Here’s Duncan Currie:

Here’s one thing you won’t find in the 2,300-page financial-overhaul legislation that passed the Senate Thursday afternoon: any serious reform of housing giants Fannie Mae and Freddie Mac, the longtime “government-sponsored enterprises” (GSEs), both of which have been in federal conservatorship since September 2008. Last summer, the Congressional Budget Office (CBO) estimated that the cost of subsidizing the GSEs would amount to $389 billion through 2019. This figure accounted for “substantial losses on the entire outstanding stock of mortgages held or guaranteed by Fannie Mae and Freddie Mac at that time.” In January, the CBO updated its forecast, projecting a total price tag of at least $373 billion through 2020. By comparison, it now expects the much-maligned Troubled Asset Relief Program to cost just $109 billion.

Those numbers help put the GSE bailout in perspective, yet they tell only part of the story. Fannie and Freddie currently own or guarantee roughly $5.5 trillion worth of mortgages — over half the residential market. If these liabilities were included in the federal budget, Americans would better appreciate the true fiscal impact of rescuing the GSEs.

But Fannie and Freddie are not counted in the budget, a maneuver “worthy of Enron’s playbook, except not quite so hidden,” as Bloomberg columnist Jonathan Weil has written. Their exclusion “makes a joke” out of the U.S. balance sheet, says former SEC commissioner Paul Atkins. The argument for bringing them on budget became even more compelling in December, when the Obama administration removed a cap on their Treasury Department credit line, essentially giving the GSEs a blank check. A few months later, after House Financial Services Committee chair Barney Frank (D., Mass.) suggested that GSE debt obligations were not backstopped by the federal government, Treasury spokeswoman Meg Reilly affirmed that “there should be no uncertainty about Treasury’s commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market.”

… In December 2008, mortgage-finance consultant Edward Pinto, who served as Fannie’s chief credit officer from 1987 to 1989, told Congress that “Fannie and Freddie went from being the watchdogs of credit standards and thoughtful innovators to the leaders in default-prone loans and poorly designed products. They introduced mortgages which encouraged and extended the housing bubble, trapped millions of people in loans that they knew were unsustainable, and destroyed the equity savings of tens of millions of Americans.”

In a new paper, George Mason University economist Russell Roberts points out that the GSEs bought roughly twice as many home-purchase loans made to below-median-income buyers in 2003 as they had in 1997. It was during this period — from the late 1990s through 2003 — that “Fannie and Freddie played an important role in pushing up the demand for housing at the low end of the market. That in turn made subprime loans increasingly attractive to other financial institutions as the prices of houses rose steadily.” From 2004 to 2006, Roberts adds, commercial and investment banks played a larger direct role in the subprime market than the GSEs did, though Fannie and Freddie were still very active in the mortgage markets in ways that contributed to the subprime problem. In 2006, they bought 390,000 loans with less than 5 percent down, compared with just under 269,000 two years earlier. In 2007, they purchased more than 608,000 such loans.

[WSJ] President Obama hailed the financial bill that House-Senate negotiators finally vouchsafed at 5:40 a.m. Friday, and no wonder. The bill represents the triumph of the very regulators and Congressmen who did so much to foment the financial panic, giving them vast new discretion over every corner of American financial markets.

Chris Dodd and Barney Frank, those Fannie Mae cheerleaders, played the largest role in writing the bill. Congressman Paul Kanjorski even offered a motion to memorialize it as the Dodd-Frank Act. It’s as if Tony Hayward of BP were allowed to write new rules on deep water drilling.

The Federal Reserve, which promoted the housing mania and failed utterly in its core mission of monitoring Citigroup, will now have more power to regulate more financial institutions and more ability to dictate the allocation of credit.

The Treasury, which bailed out institutions willy-nilly without consistent rules, will now lead the Financial Stability Oversight Council that will have the arbitrary power to define which financial companies pose a “systemic risk” and which can be shut down without recourse to bankruptcy. Willy-nilly will now be the law.

And the SEC, which created the credit-ratings oligopoly and missed Bernie Madoff, will get new powers to decide how easy it should be for union pension funds to get their candidates on corporate proxy ballots.

Oh, and Fannie Mae and Freddie Mac? They aren’t touched at all, even as they continue to lose billions of taxpayer dollars each quarter.

In other words, our Washington rulers have taken 2,000 or so pages to double and triple down on the old system that failed.

