The Fannie/Freddie Talking Points Presentation

Republicans are now heavily invested in blaming the Democrats' coddling of Fannie Mae and Freddie Mac for the subprime mortgage crisis. Here's Majority Leader John Boehner at a GOP fundraiser in Georgia: "It's not a failure of the free market what's going on in the economy today.  The excesses of Fannie Mae and Freddie Mac, and those who blocked the reforms that we wanted to make, really are the issue. ...This was a failure of government, not a failure of the free market.  President Bush, Senator McCain, and many other Republicans tried over the last ten-to-fifteen years to fix this problem but to no avail."

Judy Black is a policy director (read: lead lobbyist) for Brownstein Hyatt Farber Schreck's DC arm. (Merrill Lynch was a client this year...) Black is also the wife of McCain strategist Charlie Black.

On Monday, Black forwarded to GOP lobbyists a Power Point presentation --
SHOTINTHEFANNIEMAE.PPS  -- on the collapse of Fannie and Freddie, and, in particular, the campaign contributions that Fannie and Freddie provided to leading Democratic members of Congress. The theory is that, in the wake of the financial scandals of 2003, the GSEs became nervous and started to fudge their accounting in order to prove to politicians that they were solvent and well-maintained; but they weren't, and Democrats avoided Republican attempts to require that the GSEs keep larger capital reserves and more tightly regulate their packaging of securities. (Here's a contrarian voice.)

This power-point presentation -- not created by Black, btw -- has made the rounds and serves as the basis for Republican talking points on the issue.

Here are two of the slides:

    * An OMB investigation finds massive fraudulent bookkeeping at Fannie Mae.
    * False numbers triggered executive bonuses every year.
    * Congress holds no hearings, no one goes to jail, or is punished.
    * WHY NOT?

1999 -2005

    * Fannie Mae gives millions to Democratic causes, examples: Jesse Jackson & ACORN.
    * Fannie Mae pays millions to 354 congressmen and senators, from both parties.
    * Who got the most money?

Top 4 Recipients

#1  Sen. Christopher Dodd, (D-CT) Chairman of the Banking, Housing, & Urban Affairs Committee
#2    Sen. Barack Obama, (D-IL)
Federal Financial Management Committee

Top 4 Recipients

#3   Sen. Chuck Schumer, (D-NY)

Chairman of the Finance  Committee

#4   Rep. Barney Frank, (D-MA)

And

• Franklin Raines is now an advisor to the Obama Campaign which wants the govt. to take over more of the economy.
• Did government involvement in the mortgage market work out?
• How will even MORE government involvement make it better? Do you want to be Sweden?
• McCain favors revising regulations & loan standards, selling off Fannie & Freddie.

There's much left unsaid here and a few inaccuracies: Frank Raines isn't an adviser to the Obama campaign; Sen. Chuck Schumer is the chairman of the Joint Economic Committee, not the finance committee. Jamie Gorelick's name is mispelled; nowhere does the presentation mention the role of a bipartisan roster of lobbying firms, including McCain campaign manager Rick Davis's, in helping the GSEs. 

I'm no expert on this, so I invite reader comments. Is it effective? Persuasive? Misleading?

Comments

I think it's very effective. It makes a strong case that Obama was complicit in this debacle whereas McCain had the foresight to try to head it off. On substance and ideas for economic recovery, the McCain campaign far outpaces Obama campaign which I find surprising. I say this someone who had planned to vote for Obama, but is now leaning towards McCain. Given how the polls are tightening, I think I am not alone.

Posted by Rock | October 8, 2008 12:39 PM

While the volume of the accusations could have been compelling, it is undermined by two things:
1) Davis' associations (as you note)
2) The inconsistency of McCain's msg on this crisis. Is it a failure of regulation or isn't it? Is the solution more government action or less?

Even the talking points make this mistake. First, it was the failure of the Democratic congress not to regulate/oversee Fannie/Freddie more closely. Then, the solution is "less government oversight/regulation."

Posted by ACY | October 8, 2008 12:42 PM

Inasmuch as it ties Democrats to the financial collapse it's very effective. But inasmuch as it ignores Republican involvement and paint President Bush and a Republican-led congress as powerless in the face of Fannie and Freddie's Democrat friends it stinks of politics.

The country is in serious trouble, and both parties are hugely culpable. Saying "it wasn't my fault" and "really there is no problem, free markets don't fail" is really no help at all. I think it would be far more effective to man up and accept some blame along with pointing the finger.

Posted by Bullsmith | October 8, 2008 12:46 PM

Given how the polls are tightening

Please. The only polls to show "tightening" are those that include roughly equal numbers of Democrats and Republicans -- and if the November 4 electorate really contains equal numbers of these voters, then it is going to be a close race. If, on the other hand, Democrats have a 6-8 point advantage as most think, then Obama should win by 5-7 points.

In any event, the current economic collapse has little to do with the GSEs. They weren't allowed to do any appreciable level of subprime lending, and the jumbo restrictions significantly cut there exposure in the bubbliest markets (SoCal, FL and AZ). Their collapse is much more of a symptom of the imploding real estate bubble than a cause of it.

