The Blog @ Spolitics

In 2003, Bush Proposed Stricter Regulation for Fannie and Freddie. Democrats Opposed It.

by Heywood U. Reedmore -- September 16, 2008 at 12:22 pm | In 2008 Election | 2 Comments

Ed Morrissey cites a five-year-old New York Times article that describes how the Bush Administration saw the housing crisis forming on the horizon and tried to do something about it. Remember, this is from September 11, 2003:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken.

But the Democrats were worried this would make it more difficult for lower income families to buy homes they couldn’t afford.

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

“I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

And of course now Barack Obama and the Democrats are trying to blame Bush for the mess and accusing lenders of taking advantage of lower-income families when it was the Democrats who were pushing these loans in the first place.

The current mess is not the result of a laissez-faire attitude as Barack Obama claims. It’s the result of too much government meddling.

Update: Larry Kudlow makes the case:

Obama is on the campaign trail predictably charging that a lack of regulations during the Bush era is responsible for the current mess. But he’s misreading history. As George Mason economist Tyler Cowen wrote in the New York Times, one of the problems with the U.S. financial system is not a lack of regulation, but a lack of smart and effective regulation.

During the Bush years, financial regulations increased exponentially, beginning with the misbegotten Sarbanes-Oxley act. That put accountants and lawyers in the driver’s seat rather than entrepreneurs. And it turns out that neither the Fed, the FDIC, the Comptroller of the Currency, nor the SEC properly supervised high-risk leveraged borrowings and the capital-adequacy ratios necessary to safeguard against losses.

A little later:

Then there’s Congress, led by Democrats in the last two years and Republicans before that, which mandated substandard lending to low-income groups. And as the high-risk loans mounted, this very same Congress — under the gun of political contributions — continued to promote the excesses of lenders, including Fannie Mae and Freddie Mac.

Update: Pelosi refuses to take any responsibility.