Financial Turmoil - Who's to blame

Not who you're being led to believe:

With the financial sector in turmoil today, the media and the politicians have started throwing around blame with the same recklessness as lenders threw around credit to create the problem. Politically, the pertinent question is this: Which candidate foresaw the credit crisis and tried to do something about it?  As it turns out, John McCain did — and partnered with three other Senate Republicans to reform the government’s involvement in lending three years ago, after an attempt by the Bush administration died in Congress two years earlier.  McCain spoke forcefully on May 25, 2006, on behalf of the Federal Housing Enterprise Regulatory Reform Act of 2005 (via Beltway Snark):

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

In this speech, McCain managed to predict the entire collapse that has forced the government to eat Fannie Mae and Freddie Mac, along with Bear Stearns and AIG.  He hammers the falsification of financial records to benefit executives, including Franklin Raines and Jim Johnson, both of whom have worked as advisers to Barack Obama this year.  McCain also noted the power of their lobbying efforts to forestall oversight over their business practices.  He finishes with the warning that proved all too prescient over the past few days and weeks.

The rest is worthy... and educational.

Pass it around people.

Comments

[tim aka The Godless Heathen]

“Lehman Brothers’ collapse is traced back to Fannie Mae and Freddie Mac, the two big mortgage banks that got a federal bailout a few weeks ago. Freddie and Fannie used huge lobbying budgets and political contributions to keep regulators off their backs. A group called the center for responsive politics keeps track of which politicians get Fannie and Freddie political contributions. The top three U.S. Senators getting big Fannie and Freddie political bucks were democrats and number two is Senator Barack Obama.”

Now, remember, he has only been in the Senate four years but still managed to grab the number two spot ahead of John Kerry, decades in the senate, and Chris Dodd who is chairman of the senate banking committee.”

Yup, there’s some change right there. Compare that what McCain saw coming and what he tried to do to prevent all this. The contrast couldn't be more stark.

This election shouldn’t even be close if people knew about and/or understood this.

[Babs Ryan]

The people at the top at these failing companies are to blame. Poor decision-making by the top brass, not just the CEO. Read the new business book "America's Corporate Brain Drain" (www.braindrain.BIZ) which predicted these companies were about to crumble and the press release "Why America's Goliath Companies are Collapsing" at
http://www.prweb.com/releases/2008/9/prweb1363274.htm

[Mommynator]

You're correct, Babs Ryan.

It's greed. Pure, unadulterated, singular, mindless greed.

These people have forgotten that the money they get to invest and use is not theirs, it is mostly the hard-earned capital of working people who are trying to save for retirement and some comfort.

Once they forgot about the trust they were supposed to be holding, well everything went out the window.

[dr david hill]

Politicians are principally to blame for the impending financial collapse of the World Economy

For why is it that governments around the world did nothing until financial death was knocking on the door?
For they were told at least five years ago about the dire state of the international financial markets. In this respect clear examples of this knowledge that they had at the time were,
1. In 2003 the former US Federal Reserve chairman Alan Greenspan warned of the forthcoming financial collapse if Fannie Mae's activities were not reined in. The government did nothing and Fannie Mae was allowed to continue operating until only last month, some five-years after the warning from the US’s top banker was given. Indeed, the 30% of mortgages in the US, which are toxic mortgages, equates to losses for the banks of $3.1 trillion. Therefore how could politicians overlook such a failure it has to be asked? The only answer can be incompetence and complacency at the highest level.
2. In 2006 the Bank for International Settlements, the world's most prestigious financial body and the central banker’s ultimate bank, stated that the financial world was in a diabolical state and that it had to change its current ways and activities. No government throughout the world intervened until it is was too late and where caution was not on the agenda for them just a mere two years ago.
Clearly therefore it is the politicians who are to blame for all the mess that we all now find ourselves and due to them not taking any action years ago. Indeed, the dire problems that we are now starting to witness are a direct result of their total complacency for years and where eventually it will cause the worst financial crash that we have ever witnessed. For this is already transferring into the economy and where the wheels of industry are now steadily but surely starting to slow to a full stop.

It is not only the bankers therefore who need sorting out but their bed pals the politicians as well. For both have made enormous financial benefit out of this unprecedented, irresponsible and appalling personal greed.

Dr David Hill
World Innovation Foundation Charity (WIFC)
Bern, Switzerland