Tag Archives: Congress

Barney Frank’s Bankrupt Ideas

By INVESTOR’S BUSINESS DAILY | Posted Monday, October 06, 2008 4:20 PM PT

Financial Rescue: Democrats created the mortgage crisis by forcing banks to give loans to people who couldn’t afford them. Now Obama and Biden want bankruptcy judges to bail out the same deadbeat homeowners. And once again, Barney Frank is helping.

Read More: Economy


It’s been said that history is a lie agreed upon. Democrats are trying to rewrite history by blaming the Bush administration for the current crisis and claiming that the rescue bill is necessary to save the economy from Republican mismanagement.


More blarney from Barney.

Last Thursday on Fox News, when Bill O’Reilly tried to suggest that both parties might share the blame, House Finance Committee Chairman Frank, in a not atypical meltdown, disowned any responsibility for his lack of oversight over the last two years and his complicity before that.

Frank also claimed: “The fact is, it was 1994 that we passed a bill to tell the Fed to stop the subprime lending. We tried to get them to do it.” In other words, those rascally Republicans did it all when they took control of Congress that November.

The legislation he spoke of was the Homeowners Equity Protection Act. It was supposed to empower the Federal Reserve to set the rules on mortgages. Problem was, the Clinton administration had its own ideas of what the rules should be.

The Community Reinvestment Act, first passed in 1977 under Jimmy Carter, was intended to increase minority homeownership. It grew out of charges that banks were “redlining” entire inner-city neighborhoods as bad credit risks. Banks now were forced to perform outreach to these areas.

In the ’70s and ’80s, banks could show that they were trying to do that by advertising in minority newspapers and having representatives sit on the boards of local groups. In other words, they were rated on the effort made and not on the results achieved. Creditworthiness still mattered.

In 1995, as Howard Husock pointed out eight years ago in City Journal, “the Clinton Treasury Department’s 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance.”

Creditworthiness and due diligence no longer mattered. As a 1999 New York Times editorial observed: “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Bill Clinton administration to expand mortgage loans among low- and moderate-income people and felt pressure to maintain its phenomenal growth in profits.”

On Frank’s and Clinton’s watch, the Community Reinvestment Act was changed to force the issuance of bad loans. Banks would be rated on the number of loans, not on their soundness. Fannie Mae and Freddie Mac were then encouraged to buy them up. It was all about affordable housing, even if the housing was unaffordable.

“From the perspective of many people, including me, this is another thrift industry growing up around us,” Peter Wallison, a resident fellow at the American Enterprise Institute, said back in 1999. “If they fail, the government will have to step in and bail them out the way it stepped up and bailed out the thrift industry.”

That prediction came true, but it didn’t have to.

On Sept. 11, 2003, the Bush administration proposed to Congress a new agency under the Treasury Department to assume supervision of Fannie and Freddie. The new agency would have had the authority to set capital-reserve requirements, veto new lines of business and determine whether the two quasi-government lenders were adequately managing the risk of their ballooning portfolios.

When former Treasury Secretary John Snow pleaded for Frank to support Fannie and Freddie reform, Frank responded: “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Democrats believe in affordable housing even if it’s at the expense of the vast majority who watch their credit, work hard and pay their mortgages on time. But for the deadbeats, particularly Democratic constituencies, they have ways to make affordable the housing you couldn’t afford. So first, they forced them into housing they couldn’t afford, and now they give them a financial mulligan.

In the vice presidential debate, Sen. Joe Biden said that “what we should be doing now — and Barack Obama and I support it — we should be allowing bankruptcy courts to be able to re-adjust not just the interest rate you’re paying on your mortgage to be able to stay in your home, but be able to adjust the principal that you owe, the principal you owe.”

To get this bill passed, Obama made a lot of phone calls — particularly to members of the Congressional Black Caucus, including caucus chief Rep. James Clyburn — assuring this would happen.

Those paying their mortgages on time don’t get that break.

Rep. Elijah Cummings said Obama told him that, if elected president, he would direct a Treasury Department official to work with homeowners in foreclosure to restructure their loans. Cummings said Obama also told him he’d seek changes in bankruptcy laws allowing judges to reduce what borrowers owe on their home loans.

Section 110 of the rescue legislation has the Orwellian title of “Assistance to Homeowners” — but only for the deadbeats.

It describes somebody called a “Federal property manager” who “holds, owns or controls mortgages, mortgage-backed securities, and other assets secured by residential real estate.”

Section 110 speaks of “modifications” that this manager can make to these mortgages including not only the reduction of interest rates but the reduction of loan principal.