Posted by Joe | October 8, 2008 12:48 PM

misleading and ineffective outside of the (regrettably massive) low-info partisan demographic.

laughing at Rock, though, nice job turfing but if you could name a single poll that's "tightening" i'd eat my hat

Posted by anonymous | October 8, 2008 12:49 PM

This is complete crock, of course. Here's what Barry Ritholtz writes about this (the original post is here: http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html)

and I quote (but there's much more in his post):
• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

Posted by manula | October 8, 2008 12:54 PM

Marc,

You asked:

[blockquote]Is it effective? Persuasive? Misleading?[/blockquote]

but you answered a paragraph earlier:

[blockquote]There's much left unsaid here and a few inaccuracies:[/blockquote]

Obama's completely accurate ad is 'tough', but you leave other readers to make a judgment call here?

Again, technics at the expense of ethics. Not very brave.

Posted by James | October 8, 2008 12:54 PM

it might be effective for people who are low information voters and don't know other info--such as:

1. Total contributioins to Obama from the two mac's are around $150k--whereas Rick Davis in the past 2 years has earned over $500k in consulting fees from Freddie--who's been influenced more?

2. The vast majority of taking on of bad loans was from 2004 on, when Fannie took on 270 billion in high risk mortgages due to pressure from congress to help the "ownership society" idea from Bush

3. Illogical point--So up to 2005--democrats kept the republicans from passing regulation--when the democrats were in the minority. Weird. How does that work?

Overall, these talking points can easily be refuted with a little effort, and I doubt that these points are going to carry much weight--all obama has to do is present the numbers (like in the Davis case) and it will totally undercut the argument.

Posted by tricstmr | October 8, 2008 12:55 PM

Rock, you should do a better job of looking like you're not getting paid to make posts like that. We're not that dumb.

Posted by Adam | October 8, 2008 12:56 PM

Then I don't get McCain's new proposal to spend billions more to bailout defaulting homeowners!
What's the solution, John McCain? More government or less? One of these days you're going to have figure this out and November 5th will be too late...

Posted by Gail | October 8, 2008 12:57 PM

The major problem is that FNMA and FRMC had a avery limited role in "causing" the crisis, as, by definition, they only purchased non subprime mortgages. Krugman at one time said they had no role. A pretty persuasive argument was mounted in opposition that FNMA and FRMC helped enable thh subprime market, and this argument bears more weight as the failing mortages spread from the subprime market.

But at its best, this argument fails because FNMA and FRMC should not be the focus - they played a very limited role. So even if you could wrap those institutions solely around Dem necks, it doesn't get you even half way there.

FNMA and FRMC, to oversimplify, bought the mortgages - they did not originate them. They set guidelines about what could be bought, and if those guidelines were stronger, underwriting likely would have been as well, and that may also have depressed the subprime market. But this stll is pretty far removed in the causation chain

Posted by RKF | October 8, 2008 12:59 PM

You say "is it misleading." Hmm... Let's see, it's from a FREWAKIN LOBBYIST, who is the WIFE OF ANOTHER LOBBYIST, specifically, wife of CHARLIE BLACK, who JUST happens to be one of McCain's TOP GUYS... What the heck were you expecting? An honest piece. Your ignorance is incredible and your naivety is simply stunning. I wonder if you'd comment the same way if it was a memo from a lobbyist of say.... AXELROD's wife.

Posted by David | October 8, 2008 12:59 PM

> How will even MORE government
> involvement make it better?
> Do you want to be Sweden?

Umm, have these guys ever been to Sweden? I'm an Australia who has lived in Sweden for two years, and let me tell you, they have their stuff together. Free health care and free education are only the starters.

And do you want to know what you do not see in Sweden? Homeless people. Nada. None. Zilch. Zippo. Zero. Null.

Compared to the quality of life in America for the average joe; Sweden is heaven.

(and yes, I have lived in American before too, so I know what I'm comparing it to)

Posted by Row | October 8, 2008 12:59 PM

Inaccuracies? The correct word lie. If they are willing to lie and say the "Franklin Raines is now an advisor to the Obama Campaign" then why do you give credence to the rest of the document?
But the big problem with this is that instead of trying to examine the problem in a non partisan manner they look for the easiest scapegoat, and surprise that happens to be minorities.

Posted by msw | October 8, 2008 1:01 PM

Fannie and Freddie donations are separate and distinct from donations made by employees of Fannie and Freddie.

The fact that employees may or may not give to Dodd or Barack or whomever has nothing to do with the financial donations made by the mortgage and mortgage insurance giants, and nothing whatsoever to do with the legislation. When these miscreants actually provide numbers donated by Fannie and Freddie, as opposed to donations given by American citizens and employees, then this can be taken seriously, until then just more lies from a party that has nothing else to offer.

Obviously and clearly misleading.

If McCain's people told me it was sunny outside I would be sure to pack a raincoat and an umbrella.

Posted by Dan | October 8, 2008 1:05 PM

It is misleading.

The SEC investigated Fannie's accounting misconduct and heavily fined the company. Further, the SEC testified to Congressional oversight committees in 2006 and told Congress that its investigation into individuals was ongoing and therefore it could not comment. http://www.sec.gov/news/testimony/2006/ts061506cc.htm

Thus, Congress would not hold hearings on individuals, as such holdings would get in the way of the ongoing SEC investigation.

