Opponents and supporters alike have tried to put some context on Bush's responsibility for the mortgage mess that has turned into a full out economic crisis. The latest foray into this analysis is this piece from the New York Times in which all the blame was place on the Bush administration for the entire crisis. That is far too simplistic. Yet, there is no doubt that as President, Bush deserves plenty of blame for what is happening. The question is how much and for what.
From my perch inside the industry, here is how I see his role in this crisis. I think all of us remember that one of the themes of Bush's first term was the so called Ownership Society. In fact, for years Bush touted that under his administration there was record home ownership. For about three years, this became an integral mantra of Bush's domestic policy.
Those within the industry knew the dirty little secret of the "record home ownership". It was being created by marginal loans and many of these loans were fraudulent. The reason there was record home ownership was because fraud was being created on a scale not seen before in the industry's history. In other words, on an unprecedented scale there was fraud on mortgage loan applications that lead to an unprecedented level of fraudulent loans. These fraudulent loans became a part of mortgage bonds and filtered their way through many different investment vehicles.
Now, we'll never know why the Bush administration turned a blind eye to the wholesale fraud committed on their watch, and ultimately it doesn't matter. Whether they simply didn't recognize it, or they simply didn't want to know it was going on, doesn't actually matter. The results speak for themselves. Personally, I don't think it is merely a coincidence that Bush touted the ownership society as it was being created by fraud. I think that the Bush administration didn't want to know how this was happening. I think that because there has always been a certain level of fraud in the industry they simply assumed this was a natural part of the business.
Either way, Bush is responsible for not aggressively confronting the fraud. Routinely loans had lies regarding income, assets, and occupancy. It became an epidemic and that epidemic is now biting everyone. This epidemic could have easily been confronted if Bush had the will and the motivation. Either Justice, HUD, the SEC, or any number of other agencies, could have made any one loan an example. At any time, anyone could have found fraud anywhere and made a grandstanding gesture against that loan. Everyone involved could have been prosecuted and the administration would have had the bully pulpit of the media to make the case that the Bush administration would no longer accept wholesale fraud in the industry.
That loans were being done largely through wholesale fraud became an open secret. If the Bush administration didn't know it, that is unacceptable. If they did know it and did nothing that is no less acceptable. That they didn't do anything about it is their responsibility for the mortgage crisis that is now eating away at our economy. That is their role in this crisis.
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26 comments:
You can't be serious. If you were, then you'd have to admit that Pres. Bush was pushing for tighter regulations of Freddie Mac and Fannie Mae. It was democrats that opposed it.
First off I'm no Bush fan, not in awhile. But you are off in your judgment of responsibility.Bush, McCain and a few others tried to rain in Freddie and Fannie but were stopped cold and as far as Bush himself goes he informed both Houses
but it was blocked by mostly Dems.
Also, though it may sound a bit lame, it's not his job.
You want to blame someone you need to be looking at Barney Frank, Chris Dodd, Jim Johnson , Frank Raines. They all had a hand in this along with ACORN and La Raza.
Way back during Carters horrible admin those groups started screaming that banks were turning down home loans because of racism, out of that came The Community Re investment Act which in the end forced banks to give loans to people who couldn't really afford them. The got the Govrmt to say they'd back the risk and viola we have millions of new homeowners riding so close to the edge that the slightest bump sends them all over the top and crashing down.
McCain predicted all of this and tried to create legislation with over sight with a bite but Chris Dodd wouldn't let it come up for a vote and when Bush tried he was called everything from a racist to a hater of the poor.
You gotta love partisans even Conservative partisans. I am a conservative just like you two, however I have knowledge that is so far beyond you two on this that it is beneath me to respond.
I didn't mention Fannie/Freddie. You too did. Fannie/Freddie have nothing to do with mortgage fraud, which would actually be committed against them.
Frankly Fannie/Freddie's role in the crisis has been lifted far beyond its reality by folks like you. They weren't even involved in sub prime loans, but I digress.
Let's get back on topic. Maybe I didn't explain myself well in the piece however mortgage fraud is what I was talking about. Since Fannie/Freddi were securitizers they would be the victim of said fraud. Rather this would be committed by mortgage brokers, borrowers, and sometimes even appraisers and often with the banks looking the other way.
This is what Bush looked the other way on. NOw, if you aren't willing to admit that he did this, then you really are partisans.
Not to just parachute in and be an Ahole, but....
If you are 'in the industry', why don't you know that FNM/FMC are the ones who underwrote the 'fraudulent' loans? Without the new underwriting guidelines from the GSEs, banks wouldn't have made NINJA loans. Bush was trying to reduce the expose of the GSEs while ACORN, the Black Caucus, Barney Frank, Chris Dodd and others were doing anything they could to block reform and increase the percentage of loans which the GSEs controlled?
