The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
Following is a summary of my research and the texts I have read regarding the financial meltdown, the
housing bubble and crony capitalism. From this work I have developed a timeline of the events and the
players that brought us to the brink of financial and economic disaster here in America threatening our
liberty and our continued existence as a republic. Democrats and Republicans are both to blame;
however, as you will come to realize the liberal wing of the Democratic Party, combative community
activists, left leaning economists, Wall Street, financial Rating Agencies, and the Liberal Main Steam
Media share the brunt of the blame. – Perry Smith
Many of the thoughts and/or ideas following are not original to me. Many of the words, phrases, or
quotes used in the following timeline come from the following texts.
•
RECKLESS ENDANGERMENT – How Outsized Ambition, Greed, and Corruption Let To Economic
Armageddon; Gretchen Morgenson and Joshua Rosner – Copyright 2011
•
ARCHITECTS OF RUIN – How Big Government Liberals Wrecked the Global Economy – and How
They Will Do It Again If No One Stops Them; Peter Schweizer – Copyright 2009
•
THROW THEM ALL OUT – How Politicians and Their Friends Get Rich off Insider Stock Tips, Land
Deals and Cronyism That Would Send the Rest of US to Prison; Peter Schweizer – Copyright 2011
•
THE GREAT AMERICAN STICK UP – How Reagan Republicans and Clinton Democrats Enriched
Wall Street While Mugging Main Street; Robert Sheer – Copyright 2010
•
DEMONIC – How The Liberal Mob is Endangering America; Ann Coulter – Copyright 2011
At the height of the presidential election in 2008 the wheels started to shake and come off the American
economy. Loan defaults and bank foreclosures had skyrocketed. Real Estate values collapsed
nationwide, trapping many people in homes they could not sell and struggling to pay mortgages. Trillion
dollars of value were wiped out of the stock market, mutual funds and pension funds. Millions of
Americans were suddenly unable to afford retirement or send their kids to college, their savings wiped
out and the value of their retirement accounts effectively cut in half. Large financial entities such as Bear
Stearns and Lehman Brothers effectively collapsed. Others, such as Citigroup, had to be pumped full of
taxpayer money to keep them functioning.
The following statements are very ironic considering the source.
“The private sector got us into this mess,” Barney Frank indignantly declared; “the government has to
get us out of it.”
Nouriel Roubini of New York University blamed “unregulated free market zealotry” for the economic
collapse.
Paul Krugman, liberal economist who writes for the New York Times, denounced “the great unraveling”
of economic regulations pushed by conservatives.
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
In 2008 Barak Obama took in the biggest campaign haul from Wall Street in world history, but you can
find many to argue that he and the Democratic Party are not in the pocket of Wall Street bankers. The
top-three corporate employers of donors to Barack Obama, Joe Biden and Rahm Emanual were
Goldman Sachs, Citigroup and JPMorgan. Six other financial giants were in the top thirty donors to the
White House Dream Team: UBS, AIG, Lehman Brothers, Morgan Stanley, Bank of America, Merrill Lynch
and Credit Suisse Group. And still Republicans are called the Party of Wall Street.
The Road to Ruin
1934 – The Federal Housing Administration (FHA) is created by the National Housing Act to increase
home ownership in the United States. FHA insures mortgages to encourage banks to loan more money
for housing. Democrat/Democrat Congress
1938 – The Federal National Mortgage Association, Fannie Mae, is created at the request of Franklin
Roosevelt. It is authorized to buy FHA insured mortgages from banks. It then repackages and sells them
as securities to investors. Democrat/Democrat Congress
1939 – Industrial Areas Foundation, a national network of community organizations is founded by Saul
Alinsky (1909-1972)
1965 – The Department of Housing and Urban Development (HUD) is created. HUD and FHA insure
loans for borrowers with insufficient credit, thereby driving down interest rates for low-income
borrowers and artificially increasing the amount of housing produced and sold. Democrat/Democrat
Congress
1968 – Fannie Mae separates from the FHA becoming a Government Sponsored Enterprise (GSE) with
the ability to issue common stock to public investors. Making Fannie Mae a GSE enables Lyndon
Johnson, worried about the budget deficits from his "Great Society" policies, to remove Fannie Mae
from government balance sheets, while continuing to expose taxpayers to its risks. Democrat/Democrat
Congress
1968 – The Fair Housing Act is passed by Congress to end the practice of “redlining.” The broad
assumption made by the left and liberal media is that race or more specifically racism explains the
pattern of redlining. Democrat/Democrat Congress
1969 – James Johnson, future CEO of Fannie Mae, attends a strategy session convened by antiwar
activists. His roommate is 22 year old Bill Clinton.