It gets worse. Not only did the bill not address bank regulations, something our not so watchdog media failed to recognize, it actually added a $19 billion tax to pay for all this new “regulation.” Question for the Obama camp: When you’ve already got 10% unemployment how will raising taxes create incentive for companies to hire more workers? Good luck with that election come November’s stagnant 10% unemployment rate.

And if you think our hyper-regulations already made no sense, check out how the EPA considers spilt milk an “oil spill.” (Thanks to John Stossel for pointing this out):

Signs of Bizarro World: Using terms like “perverse” and “disingenuous,” Uber-liberal journalist Robert Scheer defends — yes defends — the economic record of Ronald Reagan against accusations from NYT’s uber-liberal Paul Krugman that the former president is most to blame for the credit crisis and mortgage meltdown:

It is disingenuous to ignore the fact that the derivatives scams at the heart of the economic meltdown didn’t exist in President Reagan’s time.

… Ronald Reagan’s signing off on legislation easing mortgage requirements back in 1982 pales in comparison to the damage wrought fifteen years later by a cabal of powerful Democrats and Republicans who enabled the wave of newfangled financial gimmicks that resulted in the economic collapse. Reagan didn’t do it, but Clinton-era Treasury Secretaries Robert Rubin and Lawrence Summers, now a top economic adviser in the Obama White House, did. They, along with then-Fed Chairman Alan Greenspan and Republican congressional leaders James Leach and Phil Gramm, blocked any effective regulation of the over-the-counter derivatives that turned into the toxic assets now being paid for with tax dollars.

Read the rest.

Just so we’re all clear. We’ve got a bunch of Congressmen and administration officials who brokered these bailout deals with the financial community, were aware of and approved of retention bonuses, then once the deals came to the public light have the gall to act outraged.

If you haven’t yet read the open resignation letter by AIG executive vice president Jake DeSantis to CEO Edward Liddy, make sure you do. DeSantis is right: The people who need to be punished are long gone from AIG’s ranks. It’s people like DeSantis who were asked to salvage the company, for a salary of just $1 and a retention bonus, which our politicians knew about but now want to tax at 90%. Any outrage should be aimed at Congress, for starters.

• Now guys like our TAX CHEATING Treasury Secretary Tim Geithner want to use this government-made “crisis” to expand their power to heights not seen since the Politburo.
• Senate Banking Committee Chair Chris Dodd, was, to borrow from Michelle Malkin, “For AIG bonuses before he was against them.“
• Worse, Barack Obama’s Chief of Staff, Rahm Emanuel, “made at least $320,000 for a 14-month stint at Freddie Mac that required little effort.” Where’s the outrage of his bonus for this monstrosity?
• Freddie Mac and Fannie Mae were the first domino to fall in this credit crisis. The fox is running the henhouse. The head of the Senate Finance Committee, Barney Frank, perennially blocked all attempts to reform Fannie/Freddie.

Were these all right-wing names one can bet the conspiracy theorists would no doubt be successfully arguing that government created this crisis to expand its power.

Here’s Mark Levin:

“Now we have a guy that couldn’t remember to pay his social security taxes, couldn’t remember to pay his Medicare taxes, even though he was subsidized to pay them, told to pay them,” Levin said. “He’s smarter than everybody else in all these industries, and now we have another czar.”

The appointing of czars, he said, has been a trend according to that doesn’t comply with the powers set forth in the founding document,

“We have an administration full of czars, full of people who don’t comply with the constitution. The question today is, ‘What is your authority, Mr. Secretary, to do this?’” Levin said. “I would like to know what’s the president’s authority to do this?”

The Obama administration and its proponents say that a lack of government involvement in financial sector is what caused the current woes of the economy, specifically the banking system. Levin insisted it was just the opposite – that the banking system was never a “free market” and that’s how it got to this point.

“The problem is, we didn’t have a free market in the banking system,” he explained. “The banking system is the most regulated system next to the automobile industry. So there is no free market in the banking system. It is heavily regulated. We know about all these toxic loans thanks to Uncle Sam – pushing them as fast as they could, bundling them, encouraging the free market to respond with all kinds of packages and then they pretend it’s something wrong with the free market.”

Levin labeled advocates of the Obama agenda as “statist,” explaining that it is part of their desire to control every aspect of certain segments of the U.S. economy.

“That’s the way the statist operates and that’s what I explain here,” Levin said. “There are no limits on our government today. They’ve close to nationalize the automobile industry. Frankly, they basically nationalized the steel industry. They control the labor unions in giving them the authority that they give them. They control the products that are produced. They control what comes out of the chimney. They control what goes into the chimney. Now they want to control executive pay and they’re not going to limit it to bailed out companies.”