The GSEs were buying increasing baskets of loans in order to hit revenue targets (something which was never part of their charter but since some genius allowed them to become publicly traded) so Franklin Raines and Jim Johnson could get millions in bonuses.
Bush has plenty of things to answer for - like not reforming Mark To Market, not bringing back trading curbs, allowing the SEC to be an industry puppet, putting a liberal like Paulson in charge of Treasury (after already putting a liberal like Paul O'Neill).
But Bush and his Ownership Society was about the specific proposals he put in place through HUD to increase minority ownership. It didn't have much to do with the GSEs since it was mostly downpayment assistance and block grants. Bush couldn't have engineered this kind of collapse if he actually WERE trying.
The NYT is just an angry jilted girlfriend who didn't get asked to the dance for the last 8 years. They look for any reason to dump on the guy who didn't ask her out.
How would Bush have caused real estate collapses in Europe? Was he really that Machiavellian?
Mike,
I think you overestimate your knowledge of the problem.
The fraud that was perpetuated on loan applications was aided and abetted by Fannie and Freddie.
Lending institutions were able to make marginal loans, because they knew they'd be able to lay them off on Freddie and Fannie.
Fannie and Freddie were out of control a long time ago. If you want to look for a single point of failure in this whole mess, they're it.
-Blake
Actually I believe we the citizens
and many of the borrowers are the victims. The lenders were forced into their positions by the reaction of the government to groups like ACORN and La Raza screaming racism and red lining. Bush pushed for more over sight and agreed with McCain that this could be a huge problem but he cannot force Congress to act. This entire fraud is congresses fault. I'm sorry but I can't blame the borrowers as they are not professionals and are being told they qualify and can afford what has always been an elusive dream to them. A home they own.
The people running Freddie and Fannie KNEW what was going on but took the huge bonuses and bailed as soon as it started crumbling.
Funny how they were ALL huge Lib donors and that Franklin Raines, Fannie Mae, is now Obamas inside guy on housing.
Personally, and you can call me a nut if you want, I believe a large amount of this was planned. I believe this was a crisis created to leave us open to Liberal change, socialization. Believe what you want But Bush does NOT carry the most blame on this if any.
Maybe he should have pushed harder
for that reform but things were good at the time and he was dealing with a war on multiple fronts.
Oh BTW this statement, "I have knowledge that is so far beyond you two on this that it is beneath me to respond." means nothing if you can't share that knowledge. I'm a real estate and contract attorney and I can draw the entire line through the history of this, from the ACORN and La Raza lawsuits, the Community Re-Investment Act, the following lawsuits by the same groups and the capitulation of the government to those groups demands. To Frank and Dodd telling the world 2 years ago that it was all ok and above board to them now blaming the free market.
So please Mike share your huge depth of knowledge with us so we can be enlightened.
Mike,
I think you overestimate your knowledge of the problem.
The fraud that was perpetuated on loan applications was aided and abetted by Fannie and Freddie.
Lending institutions were able to make marginal loans, because they knew they'd be able to lay them off on Freddie and Fannie.
Fannie and Freddie were out of control a long time ago. If you want to look for a single point of failure in this whole mess, they're it.
-Blake
I feel like we are talking past each other. You all keep bringing up Fannie/Freddie and I am telling all of you Fannie/Freddie is irrelevant to this discussion. I never said that Bush caused the entire crisis or that it was all his fault. In fact, I said the exact opposite.
I am pointing out his fault in the crisis and no one else's. That is the point of this piece. You are all trying to make larger points. For that you should respond to this piece.
http://theeprovocateur.blogspot.com/2008/09/updated-summary-of-real-estate-boom.html
For the purposes of this piece it is not good enough to defend Bush by saying there were other more guilty parties because in fact I am not arguing with you. Though, I firmly believe that Alan Greenspan was significantly more responsible. That I spoke about in this piece.
http://theeprovocateur.blogspot.com/2008/08/from-boon-to-crisis-redux.html
Either way, everything you are all saying does not change this fact.
Throughout 2004,2005, and 2006 there were a lot of people claiming on their mortgage forms that they made say $5000 when really they only made $3000.
This was done in so called state loans, but in fact, you couldn't lie on them. That, in fact, was, and always will be, against the law. Yet, not only was it done, but it was done on a mass scale.
Furthermore, people not only lied about their income but about their assets and where the intended to live. This didn't just happen every once in a while but ALL THE TIME. It became very common place.