1970 –The Federal Home Loan Corporation, now known as Freddie Mac, another GSE is created to
serve the same purpose as Fannie Mae – to expand the secondary market for mortgages in the United
States. The two companies do so by purchasing mortgages from banks. They then compile the
purchased mortgages into securities, guarantee them, and sell them to investors. By paying banks
money for mortgages, they bring more liquidity to the banks, which are then able to loan the money to
another applicant. Both GSEs are implicitly backed by the government. Because the GSEs are chartered
by the government, investors believe that the government will not allow them to default on loans. As a
result, GSEs are able to borrow at lower rates than private companies, giving them a competitive
advantage over fully private mortgage-backed security vendors. They crowd out the competition and
ultimately hold over 50% of the over $7 trillion mortgage market in the United States in 2003.
Democrat/Democrat Congress
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
1971 – Rules for Radicals, written and published by Saul Alinksy
1971 – Jesse Jackson launches Operation PUSH and asks the United Nations for donations on the
grounds that American blacks are an underdeveloped country.
1972 – The National Training and Information Center (NTIC) in Chicago is founded by Gale Cincotta a
Chicago housewife and Shel Trapp, a former Methodist minister, as a national policy, research, and
training center for communities who are tired of seeing their neighborhoods torn apart by federal
housing foreclosures and bank redlining.
1973 – Operation PUSH has $6,000 in assets and $62,000 in liabilities, Jesse Jackson goes to blackowned businesses and convinces them make it possible for employees to have donations deducted
directly from their paychecks.
1975 – The Home Mortgage Disclosure Act (HMDA) is created requiring lenders to supply the
government with details of their loans and those who apply for them. Democrat/Democrat Congress
1975 – The National People’s Action on Housing a group founded by Gale Cincotta sponsors a major
conference in Chicago that brings the redlining charge to national attention.
1976 – Gail Cincotta begins pushing for the Community Reinvestment Act (CRA)
1977 – The Community Reinvestment Act (CRA) becomes law and requires banks to loan to the areas
where the banks are located, regardless of the eligibility of potential borrowers. To enforce the statute,
government agencies take the information they gather on the banks (HMDA) into consideration when
deciding to approve applications for new bank branches or for mergers or acquisitions.
Democrat/Democrat Congress
1978 –The Humphrey-Hawkins Full Employment Act modifies the Employment Act of 1946. It gives the
government the power to use economic policy to manipulate fluctuations in the business cycle through
the Federal Reserve and the Executive Branch beyond that initially granted by the Constitution.
Democrat/Democrat Congress
1980’s – Activists groups began forcing banks to erode their lending standards in the name of social
justice.
1981 – Richard T. Pratt, chairman of the Federal Home Loan Bank Board, states the policy of innovative
home mortgage lending to poor and minority applicants is detrimental to the “safety and soundness” of
America’s lending institutions.
1982 – The bipartisan Garn-St. Germain Depository Institutions Act introduces sweeping deregulation
that allows the savings-and-loan industry to enter a wide range of new businesses with limited
oversight. Among the cosponsors are Democratic congressman Steny Hoyer and Chuck Shumer. The
reforms create a now-familiar set of perverse incentives, expanding opportunities to score big by betting
with other people’s money. The debacle that follows is an eerie precursor to the financial crisis of 2008,
although the damage is largely contained within the S&L industry costing the taxpayer over $125 billion.
Early efforts to correct the problem (at a time when the costs would have been minimal) are blocked by
Congress. The whole sordid business is capped by a mostly Democratic (save John McCain) scandal
involving Charles Keating, the head of Lincoln Savings and Loan.