Here’s Karl Rove, with some succinct points:

Mr. Obama also said that America’s economic difficulties resulted when “regulations were gutted for the sake of a quick profit at the expense of a healthy market.” Who gutted which regulations?

Perhaps it was President Bill Clinton who, along with then Treasury Secretary Larry Summers, removed restrictions on banks owning insurance companies in 1999. If so, were Mr. Clinton and Mr. Summers (now an Obama adviser) motivated by quick profit, or by the belief that the reform was necessary to modernize our financial industry?

Perhaps Mr. Obama was talking about George W. Bush. But Mr. Bush spent five years pushing to further regulate Fannie Mae and Freddie Mac. He was blocked by Democratic Sen. Chris Dodd and Rep. Barney Frank. Arriving in the Senate in 2005, Mr. Obama backed up Mr. Dodd’s threat to filibuster Mr. Bush’s needed reforms.

… During his news conference on Feb. 9, Mr. Obama decried an unnamed faction in the congressional stimulus debate as “a set of folks who — I don’t doubt their sincerity — who just believe that we should do nothing.”

Who were these sincere do-nothings? Every House Republican voted for an alternative stimulus plan, evidence that they wanted to do something. Every Senate Republican — with the exception of Judd Gregg, who’d just withdrawn his nomination to be Mr. Obama’s Commerce secretary and therefore voted “present” — voted for alternative stimulus proposals.

Then there’s Mr. Obama’s description of the Bush-era tax cuts. “A surplus became an excuse to transfer wealth to the wealthy,” he explained in his Tuesday speech, after earlier saying, “tax cuts alone can’t solve all of our economic problems — especially tax cuts that are targeted to the wealthiest few.”

The Bush tax cuts were not targeted to “the wealthiest few.” Everyone who paid federal income taxes received a tax cut, with the largest percentage of reductions going to those at the bottom. Last year, a family of four making $40,000 saved an average of $2,053 because of the Bush tax cuts. The tax code became more progressive as the share paid by the top 10% increased to 46.4% from 46% — and the nation experienced 52 straight months of job growth after the cuts took effect. And since when is giving back some of what people pay in taxes “transferring wealth?”

Talk about rewarding incompetence: Today General Motors ask for an additionally $16 billion on top of the $30 billion it received in December. Paul Ingrassia notes that this amount “doesn’t count the $8 billion it wants to develop fuel-efficient cars, and another $6 billion it’s soliciting from foreign governments.” All the while their “foreign” competitors — a misnomer considering the number of Toyota and Nissan factories in America filled with American workers — need not one dollar of bailout money. Rewarding the unprofitable practices of our Detroit automakers won’t solve a problem, whereas bankruptcy would.

That’s on top of this ridiculous expense that would drive any business into the red:

That was a couple years before Detroit agreed to let auto workers retire with full pension and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working.

Wouldn’t every American love such a golden deal?

The trend to reward incompetence gets worse. Our latest stool-leg of the Obama-proposed economic recovery package includes $400 billion to Fannie Mae and Freddie Mac, arguably the two institutions most responsible for starting the credit crisis and the first domino to fall.

But this is just the tip of the iceberg folks. It’s going to get worse. Much worse.

[George Will] Rep. Henry Waxman, the California Democrat, practiced law for three years, then entered elective office at 29 and has never left, so when he speaks about a world larger than a legislature, and about entities more enmeshed in life’s grinding imperatives, he says strange things. Objecting to General Motors, Ford and Chrysler opposing more severe fuel-economy and emissions standards, he says: “They have not yet stopped being controlled by their own self-interest.”

There is something piquant about a congressman summoning others up from self-interestedness, and it is mysterious whose interests, other than those of their shareholders, corporations are supposed to be controlled by. And although Waxman seems to concede that more stringent standards would injure the companies’ interests, he supports those standards, as he supported giving billions of taxpayers’ dollars to preserve the companies. He surely will support the next installment of auto subsidies, which, like the previous installment, will not be the last installment. In last year’s second quarter, GM lost $118,000 a minute, and the next plan for its salvation until the next crisis will require more government money to prevent bankruptcy, which would require more government money.

