A just started war of words might eclipse, in significance, a contentious post World War II debate, which once rocked foreign policy circles, partisan politics, academia, and the media. "Who lost China?” was the trigger question after Mao led his nation towards Communism eschewing western democratic government models.
That belligerent query was tossed around with great smugness and vitriol, especially during our own McCarthy era, when “Reds’ and “Pinko sympathizers” were sought under every bed and in every closet.
My friend, the wise Mr. Z, believes that a new version of the old China blame game has started, but this time with the GSEs being part of the question as the GOP initiates a campaign to blame Democrats for ignoring GSE shortcomings, either as part of the McCain presidential exercise or looking ahead toward shaping George W. Bush’s presidential legacy.
Sunday GSE Smashdown
“Z,” who virtually predicted the Treasury Secretary Henry Paulson’s “Sunday Smashdown,” when he warned about Paulson’s last minute request for GSE takeover authority and analogized it to the hastily passed “Gulf of Tonkin” resolution, which the Johnson Administration then used to declare war formally against the North Vietnamese and their Chinese and Russian allies.
Mr. Z is convinced that the GOP is trying to use confusion surrounding the GSEs to “swift boat" the Democrats.
An excellent example of this was last Friday’s Washington Post, whose editorial tendencies fast are making it “Rupert Murdoch South.” (Maybe it’s an infusion of too many former WSJ staffers who are turning Kay Graham’s paper into an extension of the Heritage Foundation.)
On that day last week, the Post carried, “Where Was Chris Dodd?,” an op-ed piece by two former Bush White House staffers, Al Hubbard, who headed President Bush Council of Economic Advisors from 2005 until 2007, and Noam Neusner, who was a Bush speechwriter from 2002 through 2005.
Hubbard and Neusner chastised Sen. Dodd (D-Ct.), claiming the Senate Banking Chairman long had ignored Bush Administration GSE concerns and managed to lay blame on other congressional Democrats, too.
Dodd and New York’s Chuck Schumer head their list, but for good measure they throw in Hillary Clinton and Barack Obama, who the last time I checked were never on the Senate Banking Committee. They go after House Financial Services Committee Chairman Barney Frank (D-Mass.) and, surprise, surprise; they extol the virtues of GOP Senators Dick Shelby (Ala.), John Sununu (NH.), Chuck Hagel (Neb.) and Elizabeth Dole (NC).
Let’s Blame, uh…Them!
But a closer look will show that “fire, ready, aim” doesn’t work for them in this case. Messrs. Hubbard and Neusner--ignoring the facts that are as plain and searing as today’s headlines--are hoping to deflect true responsibility from their former boss, George W. Bush and his GOP financial regulatory appointees, not only from the GSE woes but the broader real estate driven economic miasma.
Now what is the crux of today's significant real estate problem and the real distortion in Hubbard-Neusner column?
It is simple. They identify the wrong problem and wrong culprits, Fannie and Freddie and the Democrats in Congress. They claim they saw a tree, but missed the forest.
It Wasn’t the GSEs
It wasn't Fannie's and Freddie's structure, market role, or business activities which caused the real estate woes that have wracked our economy. It wasn’t their affordable housing mission. It wasn’t that they invested 55% of their annual business in mortgage loans for low, moderate, and middle income families. It wasn’t their lobbying teams or their corporate compensation.
Hubbard and Neusner couldn’t have been very good at their jobs (kind of goes with being a Bush appointee), because their column totally ignores the real problem, i.e., the creation of hundreds of billions of dollars in subprime mortgages and mortgage backed securities, originated utilizing a cadre of mortgage brokers and sold by a group of Wall Street firms.
The broker originated subprime loans bypassed Fannie Mae and Freddie Mac, which had dealt only in “prime mortgages,” ergo the name “subprime,” and were sent directly to the investment banking firms for their “private label” (once again, meaning non-Fannie or Freddie) payment guarantee.
When those loans began failing with unprecedented velocity, it was this multitude of garbage, brought to the nation by the financial engineers in New York and sold by the same all over the world, which gave birth to the failures and setbacks that have caused untold economic destruction in our nation and internationally.
Look at the destructive subprime root cause of our residential real estate problems and you’ll find GOP fingerprints, handprints, and DNA all over it, both on the regulatory side—through lassitude--and the private sector operationally.
Forget, “Who lost China?” Who invited the subprime mortgage poison into our mortgage finance system and let it seep through hundreds of financial institutions and sicken our entire economy?
Unfettered subprime lending is barely five years old. And it has been responsible for huge financial losses at every major and small bank, the failures of Bear Stearns, Lehman, AIG, Merrill Lynch, and half a hundred smaller banks, the takeovers at Fannie and Freddie (although those had a huge political element to them) and much more.
The resulting losses to American families in net worth, lost jobs, and declining home values, is nearly incalculable. (Please remember that when you vote in November!)
With Apologies to Matt Damon…
OK, blame game, huh? Here, chew on these apples!
Where the hell was Bush Treasury when the subprime rot was beginning to fester? Where was the Bush SEC when it was congealing? Where were Hubbard and the Bush Council of Economic Advisors when subprime was “all the rage?” Where were the Bush Fed appointees when this poison was being created and disseminated throughout the banking system? Where was President Bush? Where was Alan Greenspan, whose vision seemed to fail him when he ran the Fed, only to return to 20-20 standards after his departure?
Nobody really thinks Fannie and Freddie brought on this subprime mess and the resulting calamity. The cancerous systemic risk came from those institutions that were darlings of the Bush Treasury, SEC, Fed, and White House, and by those same Bush regulatory officials who ignored the growth and development of the threat because their historic business buddies were making money hand over fist!
Walt Kelley’s Revenge
If the Bush Administration had been doing even the least bit of oversight of the financial markets, the Wall Street investment banking firms seeking to fill ravenous hedge fund demands for "high yielding investment," the investment houses never could have started this ball rolling and our national economy never would have experienced the seismic problems and losses it has endured over the past two years.
So Messrs Hubbard and Neusner, save us from your spin on what “signals” Chris Dodd or Barney Frank may have missed and your phony concern over what Taxpayers could lose on the trumped up “GSE takeover.” (More about all that in my next blog.)
Crappy mortgage loans produced outside the GSE process in a subverting manner and no Washington oversight from the GOP financial regulatory arms was and is 95%+ of the problem!
If the Republicans, including George W. Bush, John McCain, and Sarah Palin, and their amen choruses want to point fingers over this incredible housing disaster and resulting economic blood letting, at least they should point them in the “right” direction (pun intended).
When the GOP finally summons the honesty about this matter, they will discover what Pogo found out. “We have met the enemy and he is us!”