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Rove runs with thoroughly debunked claim that Fannie, Freddie caused "worldwide calamity"And Other Right Wing Myths






Conservative
and other media figures, echoing a reported strategy on the part of
Republicans, have attempted to deflect blame
for the financial crisis onto proponents
of the expansion of affordable housing and
legislation and institutions created to effect that expansion.



Newsweek senior editor Daniel Gross wrote in an October 7 Slate commentary:




On the
Republican side of Congress, in the right-wing financial media (which is to say
the financial media), and in certain parts of the op-ed-o-sphere, there's a
consensus emerging that the whole mess should be laid at the feet of Fannie Mae
and Freddie Mac, the failed mortgage giants, and the Community Reinvestment
Act, a law passed during the Carter administration. The CRA, which was amended
in the 1990s and this decade, requires banks -- which had a long, distinguished
history of not making
loans to minorities -- to make more efforts to do so.




Recent attacks have turned personal, with
conservative media -- along with congressional Republicans and Sen. John McCain
-- targeting Rep. Barney Frank (D-MA) directly as a purported culprit in the
financial crisis, falsely representing his decades-long advocacy of increased
affordable housing as advocacy of lax oversight over Fannie and Freddie.



The attacks are premised on several myths
and falsehoods and, in the case of CRA
and attacks on minority lending, have taken on a racial tinge.






MYTH: The
1977 Community Reinvestment Act forced lenders into irresponsible lending



In a September 28 Boston Globe column,
Jeff Jacoby asserted:




The
roots of this crisis go back to the Carter administration. That was when
government officials, egged on by left-wing activists, began accusing mortgage
lenders of racism and "redlining" because urban blacks were being
denied mortgages at a higher rate than suburban whites.



The
pressure to make more loans to minorities (read: to borrowers with weak credit
histories) became relentless. Congress passed the Community Reinvestment Act,
empowering regulators to punish banks that failed to 'meet the credit needs' of
'low-income, minority, and distressed neighborhoods.' Lenders responded by
loosening their underwriting standards and making increasingly shoddy
loans."




Jacoby is not alone in his reference to "minority"
lending. On
the September 18 edition of Fox News' Your
World
, host Neil Cavuto asked Rep. Xavier Becerra (D-CA),
"[W]hen you and many of your colleagues were pushing for more minority
lending and more expanded lending to folks who heretofore couldn't get
mortgages, when you were pushing homeownership ... Are you totally without
culpability here?" Cavuto later said, "I'm just saying, I don't
remember a clarion call that said, 'Fannie and Freddie are a disaster. Loaning
to minorities and risky folks is a disaster.' "



But the suggestion that the financial
crisis was caused by banks lending irresponsibly to comply with the CRA
is widely discredited. According to housing experts,
a large number of subprime loans were not made under the CRA, which
applies only to depository institutions. A study released earlier
this year by a law firm specializing in CRA compliance estimated
that in the 15 most populous metropolitan areas, 84.3 percent of subprime loans in 2006 were made
by financial institutions not governed by the CRA. Moreover, Janet Yellen,
president and CEO of the Federal Reserve Bank of San Francisco, stated in a
March 2008 speech
that "studies have shown that the CRA has increased the volume of responsible
lending
to low- and moderate-income households"
[emphasis added].



In testimony before the House Financial
Services Committee, University of Michigan law professor Michael Barr stated:




Despite the fact that
CRA appears to have increased bank and thrift lending in low- and
moderate-income communities, such institutions are not the only ones operating
in these areas. In fact, with new and lower-cost sources of funding available
from the secondary market through securitization, and with advances in
financial technology, subprime lending exploded in the late 1990s, reaching
over $600 billion and 20% of all originations by 2005. More than half of
subprime loans were made by independent mortgage companies not subject to
comprehensive federal supervision; another 30 percent of such originations were
made by affiliates of banks or thrifts, which are not subject to routine
examination or supervision, and the remaining 20 percent were made by banks and
thrifts. Although reasonable people can disagree about how to interpret the
evidence, my own judgment is that the worst and most widespread abuses occurred
in the institutions with the least federal oversight.