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
1982 – Federal Reserve Board confirmed that the CRA was creating a situation in which “credit
allocation” was taking place. Banks were not making lending decisions based on sound business
principles; rather, they were increasingly making decisions based on social and political pressure.
1983-1988 – The Atlanta Journal-Constitution wins a Pulitzer Prize for demonstrating, based on federal
data, that the rate of rejection on mortgage applications in the Atlanta area has been 11.1 percent for
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whites while the rate for blacks is 23.7 percent and for Hispanics 18.2 percent. The series garners
national attention when Congressman Joseph Kennedy in a grandstanding speech on the House floor
declares that “every American citizen” should have “equal opportunity to secure credit in order to own a
home.” Ignored by everyone is the fact that the data does not take into account such things as income,
debt burdens, credit histories, or net assets of those applicants who have been rejected.
1984 – James A. Johnson oversees the presidential campaign of Walter Mondale, a fellow Minnesotan.
1985 – Public Strategies, a Washington consulting firm started by James Johnson and Richard
Holbrooke is purchased by Shearson Lehman Brothers a Wall Street investment bank. James Johnson
and Richard Holbrooke become managing partners of the firm.
Mid 1980’s – Young college graduate Barack Obama goes to NTIC to learn the essentials of community
organizing. He spends 4 years heading up the Developing Communities Project.
Mid 1980’s – Activist organizations around the country discover that money can be squeezed from
lenders anxious to avoid bad publicity.
Mid 1980’s – Ronald Reagan and his budget director David Stockman are determined to privatize
Fannie Mae and cut the Federal ties. In 1989 Shearson Lehman Brothers conducts a privatization
analysis and concludes privatization is not feasible.
1985 – ACORN sets up its own housing corporation forcing deals on several large banks that were
seeking regulators’ approval for mergers. The banks agreed to more flexible underwriting criteria
agreeing to include less traditional income sources such as food stamps, unemployment, part-time jobs,
non-court ordered child support and foster care payments.
Late 1980’s – Large-scale public housing projects pushed by previous Democratic administrations are
decaying and stagnant – a living symbol of the failed welfare state. Public housing is replaced at the top
of the liberal agenda by advancing home ownership for everyone.
1986 – Fidelity Bank of Philadelphia is planning to buy another bank but soon finds ACORN standing in
the way. In order to clear ACORN objections, Fidelity agrees to their demand that it count food stamps
as income for lending purposes.
1987 – Newspapers are filled with headlines about how activist groups can “instill fear in banking
circles” and are forcing “more dollars …into troubled neighborhoods.”
1987 – Frederick Manning of the Philadelphia Federal Reserve stated “ACORN has passed Gale Cincotta
in instilling fear in banking circles”
1988 – By shaking down the Bank of New York, ACORN accepts a $250K interest-free loan and a deposit
of $100K in an ACORN account just to get it to go away.
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
1988 – Wendy Gramm, wife of Texas Senator Phil Gramm, is appointed by Ronald Reagan to chair the
Commodity Futures Trading Commission.
1989 – The CRA is modified by the Financial Institutions Reform Recovery and Enforcement Act
(FIRREA) to increase pressure on banks to make CRA loans – loans that banks deem too risky to give, but
which they must to meet politically determined CRA requirements. Democrat/Democrat Congress
1989 – Chase Manhattan is forced to commit $200MM to NY City’s poor neighborhoods after it is
charged with “racially discriminatory practices” by ACORN and Operation PUSH.
1989 – Fannie Mae offers shares of stock to the public for the first time.
1989 – 2009 – Fannie Mae spends roughly $100MM on lobbying and political contributions.
1990’s – Barak Obama after returning from Harvard Law School conducts classes for future leaders
identified by ACORN.
1990 – Over $5BB has been shaken from banks through the community activist’s tactics of extortion and
shake downs.
