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There’s been a lot of posturing by the Obama campaign the past couple of days over the hits to the financial industry, and questioning of whether John McCain “gets it.” He got it, all right. The following is a statement made by Sen. McCain on the floor of the Senate on May 25, 2006, regarding the need to reform the housing finance industry, and particularly to bring greater accountability to Fannie Mae.
In summary, the bill, S. 190, of which John McCain was one of only four co-authors (Sen. Obama being none of the other three), proposed to amend the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish an independent Federal Housing Enterprise Regulatory Agency which would have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Mr. McCAIN. Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.
The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.
For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.
I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.
I urge my colleagues to support swift action on this GSE reform legislation.
September 17th, 2008 at 12:04 am
Sorry. The link to the statement is a dead link. It was meant to be a link to McCain’s floor statement on May 25, 2006, when he signed-on as a co-author of this legislation. It was found, and can be found (with a little diligence in searching) on Thomas.gov.
September 17th, 2008 at 12:21 am
Yet another example of history proving McCain right.
September 17th, 2008 at 12:25 am
The campaign should run a video of this floor statement (I’m sure one exists), as an ad. It speaks for itself.
September 17th, 2008 at 12:27 am
3, mega dittos
September 17th, 2008 at 12:30 am
I’m very dumb when it comes to the stock market/housing/credit issues… can anyone explain how Freddie and Fannie had anything to do with the housing crisis (and how does that have to do with the bankruptcies of all these investment banks?)… like how does what Freddie/Fannie do affect Lehman Bros and Merrill Lynch? All I’ve heard so far is that Fannie and Freddie provided a govt guarantee to all these bad sub-prime mortgage loans issued out by the mortagage campanies and that the banks have to buy all these houses from ppl foreclosing, losing the ability to stay out of the red?? Am I on to something???
BTW, Obama is the 2nd highest Senator receipient of contributions from Fannie/Freddie… And apparently some Dems in 2003 rejected a Bush proposal to refirm Freddie/Fannie out of concern that it would hurt Freddie and Fannie’s ability to provide home loans to low-income ppl that couldnt afford the mortgage (kind of like sub-prime mortgage loans). One could argue that Freddie and Fannie incentivized these shady loans by these mortgage companies by handing out loans like candy.
September 17th, 2008 at 12:41 am
Check this out from the American Spectator:
Fanny, Freddie, and Obama
By The Prowler
Published 9/8/2008 12:08:38 AM
When President George W. Bush nominated Henry Paulson to serve as Treasury Secretary, Republicans raised a red flag that Paulson, who, along with his wife, has strong ties to the Democrat party, would not be an honest broker with Republicans.
That seems to have been borne out, with sources inside of Treasury reporting that Paulson briefed Sen. Barack Obama and his campaign advisers on the Fannie Mae and Freddie Mac bailout plan before offering such a briefing to the McCain campaign.
In fact, the McCain campaign had sought a similar briefing several days ago as word spread that a bailout plan was to be unveiled and had been turned down by Paulson’s senior staff.
The next question is: Why was the Obama campaign so keen on getting advanced word about the bailout?
“They have a huge problem with the mortgage and housing market story, and everyone is missing it,” says a Republican political media consultant with ties to the Obama campaign due to the bipartisan nature of the firm he does work with.
“You look at Obama’s economic advisers, the guys he has counted on from day one and who have raised him a ton — and I mean a ton — of money: Franklin Raines and Jim Johnson, both of them are waist to neck deep in the mortgage debacle.”
Both Raines and Johnson have served as CEO of Fannie Mae, with Raines taking over from Johnson. Both are key political and economic advisers to Obama.
“How can Obama go out with a straight face and saw it was Republicans who made this mess, when it is his key advisers who ran the agencies that made the big mess what it is?” says a Democrat House member who supported Sen. Hillary Rodham Clinton. “It’s his people who are responsible for what may well be the single largest government bailout in history. And every single one of them made millions off the collapse that are lining Obama’s campaign coffers. If the McCain campaign lets this one go, they deserve to lose.”
It isn’t just Fannie Mae where Obama has a problem. Another close political adviser, in fact the one man responsible for rallying support for Obama early on among Congressional Democrats, is Rep. Rahm Emanuel, who served on the Board of Directors for Freddie Mac after leaving the Clinton White House. According to Freddie Mac insiders, Emanuel during his time on the board opposed every reform proposed by the Bush Administration that would have impacted Freddie and Fannie Mae.