The housing
crisis we face today, driven by serious problems in the subprime lending,
suggests that our system of home mortgage regulation, including CRA, is
seriously deficient. We need to fill what my friend, the late Federal Reserve
Board Governor Ned Gramlich aptly termed, "the giant hole in the
supervisory safety net." Banks and thrifts are subject to comprehensive
federal regulation and supervision; their affiliates far less so; and
independent mortgage companies, not at all. Moreover, many market-based systems
designed to ensure sound practices in this sector-broker reputational
risk, lender oversight of brokers, investor oversight of lenders, rating agency
oversight of securitizations, and so on -- simply did not work. Conflicts of
interest, lax regulation, and "boom times" covered up the extent of
the abuses -- at least for a while, at least for those not directly affected by
abusive practices. But no more.




Others who have
advanced this or similar claims include
guest Jonathan
Hoenig
during the September 25 edition of The Radio Factor with Bill O'Reilly, radio host Laura
Ingraham during the September 25 edition of Fox News' The O'Reilly Factor, and a September 25 Investor's Business Daily editorial claiming that the CRA "forced banks to make many more subprime
loans."






MYTH: Excessive lending to
undocumented immigrants is responsible for the financial crisis



On the October 9 edition of CNN's Lou Dobbs Tonight, San Diego radio host Roger
Hedgecock claimed that "[w]e have a situation where today HUD [the Department
of Housing and Urban Development] was talking about 5 million illegal alien
home mortgage loans that have gone bad." Radio host Joe Madison responded,
"You see, this really angers me, because I'm sitting here ... and
wondering, how is it that people who are illegal get loans when people in my
community who are legal have a difficulty getting loans, and if they do get
them, they're often from predators?" Neither Hedgecock nor Madison cited
a source for the purported HUD statistic. On October 9, the Drudge Report
linked to an article on the Phoenix
radio station KFYI website under the headline, "HUD: Five
Million Fraudulent Mortgages Held by Illegals..." However, according to
an October 9 Phoenix Business Journal
article posted at 3:15 pm
MT (more than an hour before Lou Dobbs
Tonight
aired), HUD "says there is no basis to news reports
that more than 5 million bad mortgages are held by illegal immigrants"
and "a HUD spokesman said ... his agency has no data showing the
number of illegal immigrants holding foreclosed or bad mortgages."



Other media figures advancing the claim
that lending to undocumented immigrants is responsible for the mortgage crisis
include syndicated columnist Michelle Malkin, who wrote in her September 24
column that "there's one giant paternal elephant in the room that
has slipped notice: How illegal immigration, crime-enabling banks, and
open-borders Bush policies fueled the mortgage crisis.






MYTH: Congressional Democrats,
led by Barney Frank, opposed
strengthening oversight
over Fannie and Freddie



In a September 18 column,
Fox News host Bill O'Reilly falsely claimed that Frank
"sat by as mortgage brokers Fannie Mae and Freddie Mac made bad
loans" and asserted that "[i]nstead of demanding responsible business
practices from Fannie and Freddie, Frank continued to pound the table to extend
even more credit to 'low income' families." In fact, Frank did not
"s[i]t by." Frank's efforts to enhance regulatory oversight on Fannie
Mae and Freddie Mac include:



  • In
    2005, Frank, then the ranking Democrat on the House Financial Services
    Committee, worked with committee chairman Rep. Michael Oxley (R-OH) on the
    Federal Housing Finance Reform Act of 2005, which would have established
    the Federal Housing Finance Agency (FHFA) to replace the Office of Federal
    Housing Enterprise Oversight (OFHEO) as overseer of the
    activities of Fannie Mae and Freddie Mac. After voting
    for the bill in committee, Frank voted
    against final passage of the bill on the House floor, stating
    that he was doing so because an amendment
    to the bill on the House floor
    imposed restrictions on the kinds of nonprofit organizations that could receive
    funding under the bill.