The question re GSE's in 2006 and before was basically if they would be subject to the normal reporting requirements that publicly traded companies normally are - e.g., would they have to final annual reports (10-Ks) with the SEC. What Fannie previously did was smooth earnings in ways that were inappropriate. This was not a lending issue, but a straight forward accounting issue (the same issue that GE and GM latter had under FAS 133). That issue was less likely to take place if FME did file normal disclosures. In fact, FME agreed to file such disclosures subsequently. (A move they flirted with for a half decade.)

Further, Fannie's exposure to risky MBS was not at the tipping point until early 2008 when all parties - the White House with Congress's blessing - told FME to take on more MBS in an effort to prop up the market. This was obviously a poor decision, but a decision everyone thought was a good idea at the time.

Posted by jjj | October 8, 2008 1:07 PM

Either Obama is too new to have done anything, or he is a Washington insider that has a long history of complicit judgment. Again, what message is McCain trying to send?

While Fannie/Freddie is part of the problem, are just to ignore the GOP was in power in both branches of government 6 of the last years? Are just to ignore that exotic financial schemes like derivatives and credit default swaps did not exist nor flourish under the GOP unregulated leadership? Are we to ignore how mortgage lenders of the past 8 years were the equivalent of the modern day snake oil salesman?

That's a tall order to ignore!

Lastly, as a democrat, I wish to say that the lot of our legislative body should be voted out. They are either corrupt or complicit and have done a great disservice to us, the electorate.

Posted by Ed S | October 8, 2008 1:18 PM

FWIW, I'm a registered Republican who mostly loathes FNM and FRE, and I think this is wildly dishonest. No clue if it will be effective, but anyone repeating it is either a grifter or a mark.

1. FNM/FRE market share collapsed during the peak bubble years when the worst loans were being made. Probably not a coincidence.

2. FNM/FRE portfolios have performed vastly better than those of lenders like Ameriquest, Long Beach (WaMu), Aurora (Lehman), Option One (H&R Block), First Franklin (National City and then Merrill Lynch). They could have survived w/o a bailout; they just couldn't have served their stated purpose without one.

3. GSE defenders always argued that, in their absence, the private lenders would run amok in the good times and flee the market in bad times. Given that total GSE market share was over 80 percent in the first calendar quarter, it is hard to dispute that any more. (GSE critics were correct in arguing that running a book that big with such little capital would inevitably result in a gov't backstop.)

Posted by dbblg | October 8, 2008 1:28 PM

I'll speak up in defense of Sweden.

My wife is Swedish. I visit Sweden fairly often so we can see her family. We're going again this Christmas.

Sweden is a wonderful country. Warm, welcoming people, beautiful scenery (and women), laid back atmosphere, well-governed and low stress. I hope to retire there someday.

Perhaps best of all, despite the fact that Sweden was, until recently, an officially Christian nation, you don't ever meet raging, fantatical fundamentalists. Swedish Christians focus on the big picture of living good, honest lives, loving your neighbor and focusing on their own shortcomings instead of those of their neighbors.

Posted by Jim Crozier | October 8, 2008 1:30 PM

Content aside, this might be better received if it didn't look like an exercise in how to create a cheesy PPT presentation.

Lame puns in the title? Conclusions and pictures flying in from off-stage? What's next, an accompanying web page liberally using the tag?

A bit of attention to presentation aesthetics helps - especially if you're trying to argue against a campaign whose communication strategy is near flawless.

This looks Mickey Mouse, and that first impression rubs off on the content. Couple that with the fact that after waiting for multiple redundant animations you find one of only five sources cited is Hannity and Colmes, and it all feels like a freshman college course project.

Posted by mikesjones | October 8, 2008 1:32 PM

"I'm no expert on this, so I invite reader comments. Is it effective? Persuasive? Misleading?"

C'mon Marc. You aren't an expert on the Freddie Mae and Fannie Mac issues but you certainly are an expert on, well, electoral politics. And you would know which party controlled congress when, right?

So just by the first slide you illustrate, you KNOW that its misleading, since it blames Dems for not holding hearings re: issues that came up when the GOP controlled congress.

So, of course its misleadiing. There is a debate here about what congress did that need to occur. This is not about that.

Posted by Angry Voter | October 8, 2008 1:33 PM

Judy Black(wife of Charles Black) writes "talking points" for the McCain campaign, and you ask if it is honest or effective?

Posted by abiodun | October 8, 2008 1:39 PM

I don't think anything that consists of lengthy arguments about how, despite R control of the White House and both houses of Congress through much of this mess, it is all the Ds fault, is so, is so, has much hope of resonating. I'm amazed that Republicans haven't leapt on a conservative economic plan for the future that they could rally House members around for their races, as the Dems did with Iraq last time, but so it is.

Despite the comical claims of the first poster about specific Republican economic plans, they aren't discernable in the steady drumbeat of Ayers, Ayers, and everything that has ever happened is the fault of the Democrats. (Who apparently made a Roadrunneresque plan to be out of power while everything went to hell, thus sticking the blame on poor ol Wile E Republican.) As for his claim that the polls are tightening--I imagine they will at some point in the next month--a 10 point lead is pretty big. But shouldn't you wait for it to actually happen? How many people reading political threads can't check the Gallup dailies?

Posted by Deborah | October 8, 2008 1:41 PM

It would be illuminating to see what percentage of mortgage defaults came on subprime, prime, and jumbo mortgage assets, respectively.

