Tuesday, September 23, 2008
We are in a monster financial mess and most people are wondering: how did we get in this mess and whose fault is it, anyway?
Well, it’s not a Republican red mess or a Democratic blue mess, it’s more like a bipartisan purple bruise inflicted on us, the body politic.
It wasn’t George Bush that got us into this, but rather it was former President Clinton who signed the Gramm-Leach-Bliley Act (P.L. 106-102). Title I of that bill states that its main purpose was for “Facilitating Affiliation Among Banks, Securities Firms, and Insurance Companies”. The text of the bill explains that it repeals the 1930s protection legislation known as the Glatt-Spiegel Act.
The problem with the Gramm-Leach-Bliley Act, as Lauren Stefen of the Houston Chronicle explained, was that: “The new law blurred the lines among financial institutions, allowing them to dabble in home lending, stockbrokering, wealth management, investment banking, commodities trading, insurance and a slew of other activities that swirled into the miasma from which the current crisis grew.”
Bill Clinton signed the Gramm-Leach-Bliley Act, his Treasury Secretary Robert Rubin approved it (Rubin later became chairman of the executive committee of Citigroup), and three Republicans (Phil Gramm, James Leach, and Tom Bliley) wrote it.
Ninety senators voted for it, only eight against it. John McCain didn’t vote for it because he was absent for the vote, but he was known to support it.
Look at it however you want, the Gramm-Leach-Bliley Act is a poster child for bipartisan blame-sharing.
The problems associated with Fannie Mae and Freddie Mac seem to be tinged more with blue than red, but, hey, there’s certainly enough blame to go around.
Fannie Mae and Freddie Mac are the two governmentally-created lending entities whose sub-prime mortgage purchases, Bloomberg news reports, “helped fuel the boom in lending that led to frozen credit markets, more than $514 billion in bank losses and the collapse of two of the country's biggest securities firms.” Fannie Mae bought $185 Billion in sub-prime and “Alt-A” securities, and Freddie Mac bought $158 Billion.
In addition to their purchases of “securitized” sub-prime mortgages, Fannie Mae and Freddie Mac also guaranteed $470 billion to $873 billion of debt to borrowers who had either had sub-prime credit scores below 700, or who didn’t have 20% equity in the loan, or both.
Following the money trail gives us the biggest clue as to who Fannie Mae and Freddie Mac viewed as their most important political allies.
They gave political contributions to just about everybody, but the top four on their 1989 to 2008 contribution lists were all Democrats: #1, Sen. Chris Dodd (D-CT) $133,900; #2, Sen. John Kerry, (D-MA) $111,000; #3, Sen. Barack Obama, $105,849; and, of course, Sen. Hillary Clinton (D-NY) at #4 with $75,550.
Teddy Roosevelt was an energetic Republican, but a populist one who viewed big government, big business and big unions as detrimental to the nation’s health and the people’s protection. He fought to invigorate the American dream, and to do that he was often in knock-down, drag-out battles with Standard Oil and the railroad cartels.
At a speech he gave in Abilene, Kansas, on May 2, 1903, he issued a warning to the American people that we should memorize and keep repeating to ourselves as we study through the current bail-out debate and choose which candidates to vote for this November:
“There is not in all America a more dangerous trait than the deification of mere smartness unaccompanied by any sense of moral responsibility.”
That will do as a great campaign slogan – for the voters.