Many of you have now seen the YouTube video where Bill O’Reilly socks it to Congressman Barney Frank for playing a large role in our current economic crisis.  If not, watch it here:

All Bark and No Bite

First of all, I want to address this ‘very tough’ regulatory bill (H.R. 1461) that Barney Frank speaks of, which was proposed in 2005.  The truth is that the bill allowed even more goodies to Freddie and Fannie, including a slush fund to transfer monies into the campaign coffers of the elected officials:

[H.R. 1461] was basically a dream come true for Fannie Mae and Freddie Mac.  They’d get to continue to grow their portfolios to juice their earnings; they’d have a new affordable housing slush fund to reward legislators who played ball; their new regulator wouldn’t have much sharper teeth than the old one; they wouldn’t have to raise capital or sell assets to meet stricter capital requirements; and they’d get a year without much of anyone looking over their shoulders.

This supposed ‘tough reform bill’ would have made the GSE’s Freddie and Fannie even more powerful, and more of an economic risk.  Oxley and his pals did nothing more than shift the deck chairs around a bit by creating a new regulatory agency so as to make it appear as if  they were doing something ‘tough’, but in all actuality the deck chairs were a mere smokescreen to what was going on at the helm.

The Bush Administration offered the now infamous scathing ‘one fingered salute’ to the plan, as well as a counter solution to the anticipated economic issues these entities would eventually cause.

The Administration has long called for legislation to create a stronger, more effective regulatory regime to improve oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (”housing government-sponsored enterprises” or “housing GSEs”) and appreciates the considerable efforts of Chairman Oxley and Chairman Baker in crafting H.R. 1461. However, H.R. 1461 fails to include key elements that are essential to protect the safety and soundness of the housing finance system and the broader financial system at large. As a result, the Administration opposes the bill.

The regulatory regime envisioned by H.R. 1461 is considerably weaker than that which governs other large, complex financial institutions. This regime is of particular concern given that Fannie Mae and Freddie Mac currently hold only about half of the capital of comparable financial institutions. In order for a financial regulator to be respected and credible, it must have the authority and ability to adjust capital requirements of the institutions it oversees as circumstances dictate to ensure prudential operations. An effective oversight regime must also provide for clear review of business activities to ensure the integrity of the housing finance system and consistency with the GSEs’ housing mission. The Administration does not believe that the housing GSEs should be exempt from these important standards of world-class regulation.

Had Congress not been controlled by the Republicans at the time, we’d certainly be in a much worse situation than we are now.  The only thing the majority Republican Congress should be blamed for is for not fighting back hard enough against Frank and Oxley. 

Also of note is the fact that Oxley, that ‘tough-on-regulations’ guy Frank speaks of, was the recipient of a special fundraiser at an upscale D.C. restaurant hosted by Freddie Mac’s chief Washington lobbyist, Robert Mitchell Delk.  All you have to do is follow the money, folks.  If this supposed ‘tough’ regulatory proposal were so tough, why would Freddie be showering the proposal’s originator with campaign funds and elaborate fundraising events?

The Homeowner Equity Protection Act of 1994

Frank also cites a single bill that was passed in 1994 that supposedly exonerates him from the rest of his shady dealings over the last two decades.  The idea that one piece of legislation that most people have little to no background knowledge of could make up for Frank’s shameless quid pro quo relationship with Fannie, Freddie, and ACORN is ridiculous on it’s face.  Once you discover exactly what that bill was supposed to do, you’ll realize that Frank’s involvement in its writing and subsequent passage had little affect at all in reigning in people’s poor decisions regarding home-ownership…and that’s exactly the way he wanted it.

Frank knew that if we ever found ourselves in an economic disaster largely because of the Community Reinvestment Act expansion under the Clinton Administration (which he was instrumental in nurturing and which subsequently led to a risky loan quota system within the lending industry), his support of this 1994 legislation would be his ‘Get Out of Jail Free’ card, since the overwhelming majority of Americans would not take the time to examine and research exactly what this bill was supposed to do. 

The bill Frank is alluding to in the video above is the Homeowners Equity Protection Act of 1994, or ‘HOEPA’.  What HOEPA was designed to do was offer fuller disclosure during the borrowing process when a loan fell within HOEPA guidelines.  This disclosure is the mortgage industry’s version of the ‘Surgeon General’s Warning’  you see on every pack of cigarettes.  Some types of loans which fall under HOEPA would be reverse mortgages, REX loans, ARM’s, and various other ‘creative’ lending products.  Although we often hear about how horrible these creative lending practices are (and for good reason), the fact remains that when offered in the ideal situation, many responsible people who understand the pros and cons of these products can benefit from them.  And as with any written legal agreement, the success of it is solely contingent upon the level of responsibility of the signer, since they are the party who has the choice whether or not to legally commit to said agreement once it has been presented. 

Smokers don’t care about the warnings on packs of cigarettes, just as financially irresponsible people don’t read the disclosures in their mortgage documents before they sign their name to the single biggest financial decision of their lives…and Frank knew it.  He knew that GSE’s (Freddie and Fannie) would not see a decrease in their loan buying prospects (and astronomical bonuses) because he counted on irresponsible Americans to continue ignoring the warnings, and he knew that if the GSE’s got into trouble, they’d be bailed out by the government.  It was a win-win for Frank and his cronies.  You get your  money for nothing and your chicks–oops, I mean ‘male prostitutes’–for free.

Breeding Corruption by Ignoring the Facts

You’ll continue to see Frank defending himself by using HOEPA and H.R. 1461 as his shield from deserved criticism and public outrage, but I am confident that America will see through it.  In the end, Freddie, Fannie, ACORN, Dodd and Frank’s encouragement and nurturing of regulations which forced banks to loan money to unqualified borrowers, and their quid pro quo relationships that offered no chance of reform or regulation is the real smoking gun in this fiasco. 

Don’t let Barney Frank and his cronies insult your intelligence.  You know better.  If you’re a liberal reading this, pretend your party loyalty doesn’t matter for a moment and examine the facts presented.  Those facts will prove beyond a shadow of a doubt that your leaders are making the Enron scandal look like a baby’s baptism, and that’s bad for all of us, conservatives and liberals alike.

Ends shouldn’t justify the means.  Right is right, and wrong is wrong. I know that you liberals want to see low-income people live in affordable housing, own their own homes, and start their own businesses.  I can’t deny that it’s a wonderful goal, and that your hearts are in the right place.  However, you cannot neglect the cold, hard facts that your own leaders are involved in corruption–the level of which is usually contained to the mafia and drug cartels–by using your otherwise admirable political ideology to vote them into positions of power where only they benefit, and where the American people lose. 

(Side Note:  If you’re interested in getting a little more insight and background on HOEPA and how it doesn’t do a whole lot of anything, I would encourage you to read this written testimony given by Joseph R. Mason (PDF), an economist at LeBow College of Business, Senior Fellow at the Wharton School, and Visiting Scholar, Federal Deposit Insurance Corporation. )