Not only is Uncle Sam now the world’s largest landlord. He can also arbitrarily set the value of property and the amount owed on it at will, thus distorting the free market.

The vast majority of homeowners who pay their mortgages on time get the shaft. They’re the ones who’ll take up the others’ slack.

Why? And why is the Community Reinvestment Act still law?



How the massive rescue package will affect you

Some will benefit from tax breaks, but impact on markets will take time

By John W. Schoen
Senior producer
updated 3:35 p.m. ET, Fri., Oct. 3, 2008
John W. Schoen
Senior producer


Four days after the Bush administration’s financial rescue package ran off the rails in Congress, the House of Representatives gave the plan a second look and — after loading it up with a bunch of goodies — liked what they saw.

The plan, passed by the House and quickly signed into law by President Bush Friday, is supposed to jump-start the crippled credit markets and get the money flowing normally again to consumers, businesses, corporations and governments. But it remains to be seen whether it will work.

Here’s a look at what may — or may not — happen next.

Are my taxes going up to pay for this?
Over the long term nobody really knows, but in the short run, your taxes may actually go down. To get the bill passed, Congress loaded it up with more than $100 billion in tax breaks and other special provisions.

The biggest was a fix for the alternative minimum tax, a measure originally designed to make sure rich people paid their fair share. But over the years, millions of middle-income taxpayers have been mauled by the AMT beast. Many of those people will catch a break under the bailout bill.

Over the long run, though, those tax breaks will have to be made up with tax increases or spending reductions elsewhere. For decades, the rest of the world has been happy to loan its hard-earned savings to Uncle Sam to help our government fund its deficit spending. Those days are rapidly coming to a close.

Taxpayers also could be on the hook for some — but probably not all — of the $700 billion being used to buy up bad mortgage-backed investments, which the Treasury calls “troubled assets.”

How, exactly, is this going to work?
That’s still the $700 billion question. What Congress has done is to set up what amounts to a government-run hedge fund to buy up troubled securities that nobody else will buy because it is virtually impossible to figure out what they’re worth.

The reason is that no one can predict how many more homeowners will default on the mortgages backing up these investments. Once they do default, it’s even harder to predict how much the house backing the mortgage is worth.

Under the plan, the Treasury will buy these securities and hold them until credit and housing markets settle down, hoping that their value will increase. If so, Uncle Sam will make money. But no one has explained how the government will come up with the right price. Treasury officials have deflected any questions about what they call “implementation issues.”

In theory, the program will jump-start a market for these “trouble assets,” and private investors will then finish the job when they see what Treasury pays for the paper.

I keep hearing that the credit markets are “frozen.” But when I stick my ATM card in the machine, money still comes out. What’s the big deal? What do I care if these big Wall Street firms lose money?

The problem is that for better or worse, the global economy runs on credit. And that credit is drying up. It’s already harder to get a mortgage or a loan to buy a new car than it was even six months ago.

The credit drought has spread to the multitrillion-dollar pool of money that businesses use to fund their operations. The problem has begun to hit big companies such as General Electric, which recently had to pay 10 percent interest on what amounted to a private loan from Warren Buffett.

If that problem continues to spread, businesses will have to start laying off people faster than they already are. (Msnbc.com is jointly owned by Microsoft and GE’s NBC Universal unit.)

Will this keep the economy from getting worse?
If it works, it will prevent a deeper recession than otherwise would be expected. But it should not be expected to boost economic growth, according to the White House.

“No one should be overpromising what this bill will do,” White House spokesman Tony Fratto said Friday. “It’s not been sold as giving a boost to the economy — it’s to avoid a crisis.”

It could be months before the impact of this plan would be felt. Though the stock market can — and does — turn on a dime, the problem in the credit market is a lack of confidence. That takes longer to fix.

In the meantime, there are clear signs that the economy is still on a downward path. Friday’s employment report showed a ninth straight month of job losses. While the government’s official jobless rate held steady at 6.1 percent, that counts only people who are actively job hunting. If you count people who have given up looking, the so-called “augmented” jobless rate rose to 9.1 percent in September from 8.9 percent in August.

Consumers are nervous and are cutting back sharply on spending. Roughly two-thirds of the economy is based on consumer spending; if that spending slows further, so will the economy.

What about home prices?
In theory, repairing the credit markets could lower mortgage rates and make loans more available for home buyers. That boost in demand could help pull the housing market out of its deepest recession since the 1930s.