  • In
    early 2007, as chairman of the House Financial Services Committee, Frank sponsored H.R. 1427,
    a bill to create the FHFA, granting that agency "general supervisory and
    regulatory authority over" Fannie Mae and Freddie Mac, and directing it to
    reform the companies' business practices and regulate their exposure to credit
    and market risk. Among other things, Frank's legislation, titled the "Federal Housing
    Finance Reform Act
    of 2007," directed
    the FHFA director to "ensure" that Fannie Mae and Freddie Mac
    "operate[] in a safe and sound manner, including maintenance of adequate
    capital and internal controls" and to establish
    standards for "management of credit and counterparty risk" and "management
    of market risk." The FHFA was eventually created after Congress
    incorporated provisions
    that House Speaker Nancy Pelosi (D-CA) said
    were "similar"
    to those of H.R. 1427 into the Housing and Economic Recovery Act of 2008, which
    the president signed into law on July 30.

Some in the conservative media have taken the
charge further, suggesting that in the 1990s, Frank allowed his relationship
with Fannie Mae executive Herb Moses to affect his responsibility as a senior
member of the House Financial Services Committee to conduct oversight over Fannie Mae. For
example, in an October 3 article, Fox
News deputy Washington Managing editor Bill Sammon asserted, in a charge he
later echoed on Fox News' The
O'Reilly Factor
, "Unqualified home buyers were not the
only ones who benefitted from Massachusetts Rep. Barney Frank's efforts to
deregulate Fannie Mae throughout the 1990s. So did Frank's partner, a Fannie
Mae executive at the forefront of the agency's push to relax lending
restrictions."



In his article, however, Sammon cited only two
sources: an anonymous Republican congressional staffer and Dan Gainor, who,
Sammon did not note, is an employee of the conservative Media Research Center.
Moreover, Sammon misrepresented Frank's record by reporting in his article that
Frank "spent years blocking GOP lawmakers from imposing tougher
regulations" on Fannie Mae and Freddie Mac. Sammon did not note in his
article or during an October 6
appearance on The O'Reilly Factor
that in the early 1990s, while Frank's Democratic Party still held the
majority in Congress, and while Moses was at Fannie Mae, Frank supported bills
to increase
regulation of Fannie Mae and create a government regulatory agency that would
supervise and have authority over some aspects of the company:



  • On
    September 30, 1991, Frank voted for
    a bill
    to create a new regulatory agency to oversee Fannie and Freddie that would have
    "[r]equire[d] the [agency's] Director to establish by regulation a
    risk-based capital test for the enterprises," "[r]equire[d] the
    Director to establish risk-based capital levels for each enterprise according
    to statutory guidelines," "[e]stablishe[d] minimum capital levels,
    critical capital levels, and enforcement levels," and "[s]et[] forth
    mandatory supervisory actions for the enterprises at various capital levels,
    including mandatory conservatorship."

  • In
    October 1992, Frank voted for
    the Housing and
    Community Development Act of 1992
    , creating OFHEO, which was
    tasked with "ensur[ing] that Fannie Mae and Freddie Mac (the enterprises)
    and their affiliates are adequately capitalized and operating safely." As
    with the bill Frank voted for in September 1991, the new law gave OFHEO
    authority to set, monitor, and enforce risk-based capital requirements for
    Fannie and Freddie.

Neal
Boortz also
advanced this claim about Frank and his former partner during the October 8 edition of his
nationally syndicated radio show. On October 8, The Wall Street Journal reported that "[a] conservative political organization will begin airing
nationwide TV advertisements Wednesday that criticize congressional Democrats
for their ties to mortgage giants Freddie Mac and Fannie Mae."






