financial regulation

The “Obama Law” Devastates Impoverished People in the World’s Second Poorest Country, The Congo

by Hans Bader on August 9, 2011 · 6 comments

in Deregulate to Stimulate, Economy, Employment, International, Legal, Politics as Usual, Property Rights, Regulation, Sanctimony, Trade, Zeitgeist

People are going hungry, pulling their children out of school due to poverty, and joining criminal gangs to make ends meet in the poorest region of the Congo, the world’s second-poorest country.  Residents of this African nation attribute this economic devastation to what they call “the Obama Law” — provisions of the 2010 Dodd-Frank financial “reform” law backed by Obama that have created a virtual embargo on minerals produced in the Congo’s desperately-poor mining towns. As David Aronson notes in The New York Times,

The “Loi Obama” or Obama Law — as the Dodd-Frank Wall Street reform act of 2010 has become known in the region — includes an obscure provision that requires public companies to indicate what measures they are taking to ensure that minerals in their supply chain don’t benefit warlords in conflict-ravaged Congo. . . the Dodd-Frank law has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.

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Barney Frank Used Influence with Fannie Mae, the Failed Mortgage Giant Bailed Out by Taxpayers

by Hans Bader on May 26, 2011

in Bailout Watch, Economy, Legal, Property Rights

Former House Banking Committee Chairman Barney Frank (D-Mass.) tenaciously opposed efforts to reform Fannie Mae and Freddie Mac, the government-sponsored mortgage giants that were bailed out at a cost to taxpayers of between $148 billion and $363 billion. Now it turns out that he got his boyfriend a “handsomely rewarded gig at Fannie Mae” while Frank “was helping to inflate the housing bubble” by pushing affordable housing mandates and policies that encouraged Fannie Mae to buy up risky mortgages.

Fannie Mae and Freddie Mac engaged in massive accounting fraud and other abuses. But Fannie Mae’s collapse was not entirely due to bad policies of its own making. Pressure from liberal lawmakers like Frank to buy up risky mortgages was also a factor in triggering the mortgage crisis, judging from a story in the New York Times. For example, “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source.” The executives of government-backed mortgage giants Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.”

Despite his key role in causing the financial crisis, Frank became even more influential after President Obama took office. As the New York Times noted, the massive financial overhaul later passed in response to the financial crisis is “largely the product of extensive conversations” between the Obama administration and “Representative Barney Frank of Massachusetts and Senator Christopher J. Dodd of Connecticut.” That law, known as the Dodd-Frank Act, harms the economy, and violates both the Constitution’s separation of powers, and private property and equal-protection rights.

Frank’s co-sponsor of the Dodd-Frank Act, Senator Chris Dodd, left office in disgrace after ethical lapses. As Victor Davis Hanson notes, Dodd “got a sweetheart deal on an Irish ‘cottage’ from a crooked stock-trader,” “receiving it for hundreds of thousands of dollars less than its market value,” “got two preferential discount mortgage interest deals from the now-bankrupt Countrywide,” “got a sweetheart profit deal from a condo joint-buy with crook Edward Downe, Jr.,” “intervened with the Clinton administration to get the felon Downe pardoned,” and “misrepresented the value of his Irish cottage that he obtained via the agency of the dubious Mr. Kessinger.”

Tim Carney Knows How Washington Works

by Ryan Young on January 21, 2011

in Deregulate to Stimulate, Economy, Politics as Usual, Regulation

Former Warren Brookes Fellow Tim Carney’s latest Washington Examiner column, “Bail them out, regulate them, then work for them,” is a must-read.

Amy Friend, a former staffer for Sen. Chris Dodd, played a large role in writing the Dodd-Frank financial regulation bill. And she just got a new job at a lobbying firm. Tim explains:

There are two types of people on K Street: access people, who can get you in the door; and policy people, who know what’s on every page of every relevant bill and regulation. Friend is the latter. While business will dry up for other Dodd alumni on K Street, Friend is valuable because — to quote one Republican lobbyist — “she knows what’s on page twenty-three-[bleep]ing-hundred of that bill,” and every other page, too.

