I am currently reading Reckless Endangerment by Gretchen Morgenson and Josh Rosner. I highly recommend it. This book names names, exposes policies and schemes, and will make you very mad with all of politics of the current economic mess. It documents the role of James Johnson and his tenure at the head of FNMA (Fannie Mae) in the 1990s, and his role in the housing price collapse/financial crisis of 2008. It focuses on James Johnson, Senator Chris Dodd (D-CT), and Representative Barney Frank (D-MA).
The book does an excellent job of explaining their roles, but does not elaborately discuss the role of Senator Charles Schumer (D-NY), nor the connection between Barack Obama and James Johnson, Fannie Mae, and Freddie Mac. So let’s look at the roles of Obama and Schumer.
Prime versus Subprime
We need a concise definition of a prime loan and a subprime loan. I personally never knew that subprime loans referred to loan recipients rather than the loan itself, having heard all my life of the “prime rate.” Hopefully, these definitions will help.
How Did We Get Here?
Being familiar with how we got into this housing price and economic crisis can help explain the politics of the crisis. An article in the February, 2009, issue of The American Spectator, by Peter J. Wallison, does a good job of recapping the current economic crisis. In his article he had two very interesting observations: “The New York Times itself reported in 1999 that Fannie Mae and Freddie Mac were under pressure from the Clinton administration to increase lending to minorities and low-income home buyers – a policy that necessarily entailed higher risks.” and “The fact is that neither political party, and no administration, is blameless; the honest answer, as outlined below, is that government policy over many years caused this problem.” This article, though quite long, does a good job of summarizing the causes of this economic crisis.
Obama’s Connection to Fannie Mae
To understand Obama’s connection to Fannie Mae, we first need to meet James Johnson, head of Fannie Mae during the 1990s. As Morgenson and Rosner state, Johnson was an operator. Johnson (as David Brooks points out), through Fannie Mae, co-opted relevant activist groups, handing out money to ACORN, the Congressional Black Caucus, the Congressional Hispanic Caucus and other groups that it might need on its side. As Jerome R. Corsi writes, during his tenure at Fannie Mae, Johnson personally made $21 million in his last year. Fannie Mae made $100 million while supposedly helping the poor. So he and Fannie Mae had plenty of money to throw around. Couple that with the fact that Franklin Raines, Johnson’s successor at Fannie Mae, received a severance package of $19 million and a payment settlement of $2.6 million, and there is quite a bit of money to throw around.
So, having met James Johnson (and Franklin Raines), let’s explore the connection with Barack Obama, who promised us the most transparent administration in history. Let’s examine Johnson’s role in Obama’s campaign. Johnson was a member of “Friends of Hillary” (Clinton), but soon became a member of presidential campaign of Barack Obama. It’s likely that then senator Obama met Johnson through the Daley political machine in Chicago. Johnson and Chicago Mayor Richard Daley are said to be close. Regardless of how they met, the selection of Johnson to be a part of the inner circle seems to run contrary to Obama’s campaign theme of “change.” It’s also reported that Hillary Rodham Clinton and Obama have met at Johnson’s elegant home to discuss what lies ahead after Clinton quits. Clinton has denied such meetings took place, and Obama isn’t talking. Johnson represents Washington power. He’s the consummate insider – very rich, very connected, and very much behind the scenes.
Both Johnson and Raines raised quite a lot of money for Obama’s campaign. And we see that both Fannie Mae and Freddie Mac made campaign contributions to Obama. And Fannie Mae and Freddie Mac executives offered advice to Obama. Franklin Raines currently advises Obama on housing policy.
Top Recipients of Fannie Mae/Freddie Mac Campaign Contributions, 1989-2008
Are we beginning to see a pattern from Fannie Mae and Freddie Mac?
And here is another interesting table about “our president” from Open Secrets. Check out the very last entry in this table!
In September, 2008, Lehman Brothers filed for bankruptcy. And AIG, which collapsed in September, 2008, was bought (bailed out) by the Federal Reserve after an infusion of $85 billion. The Lehman Brothers collapse can be traced back to Fannie Mae and Freddie Mac. And the AIG troubles were also caused by bad bets it made insuring mortgage-backed securities bought from (you guessed it) Fannie Mae and Freddie Mac.
Fannie Mae’s and Freddie Mac’s mortgage lending policies were creations of the congressional Democrats and the Clinton White House, designed to make mortgages available to more people and, as it turns out, some people who couldn’t afford them. Obama’s campaign ads and speeches attack Senator McCain and Republican policies for the current financial turmoil. It is not Republican policy. Worse, it appears the man attacking McCain – Sen. Obama – was at the head of the line when the Democrats lined up at Fannie Mae and Freddie Mac for campaign contributions.
Schumer’s Connection to Fannie Mae
From a 27 January, 2010, article in the Wall Street Journal, we learn that New York senator Charles Schumer wanted the already failed Fannie Mae and Freddie Mac to guarantee low rent for tenants of a property on which the owner defaulted. Both Fannie Mae and Freddie Mac have been losing billions of dollars each quarter to serve President Obama’s political goal of modifying troubled mortgages. They can lose more by serving Mr. Schumer. Schumer said after Stuyvesant Town’s owners defaulted, “Now Fannie and Freddie must guide this process to a conclusion with the least amount of impact on current tenants and families. I am going to watch them like a hawk to make sure they do just that.”
We also see that Senator Schumer promoted an extension of housing subsidies and “No Money Down” mortgages backed by Fannie Mae in Nassau and Suffock counties in New York. Mr. Schumer’s press release states that “Raising the eligible income level slightly means a substantial number of struggling, hard-working families previously ineligible but no less deserving, will be able to get help in buying homes.”
From Senator Schumer’s own Internet web-site, we get this (dated 11 October, 2007): “U.S. Senator Charles E. Schumer (D-NY) today unveiled new legislation that would significantly enhance Fannie Mae’s and Freddie Mac’s ability to facilitate refinancings for U.S. homeowners on the brink of foreclosure.” He continues: “The new legislation strengthens a proposal first offered by Schumer in August and comes on the heels of a series of meetings Schumer has convened with Fannie Mae, Freddie Mac, and the pair’s regulator, the Office of Federal Housing Enterprise and Oversight (OFHEO).” He is quoted as saying: “This bill provides a lifeboat for the millions of homeowners left stranded by the Bush administration amid a sea of subprime turmoil,” said Schumer, the Chairman of the Joint Economic Committee and the Senate Banking Subcommittee on Housing. “The interest rates on two million home loans are due to increase radically, but the President won’t adjust his radical ideology. But that doesn’t have to be the last word now that Democrats in Congress are coming together to take steps the administration won’t.”
Where to Stop
The biggest problem I face is knowing where to stop! The more I research, the more I find. It’s all here – the Fannie Mae and Freddie Mac antics, the actions of Obama, Schumer, Dodd, and Frank in particular, and the entire Congress in general, the Wall Street financial banks, and the insurance companies. But scant attention was given to this economic and financial meltdown by the MSM until it became too big to ignore. So now we, the taxpayers, are forced by politicians to pay the price.
But that’s just my opinion.