Talk about trillions of dollars has become so commonplace that billions seem minuscule — even though a billion minutes ago Plutarch (46-120 A.D.) was alive — and it is hardly worth mentioning mere millions, such as the $50 million for stimulus through the National Endowment for the Arts. But those millions elated Rep. Louise Slaughter (D-N.Y.), co-chairwoman of the Congressional Arts Caucus: “If we’re trying to stimulate the economy and get money into the Treasury, nothing does that better than art.” Nothing? Is Slaughter correct about what we’re trying to do? Is the point of the government’s stimulus spending to get more money into the government — “into the Treasury”? She is not the first politician to desire prosperity for the people so that they could be more bountiful taxpayers.

“Never,” Rep. Tom Cole (R-Okla.) said when voting against the stimulus, “have so few spent so much so quickly to do so little.” Three of his contentions are correct. The $787 billion price tag is probably at least two-thirds too low: Add the cost of borrowing to finance it, and allow for the certainty that many “temporary” programs will become permanent, and the price soars far above $2 trillion.

But Cole’s last contention is wrong. The stimulus, which the Congressional Budget Office says will, over the next 10 years, reduce GDP by crowding out private investment, already is doing a lot by fostering cynicism in the service of opportunism.

History is written by the victors, and the Obama Democrats will prove to be no exception to this rule. In the coming weeks (and beyond) expect to hear the president and his supports propagate that George W. Bush’s “tax cuts for the rich” created our economic downturn. The attack will lack any economic evidence, of course, other than the kind of simpleton cause and effect examples any middle schooler might put forth.

Indeed, quite the opposite from this fantasy took place — in straight fiscal years in 2007 and 2008 the US Treasury took in historic levels of tax revenues (immediately erased by Congressional spending, earmarks, pork, Medicare & Social Security… oh, wait I already mentioned useless and wasteful spending). It did this because the Bush tax cuts peaked in those years and just as we learned under Presidents Coolidge, Kennedy and Reagan, when you cut the marginal tax rate you actually increase tax revenue because the growing economy creates a growing pie to tax.

Rather, the cause of our economic misery was government meddling in the private markets (not a lack of regulation, and certainly not letting individuals keep more of their earnings). Stanford economist John Taylor explains:

Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.

The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking. There is also evidence the excessive risk taking was encouraged by the excessively low interest rates. Delinquency rates and foreclosure rates are inversely related to housing price inflation. These rates declined rapidly during the years housing prices rose rapidly, likely throwing mortgage underwriting programs off track and misleading many people.

Adjustable-rate, subprime and other mortgages were packed into mortgage-backed securities of great complexity. Rating agencies underestimated the risk of these securities, either because of a lack of competition, poor accountability, or most likely the inherent difficulty in assessing risk due to the complexity.

Other government actions were at play: The government-sponsored enterprises Fannie Mae and Freddie Mac were encouraged to expand and buy mortgage-backed securities, including those formed with the risky subprime mortgages. [See: Community Reinvestment Act, Freddie/Fannie]

Government action also helped prolong the crisis. Consider that the financial crisis became acute on Aug. 9 and 10, 2007, when money-market interest rates rose dramatically. Interest rate spreads, such as the difference between three-month and overnight interbank loans, jumped to unprecedented levels.

Courtesy of the New York Times, the sheer scale of their “Bush caused the mortgage crisis” lie is staggering. That the New York Times engages in purposeful amnesia over the 1970s to the 1990s, the Clinton Administration, the Community Reinvestment Act, or that Democrats in Congress blocked every attempt to regulate Fannie Mae and Freddie Mac leaves me speechless. To paraphrase the Nazis, if you’re going to lie, lie big… I guess.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

“There are plenty of culprits,” but we’ll blame Bush. The loan policies were intended to help minorities, but since we had planned a series of stories calling him a racist had he not tried to expand the program we’ll just blame the crisis on him instead. Congress refused to oversee Fannie and Freddie, but we’ll blame Bush.

Un-Bel-ievable. The notion that everybody should own a home didn’t start with Bush, it started with Jimmy Carter, was radically expanded under Clinton, and bipartisanly in Congress throughout the 1990s.

To propagate that “how we got here is partly one of Mr. Bush’s own making” is a stinking lie, wrapped in manure, stuck inside a land fill.

But like I said below, when you betray your own base it encourages your enemies to grandiose proportions.

Washington Post:

Internal Freddie Mac documents show that senior executives at the company were warned years ago that they were offering mortgages that could pose dangers to the firm, hurt borrowers and generate more risky loans throughout the industry.