But it won’t help reduce the backlog of unsold homes — especially foreclosed, bank-owned homes that are being dumped on the market at fire-sale prices. Every time a bank sells a house cheaply to get it off their books, that price becomes the neighborhood’s new market rate.

It’s also harder for a lender to extend a loan for willing buyers in neighborhoods where home prices are still falling. That means buyers have to put up more money, reducing the number of eligible buyers.

Why isn’t more being done to stop foreclosures?
Good question. Many of the House Democrats who balked at approving the plan last week cited the lack of foreclosure relief as their biggest problem voting for the bill. Congress has been debating this issue for more than a year.

Various plans have been floated, but opponents insist that home buyers who borrowed more than they could afford should not be “bailed out” by the government. That’s one reason supporters of this emergency plan are calling it a “rescue” — not a “bailout” — of the financial system.

The debate over how to stop foreclosures will likely continue, though. Lenders say they’ve been working with homeowners to work out some of the worst mortgages written during the easy-money lending frenzy. But it’s been slow going.

Democrats have argued for more than a year that these voluntary efforts won’t fix the problem. Some want to change the bankruptcy law to let judges set new mortgage terms that will keep people in their homes. The idea came up again last week, but was shot down once more. If judges can cut payments on a mortgage, lenders say they’ll have to charge more for all mortgages to make up for that new risk.

Bottom line: Is all this going to work?
No one knows. Nothing like this has been done before — certainly not on this scale.



Bush signs bailout after House votes yes

Will bailout crimp Democrats’ spending plans?

Pelosi pledges bailout will not ‘dampen our ability to make investments’

Speaker of the House Nancy Pelosi
Speaker of the House Nancy Pelosi, D-Calif., in her office Friday awaiting the House vote on the financial sector rescue bill.


By Tom Curry
National affairs writer
updated 5:19 p.m. ET, Fri., Oct. 3, 2008

Tom Curry
National affairs writer

WASHINGTON – Friday’s House approval of an $800 billion bill to keep banks and investment firms afloat heralds a new fiscal era.

At first blush, an era of constrained federal spending appears to be dead ahead:  Every $1 billion going to the bailout and the tax provisions in the bill would be $1 billion less for highway construction or federal aid to public schools.

But House Speaker Nancy Pelosi and other Democratic leaders do not see it that way.


House Financial Services Committee Chairman Barney Frank, D-Mass., said shortly before the House voted that the cost of the bailout will not be $700 billion, but far less than that. For that reason, he said, the bailout will not inhibit the ability of Congress to spend on roads, bridges, public education and other items.

“It’s not going to cost $700 billion,” he said, referring to the bailout portion of the bill. “It’s going to cost something. We are buying assets with that money, which we will own and we will resell. Nobody knows what the net cost will be. … It depends on how the economy performs.”

Limp economy, robust federal spending
As Friday’s employment data indicated, the economy is not performing well right now. The Bureau of Labor Statistics reported that nearly 160,000 jobs were lost last month, the ninth straight month of net job losses.

Yet federal spending and borrowing are robust, with federal outlays growing nearly three times as fast as the economy itself.

The nonpartisan Congressional Budget Office reported that, as of August, federal spending for the first 11 months of the current fiscal year was 8 percent higher than in the same period the prior year.

But receipts are down 1.4 percent so far this fiscal year and are sure to decline further given the dismal employment data.

The revenue forecast facing the new president and the new Congress looks grim, largely due to that unemployment.

Fewer Americans are earning income and thus fewer are paying federal taxes. Higher unemployment means higher federal outlays for the Medicaid program for low-income people, as laid-off workers lose their employer-provided medical coverage.

‘Revenue is going to dry up’
That has many Republicans calling for restraint on spending.

“Revenue is going to dry up because we’re going into a recession, so you can’t whet your spending appetite when you have a recession and eroding revenues,” said Rep. Paul Ryan, R-Wis., the senior Republican on the House Budget Committee. Ryan voted for the bailout.

“We’re going to have lower revenues next year because I think a recession is unavoidable,” he said. “The question this (bailout) bill hopefully will answer is whether it is a short recession or a long recession.”

An increasing number of House Democrats, looking at Obama’s campaign momentum, assume he will be president. But many do not believe his and their spending desires will be limited by huge debt, borrowing costs and inflation.

Indeed, Obama made phone calls Wednesday and Thursday to several House Democrats, including freshmen members such as Rep. Mazie Hirono, D-Hawaii, and Rep. Betty Sutton, D-Ohio, assuring them that, if elected, he will sign a new economic stimulus spending bill.

At Pelosi’s press briefing Thursday, she indicated that the $800 billion is expected to be offset, in part, by congressional action raising tax rates on higher-income people.

