Corrected on 10/08/08: An earlier version of this article incorrectly stated the year Barney Frank and Herb Moses broke up. They broke up in 1998.
Seventeen. That's how many times, according to this White House statement (hat tip Gateway Pundit), that the Bush administration has called for tighter regulation of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Congress has cooperated only once. In spring 2007, as House Financial Services Committee Chairman Barney Frank likes to point out, the House did pass a bill in response. The Senate did not act until 2008; Senate Banking Committee Chairman Christopher Dodd spent most of 2007 camped out in Iowa running for president. The legislation passed by Congress in 2008 enabled Treasury Secretary Henry Paulson to put Fannie and Freddie into federal conservatorship this summer when they failed. But it didn't prevent them from spewing a huge amount of toxic waste, in the form of subprime and Alt-A mortgages, into our financial institutions from 2004 to 2007. As Stephen Spruiell points out in The Corner on National Review Online, Fannie and Freddie spewed out $1 trillion worth (face value) of subprime mortgages between 2005 and 2007. That's a whole lot of toxic waste. For more detail, consult the items referred to in my previous blogpost on this subject (most of the comments seem to have been disputes about the plot line of the movie It's a Wonderful Life, which I should think could be settled by consulting a reference work).
Much if not all of that could have been prevented by a bill cosponsored by John McCain and supported by all the Republicans and opposed by all the Democrats in the Senate Banking Committee in 2005. That bill, which the Democrats stopped from passing, would have prohibited the GSEs from speculating on the mortgage-based securities they packaged. The GSEs' mission allegedly justifying their quasi-governmental status was to package or securitize such mortgages, but the lion's share of their profits—which determined top executives' bonuses—came from speculation.
John McCain has shied away from making this an issue, for reasons my U.S. News colleague Jim Pethokoukis speculates on. This National Republican Congressional Committee Web ad makes the point McCain has been avoiding. Jim Geraghty of the Campaign Spot blog at National Review Online seems exasperated by the McCain campaign's failure to exploit this issue. Excerpts:
Why can't John McCain and Sarah Palin make the points about how the crisis was built illustrated in the "Burning Down the House" (with the revised music) YouTube video? Could McCain please, please bring up some of this in Tuesday's debate?
Don't the American people deserve to know that Democrat Barney Frank, then ranking member and now chairman of the House Financial Services Committee, said, " I want to roll the dice a little bit more in this situation towards subsidized housing"? Isn't the fact that the ranking Democrat in charge of oversight of Fannie Mae was in a sexual relationship with a high-ranking Fannie Mae executive a glaring conflict of interest? Isn't it worth noting that Democratic Rep. Maxine Waters insisted, "we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines"? Shouldn't the American people know that Democratic Rep. Gregory Meeks insist that "there's been nothing that was indicated that's wrong with Fannie Mae"?
If nothing else, shouldn't we salute Democratic Rep. Artur Davis for saying, "Like a lot of my Democratic colleagues I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable homeownership when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie, we were wrong."
I talked with Artur Davis in the Speaker's Lobby Friday during the vote on the financial bailout/rescue package. He reiterated what he said here, and he also makes the fair point that Republicans made some mistakes too. As for the reference Geraghty makes to the fact that Barney Frank's partner Herb Moses worked at Fannie Mae, I think we should keep in mind the fact that Frank and Moses broke up in 1998 and that Moses quit working at Fannie Mae at about the same time. As far as I'm concerned, that's ancient history. And while in retrospect it's clear that Frank was wrong about the GSEs in 2003, he did work with the administration and pushed legislation through the House in 2007, so it seemed he was open to learning from experience.
Finally, check out this Fox News Channel-Fox Business News Channel documentary by David Asman.