin
There are certainly plenty of places to point fingers, and it may be hard to pinpoint the original event that set it all in motion. But let me give you an educated guess. The financial crisis we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.
From President Bush’s Speech to the Nation on the Economic Crisis
September 24, 2008
Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.
Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
Aand finally the Economist today. (I have added emphasis to highlight what I consider to be the bias of the argument they are publishing as unbiased commentary.)
From The Economist
Sep 25th 2008
The battle to save the financial system has now become part of the presidential race
Both candidates tried to blame each other for the crisis. Mr Obama accused Mr McCain of obstructing unspecified “common-sense rules” that supposedly could have prevented it. Mr McCain fulminated about Mr Obama’s ties to Fannie Mae and Freddie Mac, the government-backed mortgage behemoths whose reckless shepherding of loans towards un-credit-worthy borrowers helped create the crisis. In 2005, Mr McCain supported a bill to curb Fannie and Freddie’s excesses. Mr Obama did not, and his party blocked it in the name of helping poorer Americans to own houses.
http://tpmcafe.talkingpointsmemo.com/talk/2008/09/scapegoating-freddie-and-fanni.php