Emanuel claimed to be neutral in the primary race between the wife of his old boss and his longtime Chicago acquaintance, Obama. But the chairman of the House Democratic Caucus, who would be first in line for the vacated Senate seat of Obama should he win the presidency, quickly dumped Clinton when it was clear Obama had a head of steam for the nomination.
“We ought to be able to — rightly — hang the Fannie and Freddie scandal around the neck of Obama, if they can get out in front,” says a House Republican. “Middle-class folks’ mortgages are probably safe, but the American taxpayer will also be paying for this scandal for years to come.”
http://www.spectator.org/dsp_article.asp?art_id=13841
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Freddie and Fannie, very apparently, were safe-landing areas for former Clinton officials once Clinton was on his way out of the White House.
September 17th, 2008 at 12:43 am
If the McCain campaign plays this right, this whole Freddie/Fannie/Lehman Bros. fiasco should blow up in the Democrats’ face.
September 17th, 2008 at 12:45 am
my feeble attempt at answering #5,
Freddie and Fannie set the guidelines on how (and how much) banks were allowed to loan. (ie conforming loans). During the dot com hey day, you could get an approved loan in seconds with zero down without declaring an income by writing “i totally owe you 500,000 dollars in the next 50 years” on a used napkin. basically they helped create the biggest pyramid scheme –legal or illegal– in the history of the world. of course as mccain pointed out today, no one truly understands the whole banking/mortgage/insurance industry, they just know you can make a fortune off it if you’re in the right place at the right time.
September 17th, 2008 at 12:45 am
“During the dot com hey day” should be “during the sub prime hey day”
September 17th, 2008 at 1:34 am
[...] following statement was made by John McCain on the floor of the Senate on May 25, 2005. Mr. McCAIN. Mr. President, this week Fannie Mae’s [...]
September 17th, 2008 at 3:32 am
Well to be precise about it, Fanny and Freddie did not actually write those liars loans, loans above 430K or ones with ridiculous terms like 36 mos @1% interest with a balloon payment of the balance on the 37th month. They got screwed when others did that driving up home values for their mortgage holders. Then when values started to crater, they were hammered by their mortgage holders being caught upside down or defaulting. Granted, freddie and fannie did loosen their standards and did write loans to people who should be owning.
This is a bipartisan mess. Deregulation began with Regan, and Bush 1, accelerated with Clinton and the Republican Congress and continued with W. and a complicit congress, writing and signing ever newer and more creative ways to slice dice and repackage loans of all types by all institution for all individuals. Everyone was a participant. Then when things started to come unglued in terms of common sense, the Fed remained asleep at the wheel, downplaying the problem and dropping rates nearly to zero (in real terms) setting off the manaical excesses of the last few years.
We even roped other nations into this mess by getting them to buy our securities in exchange for imported goods (china) or oil (middle east). It even stimulated realestate booms in other countries.
We’re going to be paying for this for years.
September 17th, 2008 at 10:56 am
Wow, I’m a huge Obama supporter, but I am very impressed on this one by McCain’s foresight. Though I believe everything about him has drastically changed since his White House bid, he definitely deserves credit on this one.
For the THOMAS link, visit:
http://thomas.loc.gov/cgi-bin/query/B?r109:@FIELD(FLD003+s)+@FIELD(DDATE+20060525)
and then click item #16.
September 18th, 2008 at 10:18 am
[...] our own Greg Alterton, and our friend Mark Levin and others in talk radio have pointed out, McCain PREDICTED the current [...]
September 20th, 2008 at 11:02 pm
[...] of this roughly THREE YEARS AGO!!! Here are two links: And the Democrats killed the legislation! race42008.com ? Blog Archive ? McCain warned of Fannie Mae “accounting scandal,” sought … GovTrack: Senate Record: FEDERAL HOUSING ENTERPRISE REGULATORY REFORM… (109-s20060525-16) McCain [...]
September 21st, 2008 at 12:23 am
[...] of this roughly THREE YEARS AGO!!! Here are two links: And the Democrats killed the legislation! race42008.com ? Blog Archive ? McCain warned of Fannie Mae ?accounting scandal,? sought reform, in 2… GovTrack: Senate Record: FEDERAL HOUSING ENTERPRISE REGULATORY REFORM… (109-s20060525-16) McCain [...]