In other words, Friend didn’t just write a landmark piece of legislation — she wrote her meal ticket.

Tim doubts that Friend is corrupt. But her story is very common in Washington. Lobbying wouldn’t be such a booming business if regulation wasn’t too. And the revolving door between the Hill and K Street can be very profitable, even when no corruption is involved. Most people forget that regulators act just as self-interestedly as the people they regulate.

Many Free Checking Accounts Disappearing Due to Dodd-Frank Financial “Reform” Law

by Hans Bader on September 22, 2010

in Economy, Legal, Politics as Usual, Regulation, Sanctimony, Zeitgeist

The so-called financial “reform” bill that passed Congress — the Dodd-Frank Act — is wiping out many free checking accounts, since many banks can’t afford its red tape unless they either charge a monthly fee, or require a minimum balance of well over $1,000.

Ted Frank’s bank is now charging him a $15 monthly fee and $0.50 per check on his formerly free checking account, thanks to the consumer “protection” red tape in the Dodd-Frank Act, which was recently signed into law by the president.

Earlier, the same thing happened with credit cards, where a law passed by Congress in 2009 had the effect of reviving annual fees and wiping out many cash-back and rewards programs.  Congress passed a law called the CARD Act of 2009 (Credit Card Accountability Responsibility and Disclosure Act) that resulted in some of my wife’s previously-free credit cards charging her an annual fee, or chopping her rebates on purchases (she canceled those cards, and used other cards instead; but some cardholders don’t have other cards without annual fees).  Many, but not all, credit cards have reinstated annual fees or canceled rebates and rewards programs thanks to the CARD Act.  The law effectively forces responsible people to subsidize irresponsible people.  Passed in the name of consumer protection, it actually ripped off many consumers.

Senate Passes Financial “Reform” That Leaves Corrupt Bailout Recipients Unreformed, While Harming the Public

by Hans Bader on July 16, 2010 · 1 comment

in Bailout Watch, Economy, Environment, International, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Yesterday, the Senate passed a so-called financial reform bill by a vote of 60-to-38, making it all but certain to become law.  The bill will do nothing to prevent another financial crisis or end bailouts, but it will cause all sorts of new problems.

The bill does nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials admit they were at the “core“ of “what went wrong.”  But it will impact farmers and others who had nothing to do with the financial crisis, by imposing restrictions on derivatives they use to hedge against risk, restrictions that could cost U.S. companies as much as $1 trillion in lost capital and liquidity.

Fannie Mae and Freddie Mac have been incredibly costly to taxpayers.  The Obama administration earlier lifted a $400 billion limit on bailing them out.  At the direction of the Obama administration, Freddie Mac ran up more than $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, reported The Washington Post.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, 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.”  The situation was recently found to be even worse than feared by the federal Financial Crisis Inquiry Commission.

Meanwhile, they paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, 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.

Financial “Reform” Bill Engages in Racial Engineering, While Ignoring Corrupt Mortgage Giants

by Hans Bader on June 15, 2010

in Bailout Watch, Culture, Economy, Employment, Labor, Legal, Nanny State, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Congress and the Obama administration refused to do anything about the corrupt government-sponsored mortgage giants, Fannie Mae and Freddie Mac, even though administration officials admitted that they were at the “core” of “what went wrong” in our financial system.  Doing so was just “too hard,” they claimed, and too time-consuming.

But they did find time in their financial “reform” legislation to push racial quotas at the Federal Reserve, requiring each Federal Reserve Bank to establish an “Office of Minority and Women Inclusion” to “increase the participation of minority-owned and women-owned businesses in programs and contracts.”  This requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice.

