by Melissa Clouthier | September 19, 2008 11:45 am
In July, I wrote about New York’s Democrat Senator Charles Schumer’s loose lips being a reason for the current banking crisis–remember he blabbed about IndyMac’s viability and people withdrew 1.3 Billion dollars the next day, guaranteeing its failure. Well, he’s been running his big mouth again, this time on the Senate floor where he said this:
“these unprecedented events have made it clear to the country what many of us have been saying for some time. we are in the midst of the greatest financial crisis since the great depression. eight years of deregulatory zeal by the bush administration, an attitude of the market can do no wrong have led us down a short path to economic recession. from the unregulated mortgage brokers to the opaque credit default swaps market to aggressive short sellers who are driving down prices of even helgy financial institutions based on innuendo, this administration has failed to take the steps necessary to protect both main street and wall street.”
Chuck wants to blame the President, but he needs to look in the mirror. One of the worries with the Gramm-Leach-Billey bill of 1999 was that there would be bank mergers like happened before the Great Depression, but it didn’t happen quickly enough for Chuck Schumer:
The industry’s recognition that banks and insurance companies don’t necessarily make good bedfellows involves impediments in several important fronts:
Regulation. Banks and insurance companies operate within two different regulatory environments. Unlike banks, which have federal oversight by the Office of Thrift Supervision, insurance companies are state regulated. To address one aspect of state regulation, a provision of Gramm-Leach-Bliley requires U.S. jurisdictions to adopt uniform or reciprocal agent-and broker-licensing laws by November 2002 (three years from the enactment of the law) to avoid the creation of a National Association of Registered Agents and Brokers. Although the National Association of Insurance Commissioners said it had succeeded in satisfying the Gramm-Leach-Bliley requirements by having enough state legislatures pass bills permitting reciprocity, there are other issues raised by state regulation, like duplicative administrative processes.
Insurance companies are unable to respond to market changes and consumer demands on a timely basis, because they are subject to regulation (rate filings, new product approval, etc.) by each insurance department in the states in which they do business. To address this, a number of different industry organizations have advocated the federal chartering of insurers. And Sen. Charles Schumer, D-N.Y, and Rep. John LaFalce, D-N.Y, introduced legislation that would permit the optional federal chartering of insurers. Clearly, the regulation of insurance companies is evolving, and it is uncertain how it will play out. (See “State vs. Federal,” Best’s Review, April 2002.)
Mind you, this was in 2002. Schumer possesses an astonishing amount of gall even for a Senator. Maxed Out Mama has everything you need to know about the genesis of this crisis and notes the Clinton administration’s involvement:
The distinction between activities allowed to banks and non-bank financial institutions was largely removed by the passage of GLB, and these institutions were allowed to conglomerate. Note that waivers granted by the Clinton administration earlier in the decade allowed evasion of Glass-Steagall, and GLB’s passage essentially levelled the playing field as well as legalizing the 1998 merger that created Citigroup. ( The Clinton administration’s role in creating the current situation is one of the reasons I considered Hillary’s campaign truly an exercise in Boob Power. Not that the Republicans can escape blame, because a GOP-dominated Congress passed the legislation urged by the Clintons. )
The result was that overall regulation was reduced, the incentives to verticalize were massive, counterparty buffers were eliminated, and within less than 10 years, the financial system imbalances that produced the Great Depression in the US had returned.
The thing is, the President doesn’t legislate, Congress does. Why wasn’t Chuck Schumer sounding the alarm bells in 2002? More importantly, why did he vote FOR the legislation that produced this debacle? This is why. Again from Maxed Out Mama:
Throwing easy money on top of this type of structure is a recipe for a run-up and a crash. During the run-up phase, everyone is making money. Housing is appreciating (and so is commercial real estate). Sure, the underwriting quality tends to become worse every year, because there is no penalty for bad underwriting, good underwriting is expensive, and some goof is always going to cut standards and margins, thus forcing the other competitors to either sacrifice profit or standards. And the goof who cuts underwriting cuts expenses, and provides a better profit to the aggregator, so that goof gains business.
Yet no one’s going to detect the fraud, because although maybe DTIs are too high and people can’t pay their mortgages, yet the easy refi or sale for profit is always out there. The investors get paid, the IB gets big bucks, the NRSRO makes easy, large chunks of money, and the realtors are very, very happy. All of these people manage to maintain high levels of campaign donations to local, state and federal politicos, so the Congress Critters are very happy. The Congress Critters also like their cheap loans, and those cute and profitable real estate deals in which they just happen to be offered silent partnerships.
Guys like Schumer didn’t just like their own wheels greased, they pushed Freddy Mac and Fanny May to take MORE risks. Meanwhile now, Schumer blames the current administration, when it was President Bush in 2003, who sounded the alarm and as noted at Sweetness and Light. The New York Times didn’t look to fondly on President Bush’s attempts. Why, that’s a surprise! Here’s their analysis:
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
September 11, 2003
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
Now, about tying McCain to Bush being a bad deal. Well. John McCain also was concerned about the impending crisis and this was in 2006. Here is what he said:
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.
And what happened with this legislation? Nothing. Democrats like Charles Schumer, in the pocketbooks of lobbyists, killed it. You see, by this time, the Dems controlled Congress.
So, you see, Charles Schumer’s arrogance knows no bounds. There is plenty of blame to go around about this and a big chunk of it rests on Schumer’s shoulders.
Cross-posted at MelissaClouthier.com
Source URL: https://rightwingnews.com/uncategorized/democrat-senator-chuck-schumers-role-in-americas-financial-crisis/
Copyright ©2023 John Hawkins' Right Wing News unless otherwise noted.