Investing in the future’
And if the bailout bill ends up costing the Treasury money, she said, “the financial services industry and those affected by this would have to make up that shortfall.”

Turning to new spending, Pelosi used the word “invest” or “investment” five times in response to a question, using it in the accepted Capitol Hill sense: federal spending on items that Congress deems useful and likely to encourage economic growth.

“Nothing brings more money back to the Treasury than investing in the education of the American people,” she said.

She also argued for “investing in the future, whether it is infrastructure, whether it is investing in innovation to create good paying jobs in America, whether it is investing in our health care system in a way that reduces costs, reduces harm and improves health care.”

The spending would, she predicted, have the salutary effect of “creating good paying jobs, bringing jobs to America.”

Democrats won’t let the fiscal picture discourage them, Pelosi said.

And yet she also said, “We have said all along that when we go forward we do not want to increase the deficit.”

The paradox: How to spend more — much more — and yet not increase the deficit and borrowing at a time of sluggish income growth and with $800 billion in revenue potentially already spoken for?

Evoking Ronald Reagan
Using the phraseology of Ronald Reagan, Pelosi spoke of “subjecting the spending of the federal government to the harshest scrutiny to remove waste, fraud and abuse.”

And Pelosi assumes the $120 billion per year being spent on Iraq will go away fairly quickly.

But one longtime Pelosi ally, Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee, did not sound quite as bullish as the speaker.

Miller said, “I don’t know yet” when asked whether the bailout and tax extenders bill might inhibit Congress’ desire to spend more on domestic items.

“When you’re inheriting an $11 trillion debt, you have to have a fundamental conversation,” Miller said. “The new administration and the Congress have to decide, because there are so many unmet needs. Whether it will inhibit or not, or whether we’ll have to figure out another way to finance it, I don’t know yet.”

He added, “There’s a pent-up demand in the country for infrastructure, for research and development dollars. We’re falling way behind here.”


Campaigns have to face financial mess

Obama, McCain say they have a solution


WASHINGTON –There’s more to it than lipstick on pigs.

The defining issue of the presidential campaign — the economy — confronted the nominees this week in the starkest of terms. This came about as the meltdown on Wall Street and government bailouts sent Sens. John McCain and Barack Obama scrambling to find footing on uncertain terrain where any misstep could end their hopes for the White House.

It sets the stage for a six-week run to Nov. 4 that promises to look more like off-road racing in mud-covered monster trucks than a dignified dash between two thoroughbreds.

Today, as Treasury Secretary Henry Paulson talked up a still-vague program — expected to be finalized and approved as early as next week — potentially committing hundreds of billions of tax dollars to buy up bad loans and stabilize housing and financial markets, both candidates honed their messages with the possibility the U.S. economy could collapse before Election Day. “This is just an incredible outcome,” said Dana Johnson, Comerica’s chief economist, based in Dallas. “The only precedent that comes close is the bank failures of the 1930s.”

Now voters can add to the long list of issues — the solvency of Social Security, health care, energy policies, tax policies and the war in Iraq — this big one: who has the best plan to bring regulatory reform to the financial markets.

“The array of economic issues that are going to have to be dealt with by the next president is just mind-boggling,” Johnson said. That doesn’t make the choice easier for voters, but it sharpens campaign strategy.

It also adds import to next Friday’s first of three presidential debates. It is to focus on domestic issues. “The first debate may well decide the whole thing,” said Joe Trippi, who ran Howard Dean’s unsuccessful 2004 presidential campaign, but also helped provide a model for the grassroots support Obama has tapped this year.

Accusations fly both ways

A week ago it seemed the bright shiny object in the campaign — McCain’s pick of Alaska Gov. Sarah Palin as his running mate — might divert attention from tough issues. It all changed with Wall Street’s meltdown and the Bush administration’s response — a rush toward federal intervention that may have seemed surprising for the Republican White House but was generally supported by both nominees.

Obama should have an advantage on economic doubts in battleground states like Michigan and Ohio precisely because a Republican is president and a backlash could be expected.

But that edge is dubious, especially in Michigan where a Democratic governor has been unable to steer the economy into safer harbor.

The Wall Street turmoil gives McCain an opportunity — as long as he can avoid serious missteps like early this week when he said the economy was “fundamentally strong.”

Already staking a claim to being “the original maverick” for bolting his party at times — on immigration and tax cuts, for example — the financial crisis gives him a chance to appear strong and bipartisan, as well as well-prepared to moderate a free-market philosophy for the good of the country.

