If Congress cannot take this essential step, however, no amount of additional authority--given to a purported "world class regulator"--will significantly change the course of events. Fannie and Freddie will continue to grow, and one day--as Alan Greenspan has predicted--there will be a massive default with huge losses to the taxpayers and systemic effects on the economy. Peter Wallison, American Enterprise Institute, May 13th, 2005
In the late summer Jonathan Alter mistakenly asked for empirical proof that Obama was a bad president, as if everything said about Obama’s tenure was just a compilation of ad hominem attacks on the president.
I, along with a host of other writers took up the task to answer Alter.
You can read that column here.
But from time to time another person makes a case that Obama is a bad president, and I would like to afford him the opportunity right here in this space to be heard.
That person is Barack Obama.
Between now and the election I intend to let Obama speak for himself on these pages as often as possible and thereby show how unfit he is for the presidency.
So here we go:
Mistakes happened, said Obama regarding the financial crisis of 2008, as he defended the lack of prosecution for any of the acts that brought us the final sequel- so far- of the mortgage meltdown that started in 2006.
“Some of the most damaging behavior on Wall Street, some of the most unethical behavior on Wall Street, wasn’t illegal,” Obama told 60 Minutes which aired on Sunday. “That’s why we had to change the laws,” regarding banking regulation that were enacted by the Democrats, he continued.
Thus Obama made the case to the whole country, on broadcast TV, in the most concrete terms as to why he should not be reelected to office of president of the United States.
Because nothing is as characteristic of this president’s tenure, as his ignorant defense of the misguided, so-called banking reform measures that the Democrats took under the Dodd-Frank legislation currently being enacted. Nothing also better illustrates the Democrats' lack of responsibility for how the financial system came apart.
It’s estimated that Dodd-Frank, after Obamacare, will be the most costly legislation in the history of the country, not just to administer, but also in real economic costs to our country’s GDP or economic output.
And despite Obama’s claims, nothing in Dodd-Frank actually makes illegal any of the unethical or damaging behavior, taken either in Washington or Wall Street, which created the financial mess caused by the easy availability of credit for real estate purchases. Nor does Dodd-Frank make our banking system safer as Democrats claim.
Actually quite the contrary.
As the bankruptcy under Democrat uber-genius Jon Corzine at MF Global shows, despite repeated attempts at reform through Dodd-Frank and Sarbannes-Oxley, thieves will always do what thieves will do
And while the left likes to blame Wall Street for the problems and the right likes to blame Washington, both sides were not only culpable, but in cahoots.
They still are.
If we are going to make real progress on actual reform, we have to break up the federal regulatory cabal, not codify it through ineffectual and dangerous legislation that makes no attempt to actually reform anything, but rather just gives stealing the soft name of lobbying.
In fact, Dodd-Frank, as we will probably find out by June of 2012, will make our national banking system even more dangerous and much more likely to fail in the future no matter how much bragging Obama does about it.
And the next time we have a systemic crisis in banking in the US is the last time we will have a systemic crisis in banking.
The stakes are that grave.
“For many in the U.S., the worrisome events occurring in Europe recall the 2008 financial crisis,” writes Peter Wallison of the American Enterprise Institute in the Wall Street Journal on December 3rd. “If Greece or some other country should fail to meet its debt obligations, the result could be much like the 2007 mortgage meltdown in the United States. Many banks and other financial institutions in Europe, and some in the U.S., may be weakened by the loss in value of the sovereign debt they hold.”
In fact, the banking system is already in the process of melting down, but a zero-interest rate policy by the Federal Reserve- and US government-currency printing presses have, to some extent so far, propped up the system.
But it can’t go on forever.
Dodd-Frank, passed by the Democrats and supported, if not urged by the president, has taken the Too Big to Fail system and turned it into Too Big to Succeed by massing assets in a smaller number of bigger banks and nonbank financial companies.
“Dodd-Frank, which authorizes the Federal Reserve to supervise all ‘systemically significant’ nonbank financial firms, [has] thus [spread] dangerous conformity to insurance and finance companies, hedge funds and others. Stability can come only when we stop rewarding herding behavior, and penalize it instead.”
In the meantime, we have let off the worst of the subprime fraudsters at Fannie Mae and Freddie Mac who caused much of the problem by sucking up to politicians after accounting scandals threatened to sink the GSEs.
“For many years before 2004, Fannie and Freddie had followed relatively prudent investment strategies,” writes Dr. Paul Kedrosky, a research analyst at Seeking Alpha, “even with respect to affordable housing, but they suddenly changed their approach in 2005. Freddie Mac's report, for example, shows that the percentage of mortgages in its portfolio with subprime characteristics rose rapidly after 2004. In addition, Freddie Mac's disclosures indicate that of the loans added to its portfolio of single-family loans between 2005 and 2007, 97 percent were interest-only mortgages, 85 percent were Alt-A, 72 percent were negative amortization loans, 67 percent had FICO scores lower than 620, and 68 percent had original loan-to-value ratios greater than 90 percent.”
Kedrosky says that the accounting scandals at the government mortgage houses caused managers there to try to out-do themselves by proving to politicians that Fannie and Freddie could provide a valuable service by buying votes from those unable to buy homes.
Politicians, including Obama, are still lining up to enforce “affordable housing” practices that would be better left to free markets.
Yet at the same time, Obama and his pals are making it harder and harder for homebuilders to supply more housing to the country which once again concentrates more and more money in fewer and fewer assets (in this case homes) destabilizing the residential real estate market.
“The result is that supply becomes more inelastic,” writes Mark Calabria of the Cato Institute. “A supply curve that is inelastic also cuts both ways—small increases in demand can result in large increases in price, but small decreases in demand can also result in large decreases in price.”
That, in the fewest number of words, is how Obama’s and the Democrats’ misguided policies have killed our free market system in real estate, banking and financial services- growth industries until recently.
Those industries are still dead.
All Obama and his friends like Warren Buffett and George Soros are doing is feeding on the corpse.
For Christmas this year, my family is buying some goats, some fruit trees, a bicycle and clothes for needy children through Worldvision.
We let our kids pick out the gift they want to give for Christmas and they pay for it with money they have saved through the year. Our kids really get a lot out of the experience.
I hope readers will consider doing the same according to their ability.
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