My guess is that the third category (typified by the busts in Southern California, Arizona, and Nevada) is where most of the lost assets are coming from. The math isn't that hard; you would need several defaulted subprime mortgages to account for the lost assets in one jumbo default.

Posted by Joel | October 8, 2008 1:50 PM

Where is Mitt Romney? He's a goober, but he could talk economics with a straight face and no sign of dozing off. He could put together a positive plan for candidates to rally around.

As Marc notes, there are a number of inaccuracies. The Raines one stood out--it's yet another lie that's been factchecked into the dirt, but they're going to repeat it again, some more, because maybe the media will give up on pointing out it's a lie. See the post below that McCain's ads are 100% negative. (As are most of his blog commenters, and stuck on their 60s radical meme even though much of the electorate was born later.) I know negative ads work, but if they can't find a positive "we're the rational wing of the Republican party, not like Bush, and here's how we'll fix things" message, there's no reason for people to get behind them.

Posted by Deborah | October 8, 2008 1:53 PM

The attempts to "debunk" the central claims are hopelessly confused. Sure, the banks were doing irresponsible things; why wouldn't they, when the government has essentially written them a blank check by offering to buy up the repackaged mortgages?

As for the CRA; the simple fact is that, if a bank wasn't deemed to be lending to enough minority and lower-income individuals, their CRA score dropped. And a bank can't do anything -- like merge with another bank, for example -- with a low CRA score.

The government, then, both penalized banks that didn't issue enough of these loans, AND volunteered to take them off their hands. And somehow this is referred to as "deregulation." Amazing.

Posted by Mr. F | October 8, 2008 2:11 PM

Marc,

There is one inherent (and so far ignored) flaw in the GOP claim that the Fannie/Freddie failure could have been avoided with the passage of the McCain co-sponsored Federal Housing Enterprise Regulatory Reform Act (s.190).
The regulation that this bill sought was to require GSEs to only deal in securitized mortgages - bundling and selling portfolios of mortgages to institutional investors. A primary backer of this legislation was the AEI:

S 190 addresses this problem by requiring that the GSEs reduce their portfolios to near zero--permitting them only to accumulate mortgages for purposes of securitization.
::
In the securitization process, Fannie and Freddie create trusts that hold a portfolio of mortgages. The trusts then sell mortgage-backed securities to investors--banks, pension funds, mutual funds, and individuals--and Fannie and Freddie guarantee that the holders of the MBS will receive a stream of interest and principal payments on the mortgages. In these transactions, the GSEs are guaranteeing only that the homeowners whose mortgages are in the pools will make their payments in full and on time. They do not guarantee that homeowners will not refinance their mortgages when interest rates fall. In other words, they are taking only credit risk--not the far more substantial interest-rate risk that comes from borrowing funds to buy and hold a mortgage portfolio.
(emphasis added)

This argument for s.190 was written by the same Peter Wallison who echoed current GOP talking points in a recent WSJ column. See the problem? The mortgage meltdown was/is due to credit risk not interest rate risk. This "regulation" that McCain touts his support of would have accelerated the downfalls of Fannie/Freddie, not saved them.

- Mike

Posted by Mike in MI | October 8, 2008 2:21 PM

"Franklin Raines is now an advisor to the Obama Campaign which wants the govt. to take over more of the economy."

Uhmmm Isn't THAT exactly what Senator McCain proposed at last night's debate? That the gov't take over more?

Maybe I am missing something.

We need a committee of economists and others to draft a proposal for reform of this system- with an eye to the 21st century and global markets.

We need as little regulation as we can get by with- but not NO regulation. There MUST be oversight by an agency which is NOT in bed with the ppl they are overseeing (see Interior Dept. and oil and gas leases from earlier this summer.) An agency with some TEETH!

Thank you.

Posted by NoCalGal | October 8, 2008 2:22 PM

I'm sorry, but weren't the Republicans the majority party from 1999 to 2005? Weren't they the only ones who could convene hearings? What hypocrites.

Posted by WillDem | October 8, 2008 2:49 PM

Mike from MI brings up the biggest point, it was the GOP that started to deregulate everything, which put things in motion. The introduction of the Gramm-Leach-Bliley act was really a bigger problem here.

But lets get back to reality (and put some numbers to this).

http://www.bde.es/informes/be/ocasional/do0808e.pdf

The report above is a super-technical breakdown from the Bank of Spain about how we got into this mess, and the types of assets that caused this problem.

The portion to key in on is page 17, "Chart 2. Global securitization by collateral". In the chart, check out the red bars, which represent RMBS. RMBS = Residential Mortgage Backed Securities. This is the paper that's currently gumming up the works.

The main data to draw from Chart 2 is that prior to 2001, never had the industry put-through more than $500 billion in securities. However, after Bush got into office (and with the deregulation in place) this market took off...logging $600 billion in 2001 to over $1 trillion in activity per year for the following five years.

The point is, all of this crap paper was written and put into the system, en masse, during Bush, not Clinton. The business activity during the Clinon years pales in comparison to what happened during the Bush years.

Posted by Nick from AZ | October 8, 2008 3:43 PM

Between 1999 and 2005, the Republicans controlled the Senate for 4 of 6 years and the House for all six-- so they could've called hearings whenever they wanted. Blaming Democrats in Congress for not acting during that period is like blaming the middle management for a CEO's decision.

Posted by Adam | October 8, 2008 3:59 PM

The Match That Started the Forest Fire?