At Fannie Mae, top executives were told it was necessary to develop “underground” efforts to buy subprime mortgages because of competitive pressures, although there were growing risks and borrowers often didn’t understand the terms of the loans, documents show.

The House Committee on Oversight and Government Reform, which has the documents, is holding a hearing now to discuss Fannie and Freddie’s downfall. The companies were seized by the government three months ago after nearly collapsing in the wake of billions of dollars of losses on mortgages.

In a memo to former Freddie chief executive Richard Syron and other top executives, former Freddie chief enterprise risk officer David Andrukonis wrote that the company was buying mortgages that appear “to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed.”

Andrukonis warned that these mortgages could be particularly harmful for Hispanic borrowers, and they could lead to loans being made to people who would be unlikely to pay them off. “The potential for the perception and the reality of predatory lending with this product is great,” Andrukonis wrote.

The documents, which were released by the committee today, show that Fannie and Freddie, two linchpins of the nation’s mortgage market, continued to push into new, risky markets despite internal debate over whether the efforts were prudent.

Fannie and Freddie declined to comment yesterday, as did Andrukonis. In testimony today before the House oversight committee, Syron acknowledged he was warned about risky loans but said that executives thought they had made the right decision, balancing profit motives, public policy goals and safety concerns.

Related: Credit Crisis Primer.

Here’s an excerpt from Investors Business Daily:

Fact: The 1977 law was only lightly enforced until Clinton added teeth to it in 1994 and launched an anti-redlining campaign against banks, led by Ludwig, Housing Secretary Henry Cisneros (and later Andrew Cuomo) and Attorney General Janet Reno that lasted into this decade.

Minority homeownership rates, which had been flat, began a steep rise in 1995, and home prices soon followed, stoked by easier lending. Numerous bank officials complain that they still feel pressured by CRA regulators to make inner-city loans they know are at great risk of defaulting.

Myth: The CRA could not have led to financial Armageddon, because the overwhelming share of subprime mortgages came from lenders that were not banks and not regulated by the CRA.

Fact: Nearly 4 in 10 subprime loans between 2004 and 2007 were made by CRA-covered banks such as Washington Mutual and IndyMac. And that doesn’t include loans made by subprime lenders owned by banks, which were in effect covered by the CRA.

Last year, when the bubble burst, bank subprime loans totaled $142 billion, dwarfing those made by lenders.

What’s more, the biggest subprime lender, Countrywide, while not subject to the law, still came under federal pressure to make risky loans in minority communities.

Clinton created a separate department at HUD to police “fair lending” at Fannie and Freddie and also at lenders like Countrywide, which became Fannie’s biggest client. In 1994, Countrywide became the nation’s first mortgage lender to sign with HUD a “Declaration of Fair Lending Principles and Practices.”

As a result, Countrywide made more loans to minorities than any other lender — and not surprisingly, was one of the first lenders swamped by loan defaults.

Other lenders felt the heat from Reno’s Justice Department, which prosecuted them for failing to operate enough branches in black neighborhoods. Reno put the entire banking industry on notice about the CRA and her enforcement program.

Myth: The CRA did not force anyone to do subprime loans or take excessive risks.

Fact: Subprime loans were the vehicle banks used to satisfy CRA compliance, and Clinton and his regulators encouraged their use. Before Clinton took office, subprimes were virtually unheard of. By the time he left, they made up more than 9% of the market for mortgage originations. Today they’re 20%.

“It’s instructive to go back to the early stages of the subprime market, which has essentially emerged out of the CRA,” ex-Fed chief Alan Greenspan said in recent testimony on the roots of the crisis.

Clinton pushed banks to grant mortgages to minorities with poor credit by using “flexible” underwriting standards — or risk being branded racist. Rules were weakened to the point where welfare and unemployment checks were accepted as qualifying income.

Myth: Greedy investment bankers, who securitized and sold subprime mortgages, drove us to the credit crisis, not government.

Fact: Clinton’s regulatory policies led to the creation of this new risk on Wall Street. His CRA amendments created the subprime market, and only after he pressured Fannie and Freddie to socialize the risk and guarantee the profit from the subprime loans did Wall Street get involved in a big way.

The exotic securitizations that have gotten so much of the blame were a symptom, not the cause, of the crisis.

The architects of the crisis want to divert attention from their own culpability by blaming the markets rather than their own regulations mandating that banks make high-risk loans based on race.

In fact, regulations had almost everything to do with this mess. And instead of strengthening them to atone for the alleged “sins of capitalism,” we should be abolishing them.

Background: Credit crisis primer.