Forget about those pesky Supreme Court decisions saying that racial preferences are presumptively unconstitutional and subject to strict scrutiny, and not permissible to promote “racial balance.”  Apparently, they are obsolete in the era of “hope and change.”  Plenty of other changes are afoot too.  Obama fired an inspector general for exposing corruption by one of his cronies.  And the Obama Justice Department illegally defied the Civil Rights Commission to cover up the fact that the administration let members of the racist, anti-Semitic New Black Panther Party get away with voter intimidation.

Senate Passes Financial “Reform” Bill, 59-39; Will Wipe Out Jobs and Increase Credit Card Costs

by Hans Bader on May 21, 2010 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, International, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

The Senate has just passed a 1,500 page financial “reform” bill that deliberately leaves unreformed the corrupt mortgage giants that spawned the financial crisis–while wiping out jobs and potentially driving up fees for many credit cardholders.

In a party-line vote, Senate Democrats earlier blocked any reform of Fannie Mae and Freddie Mac, the corrupt, government-sponsored mortgage giants that even Obama administration officials admit were at the “core” of “what went wrong” in the financial crisis.

(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals, yet is the chief drafter of the financial “reform” bill.)

Business groups warn that the new rules will wipe out jobs and slow the economic recovery. “If you want to drive capital out of the United States, this is your bill,” said Thomas Donohue, president and CEO of the US Chamber of Commerce.

The bill also increases banks’ costs by restricting the ability of banks to enter into contracts charging retailers for the convenience of using credit or debit cards to collect payment from customers.  When Australia did this credit card holders suffered, as banks passed on the increased costs to them by hiking annual fees and getting rid of cash-back, rebate, and rewards programs.  (Ironically, recent interest rate hikes are partly the product of a law recently passed by Congress, the CARD Act, which forces responsible people to bear the costs of irresponsible borrowers.)

In the Wall Street Journal, Professor Todd Zywicki notes that such provisions harm consumers: “This is exactly what happened when Australian regulators imposed price controls on interchange fees in 2003: Annual fees increased an average of 22% on standard credit cards and annual fees for rewards cards increased by 47%-77%. Card issuers also reduced the generosity of their reward programs.”

The so-called financial “reform” bill would also give government officials the ability to nationalize businesses that they claim are at risk of failing — and block meaningful judicial review of such seizures by shareholders alleging violations of their constitutional rights.  (That will increase the ability of presidents to shake down businesses for donations to their political allies, since a business in danger of being seized by the government will try to curry favor with government officials.)  The bill’s House architect, Barney Frank, boasts that it will create “death panels” for American companies (this is the same Barney Frank who for years blocked any reform of the corrupt mortgage giants Fannie Mae and Freddie Mac).

Mortgage giant Fannie Mae is getting another $8.4 billion in federal bailout money, after the Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs).  The other GSE, Freddie Mac, is getting $10.6 billion more in bailouts.  Soon, they will be receiving much more: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports the New York Times.

At the direction of the Obama administration, Freddie Mac ran up more than $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.)  By contrast, the Republican alternative, rejected by the Senate, aimed “to wind down, and break up” the mortgage giants and “limit taxpayer exposure” to their losses.

The Obama Administration showered the mortgage giants’ executives with $42 million in compensation.

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.”  They paid their CEOs millions, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As Government-Sponsored Enterprises, 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 Wallison, who warned for years about the risky practices of Fannie and Freddie, said the financial “reform” bill would lead to “bailouts forever,” contrary to Obama’s claims.

Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis.  That pressure will increase under the financial “reform” legislation.  Legislators approved Obama’s proposal to create a new consumer “protection” agency.  But it may harm rather than help consumers.  Why?  “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.

