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Letter to the Editor

The Public Policy
By Peter Ferrara
Published 10/1/2008 12:08:01 AM
According to House Speaker Nancy Pelosi, the financial crisis is all due to the Bush Administration’s "right wing ideology of anything goes, no supervision, no oversight, no regulation."

But at a hearing in the House in 2004, now available in video on YouTube, the Republicans sought to expand supervision and regulation, over Fannie Mae and Freddie Mac. Federal regulators testified that the reckless financial practices of these two government-sponsored enterprises threatened the entire financial system. Republican after Republican called for a new regulatory authority to supervise Fannie and Freddie and impose standard bank regulation on them.

Franklin Raines, the former Clinton budget director who went on to serve as chairman and CEO of Fannie Mae, testified that the mortgage-related securities of these two organizations, which have now rocked the entire financial world, were "riskless." During his tenure, Raines criminally led Fannie Mae to falsify its books so that he would qualify for excessive bonuses and compensation eventually totaling million.

But the Democrats excoriated the Republicans for criticizing the wonderful practices of Fannie and Freddie that had been so successful in achieving their goals of affordable housing. The Republican concerns for safety and soundness were dismissed as trumped up efforts to frame the brilliant leadership of Mr. Raines, and said to show once again that Republicans don’t care about the middle class and the poor. Barney Frank, now chairman of the House Financial Services Committee, foolishly laughed off concerns over safety and soundness without offering any evidence to rebut these concerns. Instead, he shamefully led the Democrats in attacking the regulators, who had provided the evidence that Fannie and Freddie were increasingly threatening the safety and soundness of the entire financial system.

The following year John McCain was one of three co-sponsors of legislation to impose such regulatory supervision and controls over Fannie and Freddie. The Bush Administration supported this as well, in one of its four attempts to win legislative approval for such expanded regulatory authority. But the Democrats shouted these proposals down as an assault on affordable housing for the middle class and the poor.

So it was the Republicans who tried time and again to expand proper regulatory controls to prevent this crisis. And it was the Democrats who stopped them because such regulation threatened their policy of turning Fannie and Freddie into welfare programs. It is Chairman Barney Frank, not SEC Chairman Chris Cox, who should resign for his shameful and stupid role in creating this crisis. And if Franklin Raines is not prosecuted and sent to prison for his naked thievery, then we must let all of the Enron convicts out of jail and issue them a national apology.

Apart from this, there is no other instance in which deregulation or lack of regulation played any significant role in the current crisis. Just what "no regulation" was Nancy Pelosi talking about? Does she want the government to stare over the shoulders of all lenders and tell them what loans they can make and what loans they can’t? Going all the way back to the Community Reinvestment Act of 1977, it is the government led by the Democrats and their "affordable housing" policies that have imposed increasingly onerous regulations on lenders, forcing them to make shaky loans to increasingly dubious borrowers on increasingly lax terms, and it is the failure of precisely these loans that is at the root of the current crisis. These are the people that are now going to save us with wise, judicious supervision and regulation?

On exactly what issue is Nancy Pelosi any more knowledgeable than Sarah Palin? Pelosi can’t nearly match Palin’s expertise on energy policy, nor Palin’s record in cutting taxes and spending. In over 20 years in Congress, the ultra-left San Francisco Democrat has distinguished herself only in the mindless repetition of brain dead political propaganda, such as we saw at the beginning of this commentary.

The Democrats have assailed former Senator Phil Gramm for leading the repeal of the Glass-Steagall Act in 1999. But repeal of that outdated regulatory relic from the 1930s, which sought to separate commercial banking from investment banking, has played no role in this financial crisis. Even Clinton’s Treasury Secretary Robert Rubin has said as much. Indeed, exactly to the contrary, repeal of Glass-Steagall has been a major factor helping to counter the crisis. It is precisely that repeal that allowed Bank of America to buy out Merrill Lynch, JP Morgan to buy out Bear Stearns, and Barclays Bank to work on buying up the remains of Lehman Brothers. This silly charge is just old, Soviet style propaganda, completely divorced from reality, calculated to mislead the gullible

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