--Stone & McCarthy (Princeton) -- It's become fashionable in the final weeks of the presidential campaign to lay most -- if not all -- of the blame for the global financial market crisis at the feet of Fannie Mae and Freddie Mac. (The 1977 Community Reinvestment Act (CRA) has also been identified as a culprit.) For instance, in last night's debate, Senator John McCain said that Fannie Mae and Freddie Mac "were the catalyst, the match that started this forest fire."

Yes, the GSEs bought some subprime loans and Alt-A loans. Yes the GSEs bought some private-label MBS. Yes the GSEs became too big to fail because of the systemic risk they posed to the housing markets and financial system.

But let's not rewrite all of history for purposes of campaign soundbites. To put it mildly, it's a stretch to say that the GSEs were the "match that started the forest fire." As we all know the match that started the forest fire was bad underwriting -- extending all sorts of newfangled loans -- no-doc, exploding 2/28 ARMs, negative amortization loans -- to people who could never afford to repay them based on traditional measures such as income. Why were those loans made? Because 1) people thought home prices would go up forever, 2) the loans were bundled into complex securities that many investors didn't understand, but bought anyway, because a) people thought home prices would go up forever, and b) rating agencies put their AAA stamps of approval on them.

Was that decline in underwriting led by the GSEs? Well, we thought we would go back a few years when everyone was happy and see what the GSEs' regulator had to say on the subject. We looked at the report published each year by OFHEO, called "The Mortgage Markets and the Enterprises." In this case we looked at the report published in 2006 about 2005, the year in which subprime mortgage originations peaked.

The report discusses at length the "The Proliferation of Non-Traditional Single-Family Mortgages." OFHEO discusses the rise in home prices from 2001 and 2005, and how non-traditional products, "such as piggy-back and limited-documentation loans, addressed the affordability constraints for many home purchasers, changing the mix of mortgage originations. Product innovation was also driven by greater access to mortgage finance for many formerly credit-impaired renters, significant financial innovation in credit markets, and sluggish investment alternatives in equity and capital markets relative to real estate."

"Beginning in 2003, the mortgage market began to see a significant increase in alternative financing arrangements and lender-specific mortgages that differed significantly in terms and conditions from traditional loans. Much of the innovation first took place in the ARM market and later surfaced in the FRM market . Among the non-traditional mortgages are Alternative-A (low documentation, known as Alt-A) and subprime hybrid ARMs, interest-only ARMs, option ARMs, and, most recently, interest-only FRMs. Of the recent origination years and based on volume of activity, 2004 was the year of the hybrid and interest-only ARM, 2005 the year of the option ARM, and 2006 is shaping up to be the year of the interest-only FRM."

OFHEO then goes on to say how those changes in the primary mortgage market led to a drop in the GSEs' share of MBS issuance:

"Shifts in the primary mortgage market in 2005 led to a decline in the role of Fannie Mae and Freddie Mac in the secondary mortgage market. As discussed above, the overall increase in mortgage originations in 2005 was fueled by higher consumer demand for non-traditional mortgages and an increase in the non-prime share of single-family originations. Those trends drove an increase in private-label MBS issuance during 2005. Private-label MBS backed by Alt-A and subprime collateral increased to 15 percent and 22 percent of total issuance volume, respectively...While total private-label issuance rose 38 percent to $1.2 trillion in 2005, combined enterprise issuances of single-class MBS fell 1 percent to $908 billion, the lowest level in five years."

OFHEO goes on to say "Private-label MBS are typically collateralized by non-conforming loans or loans that do not meet standards prescribed by Fannie Mae and Freddie Mac, including loan size. Non-conforming loans include home equity, jumbo, and subprime loans. Depository institutions, Wall Street firms, insurance companies, mortgage banks, and homebuilders issue private-label MBS...

"The record $1,191 billion of private-label MBS issued in 2005 was led by the subprime sector, which exceeded $460 billion in issuance. That issue volume was driven by an increase in the number of borrowers with blemished credit seeking housing financing and lenders willing to extend credit to those borrowers."

Recall that the GSEs aren't primary lenders, but provide mortgage credit to lenders through their purchases of mortgages that have already been originated. OFHEO is telling us here that private-label MBS issuers were the main buyers of subprime loans from "lenders willing" to make them, not the GSEs.

As the saying goes, you're entitled to have your own opinion, but not your own facts.

Posted by Nancy Vanden Houten | October 8, 2008 4:13 PM

A couple of comments to show the weakness of the central tenet of the powerpoint:

1. On an NPR interview, McCain economic advisor Douglas Holtz-Eakin said that GSE reform "wasn't a priority of this Administration's. They quite frankly put it on the back burner. And now we see what we have." (NPR, 9/16/08)

2. Back in the 109th Congress, Democrats supported bipartisan legislation drafted by the Republican Chairman of the House Financial Services Committee, Representative Oxley, which would have given the new GSE regulator broad authority over setting capital requirements and limiting portfolio size. This bill passed the House 331-90. Senate Democrats supported the measure, but the Bush Administration opposed it. According to Mr. Oxley, the White House gave Congress and the GSE reform legislation "a one-finger salute." "'We missed a golden opportunity that would have avoided a lot of the problems we're facing now, if we hadn't had such a firm ideological position at the White House and the Treasury and the Fed,' Mr. Oxley says." (Financial Times, 9/11/08)

Hope that helps.