1991 – The Home Mortgage Disclosure Act (HMDA), enacted in 1975 is expanded to determine if
financial institutions are complying with CRA regulations. HMDA has the effect of lowering underwriting
standards and pushing banks to give loans they otherwise would not. Economist Tom DiLorenzo explains
that with the rules from the CRA, certain community action groups “…essentially extort money from
banks with the following ruse: Whenever a bank proposes a merger, expansion, or building of a new
branch, it is subject to regulation by the Fed, the Comptroller of the Currency, and the FDIC. If anyone
files a complaint to any of these agencies accusing the bank of making too few CRA loans, the merger or
expansion is halted. So-called community groups frequently lodge such complaints and do not withdraw
them until the banks give them or other groups which they designate large sums of money, sometimes
in the tens of millions of dollars.” Democrat/Democrat Congress
1991 – David Maxwell retires as CEO of Fannie Mae with a $27MM retirement package. However, in
spite of the massive losses from the recent savings and loan crisis Fannie Mae is financially sound.
1991 – James Johnson becomes CEO of Fannie Mae. Fannie Mae claims that it passes every penny of
cost savings to homebuyers in the form of lower interest rates. It is later discovered that the company
keeps one third of the government subsidy, billions of dollars, for its executives, shareholders and
friends in Congress.
1991 – “Open Doors to Affordable Housing” is created by Fannie Mae with a commitment of $10BB to
finance lower-income borrowers as a political strategy to insure that the government perquisites are
never is taken away.
1991 – Fannie Mae begins making significant grants in the hundreds of thousands of dollars to consumer
and community groups like ACORN.
1991 – Fannie Mae hires Barney Frank’s partner Herb Moses as assistant director for product initiatives
and two of his projects involve relaxing Fannie Mae’s restrictions on home improvement loans and small
farm mortgages.
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
1992 – The Federal Reserve Board ends the program called dealer surveillance that it had long used to
audit and inspect the primary dealers used by the government to help manage its auctions of U.S.
Treasury securities. This development is a clear indication that the days of a tough regulatory approach
at the Fed are over. Alan Greenspan delegates the task of regulatory policy to E. Gerald Corrigan, the
president of The Federal Reserve Bank of New York, an organization that operates hand in glove with
the banks it is suppose to regulate.
1992 – “Lately, I’ve been hearing various regulators raise concerns about off-exchange markets and
about derivatives generally,” Wendy Gramm, chairman of the Commodity Futures Trading Commssion
(CFTC) is quoted as saying. “The questions they’re raising include: are derivative markets too big, too
risky, placing the clearing system in jeopardy?” Rhetorically she continues, “Are derivatives and their
risks simply too esoteric and complex for anyone but a rocket scientist to understand? Are the derivative
markets under-regulated?” She went on to claim there wasn’t much money involved, anyway: “First,
there is [the] notion that the size of the derivatives market could disrupt the financial system. When
people talk about swaps, we often hear figures in the trillions of dollars.” She went on to emphasize that
the value of the debt was much more moistest and nothing to worry about. In 1997 the national value
of the OTC derivatives had grown to $24 trillion and in 2007 the notional value of all unregulated
derivative trading was about $640 trillion.
1992 – Wendy Gramm accepts a position on the board of Enron a company that was regulated by the
CFTC. Enron reportedly paid Ms. Gramm $915,000 and $1.85 million in salary, attendance fees, stock
option sales and dividends between 1993 and 2001 according to Public Citizen.
1992 – The Housing Impact Advisory Council is created. A thirty-five member group that will advise
Fannie on how to meet affordable housing goals. James Johnson invites executives from the non-profits
like ACORN, National Council of La Raza and the National Low Income Housing Coalition to join the
council. Community organizations make up over 50% of the membership. These groups also receive
grants from Fannie Mae.
1992 – Countrywide, Wachovia, and others pushed by Federal Reserve publications and other
regulations begin loaning to clients with no or bad credit. Lenders are able to pass on the added risk of
these loans by selling them to the GSEs, who guarantee, repackage, and sell them as securities with the
implicit backing of the government in the case of default.
1992 – James Johnson changes the compensation structure at Fannie Mae from one based on a wide
range of performance measures and metrics to being tied almost solely to earnings growth.