MYTH:
Fannie Mae and Freddie Mac caused the "current financial mess"



In a September 19 Huffington Post blog post,
Center for American Progress senior fellow David Abramowitz wrote:




"There must be a
Republican playbook circulating widely with a chapter entitled, 'What to
say if asked who's to blame for the foreclosure mess.' Because an awful
lot of Republican candidates are all suddenly yelling 'Fannie Mae, Fannie
Mae, Fannie Mae' whenever plunging home prices and the housing crisis
comes up. [...] So their plan seems to
be to chant Fannie Mae often and loudly enough, and hope the public will get
confused about who really caused this huge national calamity. It is always a
good political story to just blame a bad guy who has something to do with the
same topic.




Indeed, during the September 24 edition of Fox News' Special Report, host
Brit Hume said, "Many
financial analysts are saying that if mortgage giants Fannie Mae and Freddie Mac
had been effectively regulated years ago, the supercharged subprime mortgage
meltdown that led to the current financial mess would either never have
happened or would have been nowhere near as severe." But rebutting the suggestion that the
subprime mortgage purchasing activities of Fannie Mae and Freddie Mac caused
the "current financial mess," economist Dean Baker recently stated:




Fannie and Freddie got
into subprime junk and helped fuel the housing bubble, but they were trailing
the irrational exuberance of the private sector. They lost
market share in the years
2002-2007, as the volume of private issue mortgage backed securities
exploded. In short, while Fannie and Freddie were completely
irresponsible in their lending practices, the claim that they were
responsible
for the financial disaster is absurd on its face -- kind of like the
claim that
the earth is flat.




Indeed, in a 2006 Securities and Exchange
Commission filing (available here)
covering its activities in 2004, Fannie Mae stated: "We did not
participate in large amounts of these non-traditional mortgages in 2004 and
2005." In the report, Fannie Mae also noted the growth of subprime lending
and reported, "These trends and our decision not to participate in large
amounts of these non-traditional mortgages contributed to a significant loss in
our share of new single-family mortgage-related securities issuances to
private-label issuers during this period."



Gross wrote in Slate that Fannie Mae and Freddie Mac were an
"integral part" of a "culture of stupid, reckless
lending." But, he wrote, they are not the primary culprits in the current
financial crisis. He wrote:




Investment banks created a
demand for subprime loans because they saw it as a new asset class that they
could dominate. They made subprime loans for the same reason they made other
loans: They could get paid for making the loans, for turning them into securities,
and for trading them-frequently using borrowed capital.




As an example, he noted that the following happened during
testimony by Lehman Brothers CEO Richard Fuld before the House Committee on
Oversight and Government Reform:




At Monday's hearing, Rep.
John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie.
After comparing Lehman's small political contributions with Fannie and
Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's
failure played in Lehman's demise. Fuld's response:
"De minimis."




From Fuld's testimony:




MICA: And one of your big com -- well, one of the big packagers, or the competitor, so to speak, was Fannie
Mae, which was deep into this.
And you were -- you were dealing in some
of the paper, I think, for secondary markets and other securitized mortgage
paper, to basically package it and make money off it. Is that right?



FULD: Yes, sir.



MICA: What was Lehman
Brothers' exposure to the debt of Fannie Mae and Freddie Mac, and what
role did their collapse play in precipitating some of your financial troubles?



FULD: Our --



MICA: It
didn't matter or you --



FULD: Our exposure to both Fannie
Mae and Freddie Mac was de minimis,
sir.