Posted by AJN | October 8, 2008 4:25 PM

It's misleading. There have been some great posts by actual economists detailing exactly how little influence Fannie and Freddie had on the overall market. It's true they committed accounting fraud, but that has nothing to do with whether they influenced the market for housing. See, e.g., http://bigpicture.typepad.com/comments/2008/10/fannie-mae-and.html

Posted by GK | October 8, 2008 4:32 PM

"1. Total contributioins to Obama from the two mac's are around $150k--whereas Rick Davis in the past 2 years has earned over $500k in consulting fees from Freddie--who's been influenced more?"

Never mind that; over 90% of those contributions came from employees. I didn't search the full list, but the first couple dozen individuals I checked did NOT include any executives--lawyers, clerks, portfolio managers, but no SVPs or Chief anythings.

I'm sure Raines made a donation to the campaign, but that's not the point--as far as PAC money goes, BO was not in the top 100 congress-critter receipients of FHNA/FHLMC money.

Posted by zaleriana | October 8, 2008 4:49 PM

Of course this is fair.Dems can not have their cake and eat it too. While increasing mortgages to low income individuals might have been a good idea- it certainly went a little too far. When Dems blocked any and all attempts to change legislation regarding freddie and fannie they assume responsibility for the terrible mortgage mess that resulted. When Dems receive lots of campaign contributions or send former cabinet members to mismanage freddie and fannie while receiving buckets of cash- it stinks. Let's be adults. Let's be fair. Let's accept responsibility for all of our actions. Grow up. People are mad as hell at this mess

Posted by Guy Boike | October 8, 2008 5:10 PM

It's effective, persuading and misleading...but not enough. 90% wrong track, lame duck president and the McCain camp (and its supporters) is too busy yelling "HUSSEIN is a TERRORIST who committed TREASON so let's KILL HIM."

If the McCain camp had any coherent message and strategy, it might work, but they don't. They are all over the place and the more his supporters and voters continue spewing over the top, rabid comments, no Repub talking point will work.

Posted by Aashish Parekh | October 8, 2008 5:13 PM

Lets remember who largely caused the financial crisis -- Wall Street, not Fannie and Freddie. The problem is that the Wall Street firms are McCain pals and he worked to deregulated them. The result is the toxic waste they created and the current financial meltdown. Of course McCain needed to find someone to blame other than himself or his pals.

The evidence is clear. Just take a look at the mortgage backed securities market. The Wall Street mortgage backed securities are now largely worthless since they are backed by subprime loans. Fannie and Freddie MBS still trade beautifully with minimal credit losses. What else do you need to know other than McCain appears to have trouble telling the truth!

Posted by Eddie | October 8, 2008 5:14 PM

Like many other recent GOP statements, for all it lacks in any real connection to empirical reality, it may well be politically effective. Too bad that Phil Gramm, the repeal of Glass-Stegal, Alan Greenspan's cheerleading for the housing bubble to limit the Bush downturn, and the failure of bank regulators to impose meaningful safety and soundness constraints on subprime lending or appraisal processes are the real culprits, and anyone who's actually familiar with the mortgage marketplace knows that Fannie and Freddie were late to, and bit-players in, the subprime market.

Posted by pied piper | October 8, 2008 5:41 PM

Well it seems to me two of the main campaign advisor for the Mccain campign are emplotees of Fannie and Freddie and I am so sick of this crap. It is amazing how despirate the republican are at this point. GOOOOOOO OBAMA

Posted by Kathryn LeBaron | October 8, 2008 6:18 PM

Well it seems to me two of the main campaign advisor for the Mccain campign are employees of Fannie and Freddie and I am so sick of this crap. It is amazing how despirate the republicans are at this point. GOOOOOOO OBAMA PLEASE lets talk about the main DEREGULATOR JOHN MCCAIN Remember KEATING saving and loan. I DO!!!!!

Posted by Kathryn LeBaron | October 8, 2008 6:20 PM

boama, chuckie scummer, chris dope, barney frank, harry reid, nancy peloski, terrdy kennedy, john kerry and obama have 90% of the responsibily in the collapse of freddie and fannie and the ultimate stealing of the taxpyers money with the bailout. it time to tell the democrats to take a long walk off a short bridge. thank a democrat in NOV VOTE NO NO obama

Posted by jake | October 8, 2008 10:29 PM

pied piper anyone who's actually familiar with the mortgage marketplace knows that Fannie and Freddie were late to, and bit-players in, the subprime market.
I'm familar and this are the jerks that are responsible. .boama, chuckie scummer, chris dope, barney frank, harry reid, nancy peloski, terrdy kennedy, john kerry and obama have 90% of the responsibily in the collapse of freddie and fannie and the ultimate stealing of the taxpyers money with the bailout. it time to tell the democrats to take a long walk off a short bridge. thank a democrat in NOV VOTE NO NO obama

Posted by jake | October 8, 2008 10:35 PM

Given how the polls are tightening

Please. The only polls to show "tightening" are those that include roughly equal numbers of Democrats and Republicans -- and if the November 4 electorate really contains equal numbers of these voters, then it is going to be a close race. If, on the other hand, Democrats have a 6-8 point advantage as most think, then Obama should win by 5-7 points.