1993 The Clinton Presidency Begins
1993 – From the beginning of his candidacy, Bill Clinton has made home ownership for the poor and
minorities a centerpiece of his urban policy. He mentions the Community Reinvestment Act more than
any other candidate. During Hillary Clinton’s time in the White House she embraces the agenda of
spreading home ownership and supports the Saul Alinsky method of achieving it.
1993 – Robert Rubin is appointed director of the newly created National Economic Council
1993 – A now-discredited study published by the Boston Federal Reserve lights up the media and
enables Government Sponsored Enterprises Fannie Mae and Freddie Mac to accept lower underwriting
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
standards for mortgages they are seeking to purchase, so they may expand their portfolios, enable
private banks to make more loans and influence the housing sector.
1993 –Federal Reserve Board Governor Brock LaWare testifies before the Senate Banking Housing and
Urban Affairs committee, “I hope nobody would violently disagree with this, but I think it's fair to say
that the evidence that we have on discrimination does not indicate an intentional policy of
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discrimination on the part of these banks." Questioning the value of using testers and seeking to point
out the pitfalls of trying to prove discrimination, he is browbeaten and receives unusually sharp criticism
and a reprimand from Senator Carol Moseley-Braun (D-IL).
"And for you to sit there now and for this testimony to say, 'Well, we don't know how this
happened,' is nothing short of stunning to me. It's clearly unacceptable, and I think that's been
the import of the chairman Donald W. Riegle, Jr. (D-MI) and Senator Paul Sarbanes' (D-MD)
reaction, that this is not only unacceptable but this kind of ignorance coming out of our
regulatory agencies is just not to be tolerated. It's outrageous,"
Carol Moseley-Braun (D-IL)
1993 –The Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) is passed into
law. This act mandates that the GSEs increase their acquisition of bank loans made to risky and lower
income borrowers. Banks know they can meet CRA requirements by giving these loans, and that they
will be able to pass the risk of such loans on to the implicitly taxpayer-backed Government Sponsored
Enterprises, so they make lower quality loans. Henry B. Gonzalez, chairman of the House Banking
Committee, asks ACORN to help define the goals for Fannie and Freddie. James Johnson is able to
design Fannie’s own regulation. Fannie controls their own controllers. Democrat/Democrat Congress
1993 – Fannie launches new products to aggressively support the downward slide in lending standards.
Joining with PNC Bank of Pittsburgh, Sears Mortgage and Mortgage Guarantee Insurance Corporation
they launch a program that will redefine lending practices in the “conforming market” the term used for
loans that can be purchased by Fannie and Freddie. This new program is known as “Alternative
Qualifying.”
1993 – Fannie worried about rising competition needs a mortgage originating partner to ensure that
they will continue to get the lion’s share of loans. Countrywide Financial is identified as the perfect
partner by James Johnson. By the mid-1900’s Countrywide is generating billions of dollars in loans a
year.
1991 – 1999 – James Johnson takes out roughly $100MM in pay.
1994 – Equifax Inc., an emerging leader in credit scoring introduces a system specifically tailored to
assess mortgage risk posed by a loan applicant. Such a system has already been used to analyze credit
card accounts and auto loans. But trying to predict mortgage loan performance is much more complex.
It is seen by the financial industry as a shiny new toy and financial regulators either remained silent as
the old rules designed to promote sound lending are scuttled.
1994 – Barak Obama files a lawsuit with US District Court, Northern District of Illinois charging Citibank
with racism because it denied home loans to several black applicants. Selma S. Buycks-Roberson v.
Citibank Federal Savings Bank. Suit claimed that Citibank violated the Equal Opportunity Act, the Fair
Housing Act and the 13th Amendment. By 1997 a settlement is near, but “one of the stumbling blocks is
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
attorney fees.” Finally settles in January 1998. Citibank agrees to set up credit counseling for applicants
denied loans, plaintiffs received a total of $60,000 and legal fees totaled $950,000.
1994 – Bill Clinton coins the term “disparate impact” which changes the definition of discrimination in a
manner that makes it possible for banks to be guilty of discrimination without intent – indeed, without
even knowing that they are discriminating.