MYTH: Sen. Barack Obama's campaign has significantly more
ties to Fannie Mae and Freddie Mac than does John McCain's



In articles about the presidential candidates'
responses to the economic crisis, the Associated Press,
the Milwaukee Journal Sentinel,
the San Francisco
Chronicle
, and The Washington Post
reported that the McCain campaign criticized Sen. Barack Obama for, in the
words of McCain spokesman Tucker Bounds, "his ties to spiraling lenders
like Fannie Mae, Freddie Mac and their jet-set CEOs." But those articles
did not note that several senior McCain campaign aides have served as lobbyists
for Fannie Mae, Freddie Mac, or both. According to a Media Matters for America search of the Senate
Office of Public Records' Lobbying Disclosure
Act Database
, they include:



  • Political
    adviser Charlie Black, who lobbied for Freddie Mac from 1999 to 2004;

  • National
    finance co-chairman Wayne Berman, who lobbied for Fannie Mae from 2004 to 2008
    and for Freddie Mac in 2004;

  • Congressional
    liaison John Green, who lobbied for Fannie Mae from 2004 to 2007 and for
    Freddie Mac in 2003;

  • Arthur
    Culvahouse, who reportedly
    headed McCain's vice-presidential search team, lobbied for Fannie Mae in 1999,
    2003, and 2004; and

  • William
    E. Timmons Sr., who reportedly
    "has been tapped by the McCain campaign to conduct a study in preparation
    for the presidential transition," lobbied for Freddie Mac from 2000 to
    2008.

Additionally, several
media
outlets
have reported that McCain campaign manager Rick Davis previously served as
president of the Homeownership Alliance, a Washington-based advocacy group
whose founding members included Fannie Mae and Freddie Mac, which Media Matters has noted.






MYTH:
Democrats sought to divert funding in the Emergency Economic Stabilization Act
to ACORN



On the September 29 edition
of CNN's Lou Dobbs
Tonight
, host Lou Dobbs claimed: "ACORN
[Association of Community Organizations for Reform Now] stands to reap hundreds
of millions of dollars from a government bailout of Wall Street." Dobbs
added later: "This is a straightforward deal for ACORN and other groups,
left-wing groups, set up by the Democratic leadership of Congress. They're not
interested in the bailout per se. They want to spread this out, and many people
believe that this bailout in part is dear to the Democratic leadership because
they want to advance a social agenda here as much as much as an economic
bailout of Wall Street." Numerous other media figures also reported the false claim that
Democrats were trying to steer money to ACORN. In fact, neither the draft proposal nor the final version
of the bill contained any language mentioning ACORN. Those making the false
claim were misrepresenting a provision -- since removed
-- that would have directed 20 percent of any profits realized on troubled
assets purchased under the plan into two previously established funds: the
Housing Trust Fund and the Capital Magnet Fund, which, under the law authorizing
them, distribute funds through state block grants and through competitive
application processes, respectively.



On the October 9 edition of Fox
News' Hannity & Colmes,
Wall Street Journal columnist
John Fund similarly made
the false claim that ACORN "almost got a slush fund in the housing bailout
bill a few weeks ago."






MYTH:
Former President Clinton has blamed Democrats for the financial crisis



In a September 30 post on Time.com's
Swampland blog, Washington bureau chief Jay
Carney claimed that comments former
President
Bill Clinton made during a September 25 interview on ABC's Good Morning America that were
subsequently featured in a McCain campaign ad "could
undercut Democratic arguments that Bush and the Republicans are primarily
responsible" for the financial crisis.
During that interview, Clinton said, "I
think the responsibility that the Democrats have may rest more in resisting any
efforts by Republicans in the Congress or by me when I was president to put
some standards and tighten up a little on Fannie Mae and Freddie Mac." But
in reporting on the ad, Carney failed to point out that in the very same
interview, Clinton also said, "I think the biggest mistake, by the way,
that contributed to the current circumstance that almost nobody talks about, is
the repeal after decades of something called the uptick rule, which allowed the
hedge funds, heavily leveraged, and others to just drive down the market
without any kind of automatic stoppers." In a separate interview aired
that day with Matt Lauer, co-host of NBC's Today, Clinton stated of the financial situation:
"[T]his thing really took off when the SEC, under this administration,
exercised less oversight and they got rid of something called the uptick rule,
which enabled betting down on housing stocks to go crazy."