This is a joke, right? There are no polls that sample Rep and Dems equally. Hotline has it at a 1 point difference and their sample is 41/35 Dem which is about right. Zogby has 2 and his sample is more Dems. Gallup has 11 which makes no sense at all...

Posted by Bruce | October 8, 2008 11:41 PM

Since this is almost exactly the same story I was breathlessly emailed by my (wack) Uncle Chuck, then I think it will play well with the Fox News crowd and other deliberately self-delusional types who aren't interested in truth but are interested in blaming liberals. Isn't it amazing that as W. Bush, the Republican congress and the Republican Supreme Court plunged this country into eight years of war and collapse, it turns out that it was all the Democrats fault?

Posted by kk | October 9, 2008 12:36 AM

1. Pres. Bush tried half a dozen times to reign in Freddie and Fannie, so they are not culpable.

2. All roads lead to Freddie and Fannie. It is indeed responsible for this crisis.

3. fff says that the SEC was investigating them, so Congress couldn't. This is ridiculous. The point is that the program should've never been started.

4. It doesn't matter if B.O. was given contributions by employees of FRMC and FNME, or the companies themselves, if this is even a valid question. Yes, he's a junior Senator. But in this time, he's accomplished nothing but voting to increase spending, etc. His "accomplishments" are damning. And yes, he did receive all this money from this gov't boondoggle that should never have existed.

5. Franklin D. Raines WAS an economic adviser to Obama. They dropped him when they realized that he could be a liability.

6. McCain sounded the alarm, and the Democrats, and some Republicans, in congress did nothing. But this program was spearheaded by the Democrats, dating back to Jimmy Carter's administration.

7. Some editing, and this slide show will be a very useful tool in educating the people on the truth that the Leftist media refuse to investigate.

Posted by Patrick Keefe | October 9, 2008 12:38 AM

F
A
C
T

Jim Cramer, Democrat, Hillary-lover, squarely placed the blame on Democrats on our financial crisis, much to the dismay of the audience and Colbert.

We had lots of cheap money during the 90s. It went to housing. So? Clinton wanted minorities and others to take advantage, but he also wanted to rein in Freddie/Fannie.

QUOTE: Bubba Clinton: "I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac."

This was in response to : CHRIS CUOMO, ABC NEWS: A little surprising for you to hear the Democrats saying, "This came out of nowhere, this is all about the Republicans. We had nothing to do with this." Nancy Pelosi saying it. She signed the '99 Gramm Bill. She knew what was going on with the SEC. They're all sophisticated people. Is that playing politics in this situation?

Wait, Clinton talks about Fannie/Freddie in response to our financial storm?

Watch the Burning Down the House video.

It's a shame. The greatest financial crisis in our times and the MSM lets Obama get away with "failed Bush policies" and "deregulation". The truth is, forced regulations of pushing subprime on the poor, and recklessness at Freddie/Fannie supported by the Democrats caused this.

Posted by John | October 9, 2008 11:59 AM

I'm not an expert on the financial/government ins and outs of this thing, but I am an expert on PowerPoint.

That is awful. God-awful. Hammered Dog Turd awful.

My 4th grader could have done better in both design, execution and functionality.

When I see something so unprofessionally done, I pretty much decide that the content is unworthy of my time.

For God's sake, whoever created that should have their PowerPoint privileges take away.

I know times are tough and all, but hire a professional. If you have serious ideas, they should be presented in a serious way.

Posted by patrick | October 9, 2008 1:04 PM

If Frank Raines is not part of the Obama campaign, you better tell that to the Washington Post, who calls him an Obama advisor:

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502827.html?sid=ST2008071503047&s_pos

Posted by Dr. Cy Coe | October 9, 2008 1:12 PM

What Jim Cramer didn't tell you is that Clinton renewed Carter's Community Reinvestment Act in 1995 which was nothing more than government legislation to make it a federal law that everyone regardless of personal income are to be given loans, regardless of whether or not they can afford to pay them back. That piece of legislation changed the way banks handle loans. Instead of being a privilege, they became a right. Bank loans, like health care, are not God-given rights.

Posted by Dr. Cy Coe | October 9, 2008 1:25 PM

The fact that Ambinder and many on the left are attacking the PowerPoint presentation as "amateurish looking", means they can't refute the evidence in the presentation. Taxpayers should be outraged. Fannie and Freddie were created by Democrats during Democrat administrations.

Posted by Dr. Cy Coe | October 9, 2008 1:30 PM

The GOP did indeed control Congress from 1999 to 2005 Adam. Democrats have controlled it for the last 2 years and looked what happened.

Posted by Dr. Cy Coe | October 9, 2008 1:34 PM

Oh and Adam, Frank Raines WAS running Fannie Mae under Bill Clinton and looted the place when he left.

Posted by Dr. Cy Coe | October 9, 2008 1:40 PM

All roads do lead to Wall Street in this mess.

Who created the toxic subprime mortgage-backed securities? Wall Street.

Who encouraged the origination of the irresponsible subprime loans to fill the securities that hedge funds were eager to buy? Wall Street.

In congressional testimony earlier this week, what role did Dick Fuld former head of Lehman Brothers say Fannie and Freddie had in his firm's failure? None.

When you believe in markets unconstrainted by any social policy or responsibility and they fail miserably as they just have, you could look for a scapegoat to defend your flawed beliefs. The Republicans have found it in Fannie and Freddie.