This Bush did nothing about even though it was fraud on a mass scale. That's what happened. Period. This is what he has to answer for and that's the only point I was making.
Mike I get what you are saying I'm just disagreeing with you on the extent of Bush's responsibility in response to it. He tried to push for reform and oversight with teeth
but he's the executive branch, he can't really do anything about it other than give voice to his worries which he did. McCain, who is a member of the branch of government who can actually do something about it tried but was shot down because Dodd refused to bring it up for discussion and a vote. I understand that I went farther in my explanation than just
Bush's complicity in the matter but it seemed germane.
No, with all due respect, you have no idea what I am talking about.
There needed to be no new legislation to stop fraud. It was already illegal. He allowed it to go on and looked the other way while it happened.
You continue to say that there needed to be new legislation to stop fraud. That is simply not true. When someone lies on an application, that is not legal. That they got away with it is entirely on the Bush administration which allowed it to go on.
What you call 'fraud' means lying in the application for loan or mortgage, correct ?
Lay people tend to understand 'fraud' as some mysteriously deep and complex conspiracy like actions.
There is an astounding simplicity in what was perpetrated, the scale in which it occurred is what astounds. Also the motivators and drivers of the fraud.
It was a conspiracy in that it was perpetrated by both the borrower and the broker.
The important thing is that it is not now, was not then, and never will be legal. This wholesale illegality was looked the other way by the Bush administration. That is his responsibility for this crisis.
Uh how can what they are doing be fraud if it's legislated by Congress?
Remember that Community Re-Investment Act I mentioned, it basically forced the lenders to make loans available to people who really couldn't afford them. There was no fraud by legal definition, not as far as the loans go.
Oh and where is it Bush's fault that people lied about there income? And it's not his job to fight fraud on loan aps, that's just nuts. The lender's are responsible for verification.
That's just nonsense. The CRA did NOT allow people to lie on their applications.
This is the problem with partisans, and they are there on both sides. You are so determined to see your world view be affirmed that you are blinded by it.
Fraud is not now, wasn't then, and never will be legal. Borrowers cannot lie about their income, assets, occupancy or anything else on the loan application. If you read the fine print, it spells out that lying on the application is a punishable offense.
If you don't think that the President is responsible for looking the other way while wholesale fraud is committed in mortgages, you are out of your mind. This is fraud. Fraud is not legal. This is a job for Justice, HUD, and for the SEC. There were likely a dozen federal agencies with jurisdiction over this fraud and none of them did one thing to stop it.
I have yet to hear anybody ask where the independent auditors were during this whole thing.
Who was auditing the banks? For example...
Where was Deloitte & Touche? They were auditors for WAMU.
Mike, you're saying it's the Presidents job to review loan applications? Come on man get real.
And you are right I am partisan, I'm a very conservative Republican. I don't like Bush and am extremely upset with his performance. But I can't lay blame at his feet when the
majority of the blame lays at the feet of others.
No, I said in my piece what he needed to do. All he needed to do was make an example of someone. He didn't need to investigate each and every loan application and he wouldn't have had to.
What he needed to do was use the bully pulpit of the office and his Justice Dept. to say that enough was enough. All he needed to do was make an example of someone and the whole thing would have been much more minimized. Instead, he pretended that it wasn't happening.
I am the first person who replied, saying, "You can't be serious. If you were, then you'd have to admit that Pres. Bush was pushing for tighter regulations of Freddie Mac and Fannie Mae. It was democrats that opposed it."
In response, the best Mike Volpe could muster was the dual claim I was partisan and not living in reality vis-s-vis the culpability of Freddie Mac/Fannie Mae.
Instead of arguing the whole mess, lets just analyze the point Mike Volpe is trying to make. And as far as I can tell, Mike's point... his premise... is that A.) Pres. Bush encouraged home ownership, B.) banks responded by pushing through fraudulent loan applications, and C.) Pres. Bush knowingly or blindly let this situation continue.
What Mike Volpe never tells us from his perch in the industry, which would help add validity to his claim, is what regulatory body had jurisdiction?
Was it the Board of Governors of the Federal Reserve System? How about Federal Deposit Insurance Corporation? If that doesn't work, could we go to the Office of the Comptroller of the Currency? Is it the National Credit Union Administration we should turn to? Or lastly, should we look at the Office of Thrift Supervision?
Ultimately, the only organization I see with regulatory oversight here is the Office of Federal Housing Enterprise Oversight, but I'm not an expert in the alphabet soup of regulatory agencies, so I certainly could be wrong. And the fact there are so many agencies with a hand in the regulatory pie doesn't make the task simple for those who wish to understand how things occurred.