Obama, of course, has the same chance to make his case as the agent of clear-thinking change.

McCain called today for more investment transparency, regulatory reform and creation of a trust to bolster mortgage holders and financial institutions. On Thursday, he said he’d fire the Securities and Exchange Commission chair (though there’s a question whether the president can).

But he also sounded a partisan note, taking to task Democrats leading a “do-nothing Congress” and Obama, whom he linked to the excesses of mortgage backers Fannie Mae and Freddie Mac.

The problem is it set off a new round of finger-pointing. Democrats sent reporters a newspaper article listing McCain’s campaign links with Fannie, Freddie and the mortgage meltdown — while Obama, after meeting with his economic advisers in Florida, suggested that what the markets need is confidence that “partisan wrangling” won’t slow reform.

Obama set down the tenets he believes need to guide Washington — saying whatever happens needs to help people on Main Street as well as Wall Street, be coupled with new regulations and be developed to stabilize global markets as well.

“John McCain and I can continue to argue about our different economic agendas for next year, but we should come together now to work on what this country urgently needs this year,” he said.

Partisans take their sides

The reality is that it is difficult for either party or candidate to win the blame game except with their partisans.

McCain is an unapologetic free market believer who has voted for deregulating markets in the past (though he also supported regulation at times as necessary). His friend and former adviser Phil Gramm helped to create a system to deregulate financial institutions — but it was approved by Democrat Bill Clinton’s White House and supported by some of the same people now advising Obama.

Unless there’s a major misstep, the race probably won’t come down to specific proposals. The intricacies of the market don’t, as Comerica’s Johnson said, lend themselves “to sound bites.”

McCain will smear Obama as the president who’ll raise your taxes. Obama has said he wants to keep middle-class tax cuts and raise taxes only on people making more than $250,000 a year and on oil company profits. Obama will smear McCain as a tool of rich corporate interests and their lobbyists, which, if nothing else, his support for financial reform this week seems to throw into doubt.

Which brings the campaign back — albeit more urgently — to where it was.

Can Obama lure the new voters who seem to be registering in battleground states, convince blue-collar voters that he will protect their interests and win the argument that McCain represents four more years of President George W. Bush’s policies?

Or can McCain keep his conservative base energized (without Palin in the forefront), swing the same blue-collar voters and, critically, women, to his side by getting them to find their comfort level with him?

The battle lines may not have changed, but now we’re talking about the cut and quality of the pork, instead of the shade of the makeup.

Contact TODD SPANGLER at tspangler@freepress.com.

Pelosi’s Politburo (CFIF)

No fair up-or-down votes on lifting Congressional bans on domestic oil drilling!
While the American people suffer from record-high gas prices, that is the message — loud and clear — from Speaker of the House Nancy Pelosi and her liberal colleagues!
In fact, Pelosi and Company are so dead set against alleviating the pain Americans are feeling at the pump that she hurriedly banged down the gavel, adjourned Congress and FLED from Washington for a five-week vacation.
And, when a group of conservative legislators tried to speak directly to the American people about the need for Congress to address our nation’s energy crisis before skipping town, Pelosi ACTUALLY turned off the microphones, shut off the cameras and turned out the lights!
Right now, many Americans can’t afford to go on vacation because of the high price of gasoline. But that didn’t stop Nancy Pelosi from taking her five-week summer recess.

In defense of her egregious actions, all she could do several days ago was rant:
“I’m trying to save the planet; I’m trying to save the planet. I will not have this debate trivialized by their excuses for their failed policy.”

“Trying to save the planet?” How many people will have to suffer before she declares the world safe?

And moreover, what “failed policy” is Pelosi talking about? President Bush and conservative legislators are calling for the REVERSAL of a 30-year policy of limiting domestic drilling. They are trying to reduce America’s dependence on foreign oil by responsibly increasing our domestic supply.

How can a policy that hasn’t been implemented in 30 years be a “failed policy?” Is Pelosi that out of touch with the 70% of the American people who support more domestic drilling?
Well guess what? Pelosi and her minions might be able to run but they can’t hide (Members of Congress have fax machines in their district offices too).
And we’re not going to let Pelosi get away with her callous obstruction while Americans are suffering, in large part, because Pelosi objects to any and all new domestic drilling!

Despite what Nancy Pelosi may think, this is not the former-Soviet Union! Nancy Pelosi cannot single-handedly repress free speech and callously disregard the will of the American people.

She needs to be put in her place and told this is not the way things work in the United States of America!
President Bush has the power to call Congress back into session and Congressional leader have that power as well!