Posted by eddie | October 9, 2008 1:43 PM

YOU CAN'T HAVE IT BOTH WAYS!
Conservative pundits continue to place the blame for our economic meltdown on Fannie Mae and Freddie Mac. According to their logic, it was the Democrats failure(1) to regulate them that caused this crisis. So, by this logic, it was a failure of regulation that caused the crisis. But these are the same people that continue to argue that deregulation is the answer! How can your argue to remove regulation on one hand and place blame on too little regulation on the other? You can't have it both ways.

(1) Note that the Republican caucus was in control of both houses of Congress for 12 of the last 15-years

Posted by Michael Harrison | October 10, 2008 11:59 AM

In response to "You Can't Have it Both Ways".
I think you missed something BIG. Fannie Mae and Freddie Mac ARE GOVERNMENT SUPPORTED ENTITIES. They are not free market! That's the BIG MISTAKE from the get go. They should be regulated to extinction because they had HALF the mortgages in the country and are so intrusive to the free market system and accountable to the democrats who run it both on the board and in congress.
The goverment spending spree giving away mortgates to provide "affordable" housing is OVER and look at what it had wrought!

Posted by Mike | October 10, 2008 12:24 PM

History clearly shows and even President Clinton admits that Democrats caused the current worldwide financial meltdown? Ignoring the lessons of lose credit from the 1929 great depression, the Democrats began to build for the next great depression as early as 1930’s. However compassionate the motive by the Democratic Party; it has been the result of their systematic disregard for good credit standards that has led to our current financial crisis.

Why has it has taken almost 80 years for the perfect storm of events to trigger another great depression? Because, between the following Democratic led governments, we have had conservative Republicans that slowed the process along with two notable Democrats: “the buck stops here” Truman and “ask not what your country can do for you; ask what you can do for your country” Kennedy. Now look at the history of how we got here.

1) Democrat President Roosevelt’s New Deal took America off the Gold Standard.
By 1935 the Nation had achieved some measure of recovery, but businessmen and bankers were turning more and more against Roosevelt's New Deal program. They feared his experiments, were dangerous because he had taken the Nation off the gold standard and allowed deficits in the budget. Fannie and Freddie have their origins form the New Deal.

2) Democrat President Johnson’s Great Society reforms greatly expanded government
Johnson Administration went beyond the New Deal social reforms first established by President Roosevelt. Two chief goals of the Great Society social reforms include the elimination of poverty and racial injustice. Many new and substantive programs that addressed education, medical care, urban problems, and transportation were started in this period which grew government faster than good regulations could be written.

3) Democrat President Carter’s Community Reinvestment Act (CRA) resulted in bad loans
The most resent seeds of today’s financial meltdown lie in the Community Reinvestment Act passed in 1977. CRA was passed to encourage banks to make loans to high-risk borrowers allowing more people to experience the American dream of home ownership. This law was used by organizations like ACORN (Association of Community Organizations for Reform) to force the banking industry to make poor quality loans. Intimidation tactics, public charges of racism and threats to use CRA to block business expansion have been used by ACORN to extract hundreds of millions of dollars in loans from America’s financial institutions.

4) Democrat President Clinton’s signature on bill allowing banks to participate in Wall Street
Under political pressure Clinton knows now that he caved-in when he signed the bill into law. He also states to ABC's Chris Cuomo that Democrats for years have been "resisting any efforts by Republicans in the Congress to put more controls on Fannie and Freddie”\1. Chris Cuomo’s response was that it seems a little surprising for me to hear the Democrats like Nancy Pelosi saying, "This came out of nowhere, this is all about the Republicans”.

\1 In 2005, the Senate Banking Committee, then chaired by Republican Richard Shelby, tried to rein in the two organizations by passing some strong new regulations. All the Republicans voted for it. All the Democrats, including the current chairman, Senator Chris Dodd, voted against it, and that was after Fed Chairman Alan Greenspan had issued a stark warning to senators that Fannie and Freddie were playing with fire. Greenspan said without stronger regulations, "We increase the possibility of insolvency and crisis”. Which turned out to be exactly right, but because Democrats blocked it, those new regulations never got consideration by the full Senate and died. So that's how we got into this mess, and how we missed a chance to avoid it. Getting out of it now, of course, will be a lot more difficult. Reported by: Noel Sheppard, September 25, 2008.

Democrat Presidential Candidate Obama tells voters that Republican deregulation caused the current melt down. Senator Obama knows better. He has worked very close to ACORN with full knowledge of their intimidation tactics which have forced the investment banking industry led by Fannie and Freddie to make the poor loans. Who really knows? Some CEO’s may have also been corrupt or they may just have been intimidated into doing the wrong things. The FBI will eventually sort it out.

While Senator Obama’s motive may have been a compassion for the less affluent, the results of his actions, those of his ACORN friends and those of his Democratic Party in congress, now threatens to place 85% or more people into poverty.

The Democrats led the way and the Republicans did not do enough to stop the crises from happening. As Americans, from main street to wall street, from small business to large business, from less affluent to the excessively wealthy, all voters must leave politics, race, gender at the door when they vote on November 4th. This election is about more that the current financial melt down. It is about whether American will maintain it's ability to support FREEDOM in America and around the world.

Posted by Dale | October 12, 2008 9:44 PM