At a press conference today it was announced that an amended rescue plan (which was significantly improved by House Republicans over the original plan, which they had rejected) had been agreed to,
In announcing the agreement, Democrats House Speaker Pelosi, Senate Majority Leader Reid and House Financial Services Committee Frank railed at Wall Street greed and acted as if the financial collapse was Wall Street's fault (which the media will echo, as it already has). It wasn't. Blame lies squarely with those very same Congressional Democrats.
It can't be said often enough the fault lies with Congressional Democrats who constantly pushed government-backed Fannie Mae and Freddie Mac to buy up every subprime loan offered to them -- and to issue their own as well, regardless of the credit of the borrower. Democrats had loosened requirements so much that virtually everyone could get a mortgage loan for "affordable housing," which in many cases is turning out to be unaffordable.
To raise money for new mortgages, Fannie Mae and Freddie Mac packages mortgage loans up and sells them to the world. As has been the case since 1968, the loan packages are rated AAA, triple-A, the highest quality rating there is, because of the "implicit" guaranty of the U.S. government. Buyers rely not so much on what is in the package but on the backing of the U.S. government. That the packages sold over the past few years weren't creditworthy was the fault of Fannie and Freddie and their Democratic backers in Congress. (Subprime mortgages skyrocketed from 2% of total mortgages in 2002 to 30% in 2006.)
It was Fannie and Freddie that bought and assembled the uncreditworthy mortgages into packages; when the housing bubble (created by the demand for housing fueled by all the new folks who "qualified" for mortgage loans) started to deflate, the worst mortgages began to default, wiping out the value forf those who had bought those parts of the packages; naturally, those buyers demanded that they be protected because of the backing of the federal government.
The situation rapidly deteriorated and the Bush Administration had to step in and take over Fannie and Freddie, firing their top executives who were responsible for the lax standards and jeopadizing American taxpayes as a result. As one of those executives told a newspaper just weeks before the takeover, it was Democrats in Congress who constantly pressured them to relax standards and do more for "affordable housing."
In 2003 and 2005 the Bush Administration and Alan Greenspan called on Congress to tighten standards immediately and stop the out-of-control growth of subprime lending, warning of danger to the financial system and the economy. Democrat Barney Frank of Massachusetts, ranking member of the House Financial Services Committee, led the opposition, saying there was no crisis and the Administration was crying "wolf."
Legislation prepared by Senate Repubicans in 2005 and backed by the Administraton and John McCain to rein in Fannie and Freddie was rejected by Democrats and died. Again, Barney Frank was in the lead, accompanied by Democrats Dodd of Connecticut, ranking member of the Senate Banking Committee, and Reid of Utah, Minority Leader. The Bush Administration made more than 15 appeals to Congress to act before it was too late.
The collapse of the overheated housing market has caused the entire financial system to come close to a total halt, so drastic action is required. Secretary of the Treasury Paulson and Federal Reserve Chairman Bernanke immediately proposed a plan, which has now been strengthened considerably by House Republicans and will have bipartisan support in Congress. It stands an excellent chance of stabilizing the world financial system and over the long run, several years, it may well prove to be profitable for American taxpayers
The nation is fortunate that President Bush appointed as Chairman of the Federal Reserve and as Secretary of the Treasury two such highly-qualified individuals who have the intelligence, experience, vision and creativity to deal with this financial crisis.
It can be hoped that the worst is past, but there no doubt will be rough days ahead. But there is a rescue plan in place that should do the job.