The uptick rule, which was created in
1938, was a securities trading rule that regulated market short selling, the act of selling
a stock that an investor does not own (but borrows from a broker or someone
else) in anticipation that the stock's price will decrease. After a June 13,
2007, decision that became effective July 3, 2007, the SEC issued a final rule that repealed the
uptick rule.



From C-SPAN's October 6 coverage of the House
Oversight Reform Committee:




MICA: Again, you
-- when you opened your statement, you said that Lehman Brothers -- and it was
around for what, 150 years --
dealt in some pretty hard assets and some secure investments. You've been around a
while. What turned the corner for you to get into some of the more speculative
ventures, like subprime and some of the other, again, riskier investments?



FULD: As I said in my verbal
testimony, our participation in the mortgage-related businesses was clearly a
natural for us, given
our dominance in fixed income. That was something that went back a number of
years.



And even as I listened, as I say, to
the panel before me, they correctly pointed out that this was a goal of the
government to provide funding and mortgages to a number of people that
typically would not or could not have received a mortgage.



MICA: And one of your big com -- well, one of the big packagers, or the competitor, so to speak, was Fannie
Mae, which was deep into this.
And you were -- you were dealing in some
of the paper, I think, for secondary markets and other securitized mortgage
paper, to basically package it and make money off it. Is that right?



FULD: Yes, sir.



MICA: What was Lehman
Brothers' exposure to the debt of Fannie Mae and Freddie Mac, and what
role did their collapse play in precipitating some of your financial troubles?



FULD: Our --



MICA: It
didn't matter or you --



FULD: Our exposure to both Fannie
Mae and Freddie Mac was de minimis,
sir.



MICA: OK, but their collapse -- did that help precipitate
any problems with your firm?



FULD: It certainly set the stage for
an environment, as I talked about loss of confidence and credit-crisis
mentality that permeated our market, clearly set the stage for investors losing
confidence, counterparties asking for additional collateral, and clearly an
environment that lost liquidity --



MICA: I notice you --



FULD : -- which is the
lifeblood of the capital market system.




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Opinions

  • Mrs. V 2010/01/23 03:45:55
    Mrs. V
    I have first hand experience with the CRA. My Dad's bank was forced to make loans to those with no credit whatsoever. They were told they could face penalties if they denied loans to those specified in the CRA. That was in the late 70's during Jimmy Carter's Presidency.

    What happened is that all the large banks bundled those mortgages and sold them as a financial product.
    The banks just passed on the problem to someone else.

    By forcing banks to make loans to those who had no means to pay them back, the government becomes responsible for the problem.
  • Magus BN-0 2010/01/18 02:50:56
    Magus BN-0
    What do you expect Rove to do? Admit that his own agenda of deregulation is the problem rather than the solution? That would require him to tell the truth and we all know he can't do that.
  • rustythawts 2010/01/17 14:19:24
    rustythawts
    The overriding fact is "Fannie Mae" and "Feddie Mac" WERE late arrivers to the orgy - of which the champagne started flowing officially when Pres. Clinton signed a bill (in the mid 90's - think 94?), that legalized "derivatives BETTING" on mortgages. Rove is just doing his job as "spin twister".
  • Cheri 2010/01/17 05:09:42
    Cheri
    +1
    I think a problem is these guys do not understand the fact that the world wide web is
    many things and one of those things is a long memory of recorded documentation.
    Some will even deny they said something that others can pull up pretty quickly to confront them with.
  • Ben Jammin Cheri 2010/01/17 05:11:11
    Ben Jammin
    Exactly!
  • Cheri Ben Jammin 2010/01/17 05:15:59
    Cheri
    It is actually very telling when you think about it. They were so accustomed to never
    being challenged that they think denying a thing is sufficient. I guess because they
    think the average American knows even less than they do. That was an error. It
    appears the average third grader is more computer literate than they are.

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Ben Jammin

Ben Jammin

MD, US

2010/01/06 15:18:10

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