Let's get it Straight; It Wasn't Bush

Let's get it Straight; It Wasn't Bush by Joanie Redman

It is time to put an end to the accusation that George Bush is responsible for America ’s fiscal woes that Obama claims he has inherited.

Let us begin the multifaceted story that encompasses President Clinton’s “New Democrats/spread the wealth around” administration, his HUD leaders- Henry Cisneros and Andrew Cuomo, Clinton’s Secretary of Treasury, Robert Rubin, the Federal Reserve Board, the GSE, Fannie Mae and its CEO, James Johnson, Wall Streets' Big Banks that have us believe are run by greedy, heartless, Republicans, but are Progressive Liberal/Big Government loving entities, Progressive Democrats in Congress; especially Barney Frank and Maxine Waters, the FDIC and last, but not least, the rating agencies of Standard and Poor’s, Moody’s and Fitch. This is just a small sample of those involved, but to name all would require writing a book about the Housing Market Bubble and its long reaching devastation on the American economy.

Many in the know believed the beginning of the housing debacle occurred in August, 1992, with the death of William Taylor, a once tough Federal Reserve regulator and the Chairman of the FDIC. It was said, that “the regulatory ethos at the Fed died with Bill Taylors’s death” leaving the door open for lacks regulations and questionable business decisions. Suddenly, it was as if no one was minding the store and the workers did whatever to enhance their fortunes. One such man was James Johnson, CEO of the Government Sponsored Enterprise, Fannie Mae. Johnson knew that he was head of a unique company, as part of it was private enterprise and part was government sponsored. In order for Johnson and his executives to profit hardily, he needed to increase productivity, thus enter President Clinton and his push for economic and social justice.

Bill Clinton is a Progressive that believed(s) that government should bring the poor into the middle class and the spread the wealth, better known as redistribution. One way that he and his administration thought this could happen was through utilizing private/public (GSE) partnerships to help promote home ownership of the poor and low income families. He appointed Henry Cisneros to head the Department of Housing and Urban Development (HUD). Cisneros truly believed that home ownership was the answer to achieving that goal; even if it meant mandating laws to force banks to lend to those that were considered risky borrowers. Cisneros knew that in order for this to occur, the GSE-Fannie Mae and Freddie Mac, would have to be on board.

Johnson was looking for a way for Fannie Mae to grow and thus expand personal wealth of his executives without losing its government benefits. The problem was that Fannie was a company that received tax payer money and was heavily regulated. He needed a plan that would provide cover/disguise and protect its special status and government fiscal support, but would enable private growth of wealth while appearing to be altruistic in its endeavor to be the champion of the less advantage members of our society.

The answer to his dilemma appeared after The Federal Reserved Bank in Boston revealed their finding that the lending practices of banks proved they discriminated against minorities by not granting loans. The Boston Fed insinuated that motive for the disparity on the part of the banks was a bias against Blacks and Hispanic. The banks were rightfully outraged and argued that it was not about racial and ethnic backgrounds, as it did not lend to whites that were in the same socio-economic position, but about their lack of financial stability and capital. Their defense was later proved to be true, but regardless, they were forced to make loans to unqualified borrowers. Johnson's keen business sense understood the political climate was right to promote the image of Fannie Mae as the champion of the homeless.

Johnson utilizes the use of excellent public relations activities and liberal media blitz coverage along with very generous contributions to minority activist groups, urban under privileged schools and Congressional members with clout to support them in their hour of need. He and his lobbyist worked hard to make others believe the illusion that Fannie Mae provided low rate loans to the disadvantage even if it was a loss of profit of the company. The strategy worked for many years.

The banks continued to receive increase pressure to make risky loans. Regulations became less stringent and loan standards were almost non existent; especially after Andrew Cuomo took over HUD following Cisneros. Still banks could only lend with the money they had in the vault, so to speak. The regulations required that money be in the bank to cover the loans granted. Banks were now between a rock and a hard place. If they failed to give more loans to “minorities”, they could be charged with discrimination practices and heavily fined, but if they did grant them, they had to secure each with their own money and that was a limited source. The banks had to find a way to free up their capital in order to approve more loans to keep up with the Clinton’s administration demands. Enter Wall Street to the rescue!

Lawrence Fink of First Boston and Lewis Ranieri of Solomon Brothers created a solution to have Wall Street buy the mortgages and bundle them with other types of loans and have investor invest in what was named a CDO (collateralized debt obligations). The theory was that mortgages debt would be spread out in CDO and by doing so there was less risk and less chance of default. Angelo Mozilo of Countrywide Financial would become a team with Fannie Mae using the CDO and both companies would profit, as would all of Wall Street.

CDOs took flight and investors bought the CDO as long as they were rated as AAA, which Standard and Poor’s, Moody’s and Fitch routinely did since the rating companies were paid by those being judged. The CDO bonds allowed the banks to clear off debt from their books and gave Wall Street a new way to increase their profits; a win-win resolution for all involved.

Wall Street, however, would become greedy and careless with their new tool to produce wealth. Banks, thanks to the help of Robert Rubin, would be allowed to grow and become huge one stop shopping entities with the repeal the Glass-Steagall law that had protected investors. Gram-Leach-Bailey law would pass allowing for a new set of rules that would contribute to the debacle. While Clinton's merry men celebrates the relaxed standards written in Gram-Leach-Bailey, the stage had been set for a national financial disaster.

The housing bubbles started popping with the Federal Reserve decision to raise the interest rate in 2001 shortly after George Bush came into office. The financial collapse of the Housing Market would be just one of many huge problems that the Bush administration would have to face and handle. Yet, no one heard George Bush go on national television and spend countless hours blaming Bill Clinton.