Economy & Budget

Clinton-Appointed Raines Has Ties to Fannie Mae, Obama

Now that the Obama attack ads are falsely accusing the Bush Administration and the Republicans of causing the current financial crisis, it’s important to set the record straight over exactly how this dodgy home loan program — and its run-on domino toppling of the nation’s biggest banks and investment banks — began. And, yes, it’s once again the Democrats’ fault. Surprised?

The story is, as usual, one of government manipulation of the free-market.

Before President Clinton and the Democrats in Congress intervened, the home mortgage business was healthy and stable, and housing prices were gradually rising in tune with the overall market (driven, of course, by the gradual increase in the money supply by the Federal Reserve, otherwise known as “monetary inflation”).

Here’s what happened.

On November 12, 1999, President Clinton repealed the Glass-Steagall Act, which for 55 years had prevented banks, the nation’s lenders, to get into the so-called “investment banking” business (stock brokers). With lots of pressure in Congress by the Democratic members of the New York contingent, the Senate and House caved in and trashed a law which had provided stability in both the banking industry and on Wall Street.

What follows next reads like a third-rate screen play.

Banks jumped into the fray, and, encouraged by the Wall Street Democrats, began buying up and merging with Investment Banks, swapping assets, creating new loan “instruments” and weakening both independent systems.

Also in 1999, Clinton appointed Franklin Delano Raines, a Harvard Law School graduate and his Director of the U.S. Office of Management and Budget (OMB), to become the CEO of the obscure but powerful Fannie Mae giant GSE (Government Sponsored Enterprise), which had been “privatized” and listed on the New York Stock Exchange.

Mr. Raines immediately went to work lobbying Congress for less regulation and more “flexibility” in creating the massive dodgy-loan portfolio of under-qualified home loans to fellow minorities which would continue to grow and was encouraged by Barney Frank, another former Democrat & Harvard Law School graduate who now heads up the House Financial Services Committee — which has key oversight over both Fannie Mae and Freddy Mac.

The good results of Mr. Raines’ efforts soon became apparent.

On December 21, 2004, Raines accepted what he described as “early retirement” from his position as Fannie Mae’s CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, has now accused him of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.

Then, in 2006, the OFHEO filed suit against Raines in order to recover the $50 million in personal payments made to Raines based on Fannie Mae’s overstated earnings which were initially stated to be $9 billion but have since been reduced to under $6.3 billion.

Undeterred, Mr. Raines now works for another Harvard Law School graduate, Mr. Barack Obama’s presidential election campaign — as an advisor on mortgage and housing policy matters.

Meanwhile, continuing pressure by the New York Democratic Congressional caucus encouraged both retail banks and the new mortgage subsidiaries of investment banks to also make home loans to less qualified borrowers (read: low income, poor-credit, deadbeat, and undocumented liars) — if they wanted to continue to be able to benefit from light supervision and aggressive merger and acquisition practices.

By the end of the ’90s, no less than nine separate, independent, and uncoordinated Federal Regulators had been created by Congress. These agencies included the SEC, CRTC, Controller of the Currency, Treasury, FRB and OFHEO, among others. They would poorly supervise what Clinton had now given birth to: a jungle of speculators, favor-seeking financial lobbyists, and Democrat-dominated Wall Street organizations who duly poured millions of dollars of contributions into Democrat coffers for the Congressional and Presidential elections.

By the time that “Securitization” of home loans (Fannie Mae began to convert its original business of making mortgages to creating packages of home loans that it could sell off as safe investments on Wall Street) began to grow, the Democrat Senators and Representatives cheered the wonders of the new-found ability of America’s financial community to enable the poorest and least-qualified of their voters to finally be able to own their own homes.

U.S. home ownership, averaging around 65% for 50 years, suddenly jumped up to almost 70% — and the housing construction sector took that cue to start building even more houses on spec, knowing that they would soon be bought using doggy loans.