All that said, Mr. Volpe's piece is so vague in describing Mr. Bush's role that one could say every single person who ever encouraged homeownership is culpable for this mess to one degree or another.
Now what Mr. Volpe never explains is why a bank, ostensively a business that wishes to make money via loans, would give loans of a fraululent nature where there was little if any hope of making money.
That's where the CRA and Freddie Mac/Fannie Mae come into the picture. On the bottom end, the CRA stood as an enforcement mechanism against banks that appeared to redline or, in fact, did redline. On the top end were the changes at Freddie Mac and Fannie Mae written about in this Sept. 1999 New York Times article, that gave the banks an avenue to get these risky loans off their books.
One thing that I've always found interesting and entertaining about this 1999 article are the words of Peter Wallison. In it he said, "From the perspective of many people, including me, this is another thrift industry growing up around us... If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry."
It seems to me that Mr. Wallison's perch has a better vantage point than Mr. Volpe's.
Well we are talking past each other again. I didn't say one word about Fannie/Freddi in this piece. Though, I have written plenty about them and who's fault it was that they busted...
http://theeprovocateur.blogspot.com/2008/09/republicans-vs-fannie-maefreddie-mac.html
What I said was that Fannie/Freddie was irrelevant to this discussion. I never blamed Bush for everything and I certainly never blamed him for Fannie/Freddie. I blamed him for looking the other way while massive mortgage fraud was occurring on mortgage applications. That's what I blamed him for. That has nothing to do with Fannie Mae.
What you are trying to do is change the debate. This particular debate is not about Fannie Mae. If you want to have that debate go to the pieces I wrote on them, and have that debate there. This debate is about Bush's role in the crisis. His role has nothing to do with Fannie Mae which is why they weren't mentioned in my piece.
If you want my thoughts on how this crisis started, here is that piece...
http://theeprovocateur.blogspot.com/2008/09/updated-summary-of-real-estate-boom.html
That said, it is getting really annoying that everyone keeps coming on here and defending Bush as he looked the other way while mass mortgage fraud was occurring by saying he tried to rein in Fannie Mae. That maybe so, but he did nothing to rein in mortgage fraud, and if you think that his trying to rein in fannie mae excuses his looking the other way while mortgage fraud occurred you are ridiculous.
This is the first anonymous responder again...
I responded to your accusation in this way...
"What Mike Volpe never tells us from his perch in the industry, which would help add validity to his claim, is what regulatory body had jurisdiction?
"Was it the Board of Governors of the Federal Reserve System? How about Federal Deposit Insurance Corporation? If that doesn't work, could we go to the Office of the Comptroller of the Currency? Is it the National Credit Union Administration we should turn to? Or lastly, should we look at the Office of Thrift Supervision?
"Ultimately, the only organization I see with regulatory oversight here is the Office of Federal Housing Enterprise Oversight, but I'm not an expert in the alphabet soup of regulatory agencies, so I certainly could be wrong. And the fact there are so many agencies with a hand in the regulatory pie doesn't make the task simple for those who wish to understand how things occurred."
I want you to tell me who you believe had oversight on this matter within the executive branch, so I can check your claims independent of your view from your perch in the industry.
And yes, I did bring up Freddie Mac and Fannie Mae, because it is germane to the issue in that banks were encouraged (Some would say forced.) by CRA regulations to issue home loans to people who possibly could not afford it. According to everything I've read, such as the previously mentioned New York Times article, banks knew they could sell the note on the house as a securitized debt to the GSE's. As the article stated, Peter Wallison predicted this train wreck that has now occurred. And just so we all understand, Peter Wallison made that prediction even though he had no idea Pres. Bush was going to be president.
The fact is, this was going to happen eventually just as Mr. Wallison predicted 1999... It was only a matter of time.
Sadly we haven't learn our lesson and are going to allow the US federal government to screw us even further with these ignorant bailouts and money printing plans.
The better question is not which regulatory body did have jurisdiction, but which didn't.
Justice would have had jurisdiction, HUD, the SEC, as well as the office of banks and real estate. The problem wasn't that there was no regulatory agency that didn't have jurisdiction but that Bush didn't care much that it was going on.
If you think that the Federal government doesn't have regulatory powers over fraud you are out of your mind. Whether this was going to happen or not is again beside the point. This isn't about CRA or whether this was inevitable. This piece was strictly about Bush's role in the crisis.
Ah... a non-answer.
Well, I guess I'll move on then. There's no use debating it.
No, not a non answer, rather, I gave you more than one agency that would have responsibility. You wanted to get a regulatory body that is responsible for prosecuting fraud and I gave you three. If that isn't enough, that's just because nothing is good enough for you.
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