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1994 – Bill Clinton launches the National Partners in Homeownership, a private-public cooperative with
one goal, raising the numbers of homeowners across America. The effort enlisted the help of Banks,
home builders, securities firms and Realtors.
“When we boost the number of homeowners in our country we strengthen or economy, create
jobs, build up the middle class and build better citizens.”
Bill Clinton
Rather than building up the middle class the NPH ends up decimating the middle class.
1994 – The Bill Clinton administration continues to aggressively pursuing the path of reduced credit
standards even as its own data indicates that “affordable mortgages” provided through the Community
Reinvestment Act had higher-than-normal default rates.
1994 – Republicans take control of congress and begin talking about abolishing the Community
Reinvestment Act. In the end, instead of pulling the CRA’s teeth, the Republican congress turned a
blind eye to the Bill Clinton administration’s efforts to strengthen it. Republican/Republican Congress
1994 – James Johnson announces Fannie Mae’s Trillion Dollar Commitment, a program that earmarks
$1 trillion to be spent on affordable housing between 1994 and 2000.
“The leadership demonstrated by Fannie Mae and its chairman Jim Johnson in envisioning this
commitment must be applauded.”
Henry Cisneros, secretary of HUD, September 13, 1994
1994 – Fannie Mae launches the original twelve partnership offices (eventually totaling fifty-five) across
the country to cement their relationship with Congress. Politicians from both parties attend openings;
Ted Kennedy (D), Newt Gingrich (R), Christopher Bond (R), Tim Stewart (R), Bob Simpson (D).
1994 – Devel Patrick, former attorney for the NAACP, is appointed assistant attorney general by Bill
Clinton. At his swearing in Devel Patrick noted he had “a personal commitment” to fair lending. While at
the Department of Justice, Patrick handled cases against Texaco, Coca-Cola and Ameriquest on the
ground that they had engaged in racial discrimination. Shortly after leaving Justice in 1999 he was hired
by all three to help them deal with their civil rights cases.
1995 – The National Community Reinvestment Coalition boast that $1.09 trillion in CRA loans has been
negotiated during Bill Clinton’s first few years. Home loans to blacks grow by 72 percent and to Latinos
by 45 percent. The number of blacks owning their own homes increases by three times that of whites
and the number of Latinos increases by five times the rate of whites.
1995 – Barack Obama runs for the Illinois State Senate stating his goal is to “stand politics on its head”
by empowering citizens and forging a union among “banks, scornful grandmothers and angry young.”
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
Let’s pause the housing crisis timeline and show three separate incidents of croyn capitalism at it’s
worst during the Clinton years involving the same old players.
1995 – 1998
The Mexico Crisis - Bill Clinton’s Treasury Department bails out Wall Street (Goldman Sachs, Citigroup)
by going around Congress (in congressional hearings Steve Forbes, Larry Kudlow and Bill Seidman,
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former head of the FDIC testify that the bailout is a bad idea) announcing it will provide a $20 billion line
of credit to the Mexican government and pushes the International Monetary Fund to provide an
additional $17.8 billion so that Mexico does not default on their bond obligations. By mid-1994, Larry
Summers, undersecretary of the Treasury for international affairs, alerts Robert Rubin that the Mexican
government is $25 billion short and can’t make their payments. Goldman Sachs the largest single
underwriter of Mexican equities and bonds from 1992 to 1994 reportedly has $5 billion of their client’s
money tied up in Mexico. Later Bill Clinton claims he engineered the bailout for the benefit of the
Mexican people and not Wall Street. At the end of the day, Goldman Sachs actually made a nice return
because of the bailout and the risk was transferred to the Mexican taxpayer. Republican/Republican
Congress
The Asian Crisis - Large U.S. banks loan billions of dollars to South Korean companies without paying
much attention to what they were doing or investing in; Chase Manhattan, $5.4 billion, J.P. Morgan,
$3.4 billion, Citicorp, $2.8 billion. Republicans in Congress are not eager to cough up tens of billions in
taxpayers’ money to bail out Wall Street. So Bill Clinton, working through the IMF, begins throwing
money at the problem independent of Congress. David Lipton, undersecretary of Treasury for
international affairs (later a senior executive with Citigroup and advisor to Barak Obama) was
dispatched to South Korean to explain the plan designed by Robert Rubin and Larry Summers that
American investors would get their money out by reworking $20 billion of short-term interbank debt
owed by the Korean banks and backed by the American taxpayer. South Korean bankers were literally
being driven to suicide, but investment banks like Citigroup would get a healthy return on their
investment. Republican/Republican Congress
The Russian Crisis – The Federal Reserve Bank of NY brokers a $4BB deal to rescue the huge and
troubled hedge fund called Long-Term Capital Management. The bailout was arranged by Fed president
William J. McDonough, Alan Greenspan, Robert Rubin and Larry Summers. It was a watershed “moral
hazard” moment sending a message that the Fed and the Bill Clinton Administration were in bailout
mode. At this same time the Fed was arguing for looser capital constraints, effectively encouraging
banks to increase their leverage.