Fixed rate mortgages gave way, under encouragement by the legislators, to so-called variable-rate ARMS and low-initial-entry-cost loans (“sharks”).

In 1998, Senator Chuck Schumer of New York was elected. He now serves on both the Finance, and the Banking, Housing & Urban Affairs Committees, and is the Chairman of the powerful Housing, Transportation and Community Development Sub-committee. He also graduated from Harvard Law School.

After the sub-prime mortgage industry began its meltdown in March 2007, Schumer proposed a bailout by the Federal Government of sub-prime borrowers — ostensively to prevent these poor-credit owners from losing their homes. Financial commentators immediately observed that such a “bailout” would primarily benefit Wall Street bankers and other lenders — who had made large campaign contributions to congressmen. (Schumer’s
nine biggest campaign donors are financial institutions — who had contributed over $2.5 million to his re-election campaign.)

As the recent Indy-Bank collapse occurred, CNBC financial analyst Jerry Bowyer said that “Schumer was responsible for the second largest bank failure in US history.”

The final invention of the new-world-order of funny money was the “Credit Default Swap”, a derivative instrument which resembles an insurance policy but, in fact, can be used to magnify raw speculation profits — and down side risks — and was, ahem, generously exempt from regulation or even transparency.

The conditions had been set for a gigantic credit collapse and subsequent financial world meltdown which is continuing as we write. All from a simple idea to “help the little people” — who would show their appreciation by re-electing the Democrat politicians who were the vocal cheerleaders (and recipients of gobs of doggy-lender re-election campaign funds).

So the pattern becomes clear. Harvard Law School attorneys — noted for their lack of economic knowledge — create an easy-money system which relies on flakey loans provided by fat-cat financial manipulators who are the primary contributors to the re-election campaigns of the legislators — almost exclusively Democrats.

But this makes sense.

Demographers have shown that since the 1940s, the Democratic Party has segued from the party of the working middle class to the party who’s voters look like a double-hump camel: they are either the poor who vote for entitlements or the extremely wealthy millionaires and billionaires who provide the “juice” to buy the allegiance of the first group.

Meanwhile, the Republicans have morphed from the fat-cats (who are all mostly Democrats now — see the Obama campaign donation records at www.fec.gov) to the party of the working and middle class which saw landslide support for an ex-union-leader and Democrat-turned-Republican, Ronald Reagan.

The solution is simple: the Democratic Party in control of the Senate and House needs to get back to its roots and stop being co-opted by the world’s wealthiest — and financially manipulative — Wall Street “titans”.

A return to the values of the small business owner would be a good start: hard work and personal savings, not get-rich-quick (like the Democrat-voting dot.com billionaires). Small business is the real growth engine of the American economy, and these “mom and pop” shops employ the majority of our citizens.

This may be more difficult than it seems, however. Small business owners strongly empathize with people like Gov. Sarah Palin and her fishing-boat husband, not Joe Biden, another attorney who turned professional politician one year out of law school, in 1969.

So what’s next?

The U.S. Government will create a Resolution Trust Company to temporarily take over the perhaps $1 trillion doggy-loan portfolios of the nation’s lenders and free up the grid-locked system to start inter-bank lending again so the free-market economy can continue to grow. This “New RTC” will eventually dispose of its portfolio — hopefully, as before, at a profit for the taxpayer.

A centralized regulator, most likely the Federal Reserve, will subsume most of the other eight regulators. Regulations which worked for decades, like Glass-Steagall, the up-tic sell rule and sound-accounting regulations may be restored.

And maybe, Congress will remove its addiction to the Wall Street money re-election game. Without the latter, of course, we can expect to see another, worse, financial fiasco in the next decade or two.

Since our fiat dollar currency is now only backed by the “faith and credit” of the United States” (there isn’t any politician-proof gold or silver backstopping this fiscal house-of-cards, Kennedy & Nixon killed them off), it’s inevitable. We’ll see.

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