Hamilton, Madison, and Jay

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Wednesday, September 17, 2008

McCain's reform credentials

John McCain tried to fix the problems we've witnessed in recent weeks back in 2005, but he was unable to. What problems, you ask? Freddie and Fannie -- that problem. The Bush administration tried an overhaul, and was blocked by Democrats. Back in 2005 John McCain spoke out and urged his colleagues to approve the Federal Housing Enterprise Regulatory Reform Act of 2005:

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

HT to Captain Ed

John McCain accurately predicted what would happen should the bill not be passed. He predicted that Freddie and Fannie would fail, and that their failure would hurt the American taxpayer and investor. But the bill died in committee, killed by Chris Dodd and crew. Why? Well it might have something to do with the sweetheart deals Dodd and company were getting from the housing industry at the time. After all, why reform something that is feeding you? You're on the winning end. It's the rest of the schlubs out there that will lose.

The idea that Obama stands for change is a moronic one seeing as how, as Captain Ed notes, that he was the #2 Democrat getting money from Freddie and Fannie, so he had no incentive to reach across the aisle and lend John McCain a hand. (In fact there's not one instance where he reached across the aisle honestly to get any serious reform accomplished. And no, you can't cite the ethics reform bill because it was a half-hearted effort that really reformed nothing.) Open Secrets has a list of those in Congress who have benefited from the Freddie/Fannie money. The top three? Chris Dodd, Barack Obama, and John Kerry. Surprised? You shouldn't be.

What's the point? Simple. John McCain tried to fix this before it blew up and Democrats killed the attempt. That's the point. His reform credentials would have been bolstered more had he succeeded, but the opposition clearly didn't care to fix what was most certainly broken.

Publius II


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