The bill would enrich Goldman Sachs at the expense of taxpayers and smaller competitors. While the bill contains lots of red tape and fees that will harm insurance policyholders and Main Street, it contains selective “carve-outs” from consumer-protection laws for cronies of Senator Chris Dodd. Dodd recently attracted criticism for financial and ethical lapses, such as his receiving “a sweetheart deal on an Irish “cottage” from a crooked stock-trader” and “two preferential discount mortgage interest deals from the now-bankrupt Countrywide.” Goldman Sachs is the fourth-largest donor to Democratic campaigns, ranking just below public-employee unions and trial lawyers in its massive support for liberal politicians.
The financial bill contains goodies for Big Labor and “too big to fail” banks and financial institutions, at the expense of taxpayers and competing firms.
Obama has collected millions from Wall Street special interests, his administration contains many Wall Street lobbyists, and he supported the unnecessary $700 billion bank bailout. But now, he’s pushing a deceptive financial regulation bill with phony rhetoric about “reform,” claiming it is “not legitimate” to point out that the bill could lead to yet more bailouts and government takeovers.
Obama’s legislation would do nothing to rein in the worst offenders behind the mortgage crisis, the government-subsidized mortgage giants Fannie Mae and Freddie Mac, while enriching left-wing lobbying groups and community organizers, and giving the government the permanent ability to bail out and take over Wall Street firms.
Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” Worse, the Obama administration lifted the $400 billion limit on bailouts for Fannie and Freddie, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation. The Obama administration is now expanding the bailouts of these mortgage giants so that they can lavish pay on their CEOs and reduce the payments of deadbeat mortgage borrowers. (At the direction of the Obama administration, Freddie Mac is now running up $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.)
Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk. “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”
Why did they buy these risky loans? They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses. As GSEs, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.
Banking expert Peter J. Wallison, who prophetically warned against the risky practices of Fannie Mae and Freddie Mac for years, says that Obama’s proposals will lead to “bailouts forever” and give big, politically-connected banks that are “too big to fail” the ability to drive smaller rivals out of business at the expense of consumers and taxpayers. His colleague Alex Pollock notes that Obama has not lived up his administration’s claims that it would back reform of Fannie Mae and Freddie Mac.
Obama claims that it will not lead to more bailouts, but even congressional Democrats admit that it will. As Congressman Brad Sherman (D-Calif.) admitted, the “bill has unlimited executive bailout authority. . .The bill contains permanent, unlimited bailout authority.”
Government pressure on banks to make loans in economically-depressed neighborhoods was another key reason for the mortgage meltdown and the financial crisis. If Obama has his way, that pressure will increase. The House earlier approved Obama’s proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.” It would do so without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.
Obama’s proposed financial regulations would also harm retail banking operations used by middle-class people and small businesses.