Taxpayers to Put Up Billions More for Bailouts of Greece and Corrupt Mortgage Giant

by Hans Bader on May 6, 2010 · 1 comment

in Bailout Watch, Economy, International, Labor, Legal, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Government-sponsored mortgage giant Freddie Mac is demanding another $10.6 billion in bailouts, which the Obama administration is expected to give it. Obama’s so-called financial “reform” proposal does absolutely nothing to reform Freddie Mac, admits Obama’s Treasury secretary, tax cheat Timothy Geithner, even though he admits that Freddie Mac was “a core part of what went wrong in our system.” (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.)  By contrast, the Republican alternative “aims to wind down, and break up” Freddie Mac and “limit taxpayer exposure” to its losses.

“American taxpayers are paying for $6.8 billion of the Greek bailout” through contributions to an international bailout fund backed by the Obama administration.   Greece is being bailed out by Europe and the international community because it is running up huge budget deficits due to a bloated bureaucracy and government pensions that let many retire in their 50s. “The Obama administration wants to use U.S. tax dollars to bail out a nation that is in a financial death spiral brought on by years of amazingly irresponsible deficit spending and similar behaviors often found in socialist states.”

Rioters in Greece killed three bank employees yesterday in their rage over possible budget cuts.  “The protesting civil servant workers trapped the bank employees in a burning building.”

Government spending is out of control in America, too.  Earlier, the Obama administration lifted the $400 billion limit on bailouts for the government-sponsored mortgage giants Freddie Mac and Fannie Mae, 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.

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.”  They paid their CEOs millions, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As Government-Sponsored Enterprises, 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.

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.

Bogus Financial “Reform” Bill Regulates Internet, Does Nothing About Corrupt Government-Sponsored Mortgage Giants Fannie Mae and Freddie Mac

by Hans Bader on May 3, 2010 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

The so-called financial “reform” bill backed by President Obama gives federal bureaucrats new powers over the Internet, while doing nothing about the corrupt government-backed mortgage giants that spawned the financial crisis.

For example, “the bill contains provisions that would put the Federal Trade Commission in position to start issuing rules on Internet transactions that would not only slow down business growth but also have no relevance at all to the financial collapse that prompted the bill.”

Meanwhile, the bill does nothing to reform the government-sponsored mortgage giants 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 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.)

The bill will also enrich the Wall Street firm of Goldman Sachs, recently accused of fraud, which bankrolls liberal lawmakers.

Government pressure on banks to make risky loans was a 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.

So, too, were the government-sponsored mortgage giants, Fannie Mae and Freddie Mac.  They 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.”

Porn More Interesting to Media Than Flaws of Financial ‘Reform’ Bill; Obama Is “Lying His Face Off”

by Hans Bader on April 26, 2010

in Bailout Watch, Economy, Insurance, Legal, Politics as Usual, Regulation, Sanctimony

There are plenty of problems with the financial “reform” bill, but the media aren’t interested in that.  They’re much more interested in revelations that senior enforcement staff at the federal Securities and Exchange Commission, which would gain new powers under the bill, spent many hours looking at porn on their office computers.

The porn issue certainly deserves some attention, given just how much time some SEC staff wasted looking at porn at taxpayers’ expense: “A senior attorney at the SEC’s Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office.”  You have to wonder if this kind of inattention to its duties led the SEC to ignore the $50 billion fraud by Bernard Madoff, which was repeatedly brought to its attention to no avail, and the multi-billion dollar Ponzi scheme committed by Robert Allen Stanford.  But it probably didn’t.

While the media, including the New York Times, has reported on the porn, it has largely ignored substantive criticism of the financial “reform” bill, which is a Trojan horse that would reinforce risky practices that led to the housing bubble, while ignoring needed reforms, harming insurance policyholders, and giving executive branch officials arbitrary power to bail out or take over banks and financial institutions.

As journalist Matt Welch notes, Obama “is lying his face off about financial reform.”

President 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 (as economists and banking experts like Peter Wallison have demonstrated).

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, even as it would enrich the politically-connected liberal Wall Street firm Goldman Sachs (recently accused of fraud), enrich left-wing lobbying groups and community organizers, and give 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 lossesto 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.

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