“In Mexico in 1995, Korea in 1997, and Russia in 1998, official funds were used to purchase and
retire short-term debt that private investors (Goldman Sach, Chase Manhattan, Citigroup and
J.P. Morgan) were unwilling to hold. Having benefited from high interest rates while their
money was in place, creditors were effectively protected from capital losses when it came to
sell. The moral hazard thereby created an obvious incentive to engage in even less prudent
lending, setting the stage for still larger crisis and still larger bailouts.”
Barry Eichengreen, Berkeley economics professor
We continue with the housing crisis timeline.
1996 – U.S. Treasury releases its analysis outlining a roadmap for the privatization of Fannie Mae and
Freddie Mac and detailing the risks the companies represent to the taxpayers. Fannie and Freddie
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
officials demanded meetings with Treasury officials. Treasury Secretary Robert Rubin, a longtime friend
of James Johnson, delegates management of the report to Larry Summers, deputy secretary of the
Treasury. Fannie and Freddie argued strenuously against the report’s conclusion. As the meetings
dragged on, it becomes clear the privatization roadmap is never going to see the light of day. Larry
Summers demands that the staffers rewrite the report. Fannie and Freddie triumph once again.
1996 – The Federal Reserve begins watering down the capital requirements and other restrictions on
banking operations paving the way for the abuse of Trust Preferred Securities (TRUPS). These complex
instruments have characteristics of both debt and equity and the Fed ruling allowing a debt instrument
to be counted toward the least risky calculation of capital essentially allows banks to make their
financial statements appear sounder than they are.
1996 – Stephen Friedman, chairman of Goldman Sachs from 1992 to 1994, is appointed a director of
Fannie Mae.
1997 – Nearly one hundred institutions have issued $31MM of TRUPS. By 2005, TRUPS issuance will
stand at $85 billion.
1997 – Andrew Cuomo, the governor of New York is named director of HUD. Cuomo proclaims that
Fannie and Freddie should buy more subprime mortgages. Fannie and Freddie would no longer restrict
themselves to good quality loans; the degradation of underwriting standards was now under way.
1999 – 2000 – Dale Rathke, a senior official at ACORN and brother of founder Wade Rathke, embezzles
nearly $1MM from the group. The embezzled sum is carried as a loan and only $200K is repaid.
1997 – Tax Payer Relief Act is passed into law, repealing capital gain taxes on home sales unless the gain
is over $250,000. Since capital gains taxes are present on most other forms of investment; lifting
taxation on housing distorts the investment market toward housing and away from alternatives.
Republican/Republican Congress
1997 – 2004 – Barak Obama serves as an Illinois State Senator.
1998 – Fannie’s mortgage financing hits the $1 trillion mark and James Johnson is named
Washingtonian of the Year by Washingtonian magazine.
1998 – Because bonuses at Fannie are largely based on per-share earnings growth top Fannie officials
began manipulating the company’s results by dipping into various profit cookie jars to produce the level
of income necessary to generate maximum bonus payouts to top management. Federal investigators
later found you could predict what Fannie’s earnings-per-share would be at year-end almost to the
penny, if you knew the maximum earnings-per-share bonus payout target set by management.
1998 – James Johnson distributes envelopes containing $2.5MM to neighborhood groups in the Senate
Caucus Room
1998 – Sanford I. Weill CEO of Travelers Group announces the merger of Travelers with Citibank which
will create Citigroup. For the merger to go forward, Glass-Steagall would need to be rescinded, because
it made such a merger illegal. Fortunately his friend Robert Rubin, the Secretary of the Treasury and
former head of Goldman Sachs was sympathetic to the needs of big banking institutions
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
1998 – Driven by the Tech Bubble the Dow Jones Industrial Average continues its march to the 10,000
level while many Americans including the Fed become evermore complacent. In March 1999 the Dow
closes above 10,000 for the first time. Two months later it soars another 1,000 points and by the time
the decade ends, the Dow stands at 11,497, a gain of more than 300 percent. The stock market bubble
is ignored by Alan Greenspan and when the bubble pops in 2000 it creates tens of billions in losses. The
Fed becomes a pushover not a policeman.
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1999 – Glass-Steagall is rescinded by passage of the Gramm-Leach-Bliley legislation by Congress and
signed into law by Bill Clinton. The legislation is known as the Financial Services Modernization Act of
1999 and Texas Senator Phil Gramm is the primary sponsor. The legislation does not create a new set of
rules to keep up with the changing financial world, but rather kills off the old set of rules paving the way
for the Travelers / Citibank merger. Years later Sandi Weill and Phil Gramm joked it should have been
called the “Weill-Gramm-Leach-Bliley Act.” Republican/Republican Congress
1999 – Bill Clinton appoints Roger Ferguson a member if the board since 1997 and a strong advocate
for less regulation, to be vice-chairman of the Fed.
“Heavier supervision and regulation of banks and other financial firms is not a solution, despite
the size of some institutions today and their potential for contributing systemic risk.”
Roger Ferguson
1999 – Robert Rubin leaves Treasury to return to corporate America as vice chairman of Citigroup.
During the following decade Robert Rubin pockets more than $100MM as Citigroup sinks deeper and
deeper in a risky morass of its own design.
1999 – James Johnson leaves Fannie Mae with a $390,000 a year consulting contract and around a
$900,000 a year pension.
1999 – Franklin Raines former Office of Management and Budget Chief under President Bill Clinton
becomes CEO of Fannie Mae, committing an additional $2 trillion to purchase loans to help 18 million
more families become first-time home owners.
1999 – James Johnson joins the Goldman Sach’s board. Henry M. Paulson, Jr. is at the helm of the firm.
By 2010 James Johnson earns almost $500K for his work on the Goldman Board. Johnson immediately
receives the plum board assignment of chairing the firm’s compensation committee. In the eleven years
that Johnson is on the Goldman board, he is the only director to chair the compensation committee.
Johnson has chaired the compensation committee of every board he has sat on over the years.
1999 – The Urban Institute publishes “A Study of the GSE’s Single-Family Underwriting Guidelines”. The
report was funded by HUD and authored by Kenneth Temkin, George Galster, Roberto Quercia and
Shelia O’Leary. The report concludes that Fannie and Freddie are not doing enough for low-income
borrowers. The message is Fannie and Freddie’s underwriting standards are too high. Three of the
authors have extensive tie s to Fannie Mae; Galster is a consultant to the company and Galster, Temkin
and Quercia have received research money from the Fannie Mae Foundation.
1999 – Andrew Cuomo on the heals of the Urban Institute report announces new and aggressive
affordable housing goals for Fannie and Freddie by increasing the goal from 30% to 50% that loans
purchased should benefit low-moderate income families. The press conference announcing the new
goals is a veritable friends-of-Fannie love fest, showcasing, Cuomo, Franklin Raines, Charles Ruma,
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
president of the National Association of Homebuilders who chairs Fannie Mae’s Housing Policy
Advisory Council and Bart Harvey, chairman of the Enterprise Foundation, a non-profit advocating
moderate income housing with two Fannie Mae executives on its board.
These new goals “will strengthen our economy and create jobs by stimulating more home
construction, and it will help ease the terrible shortage of affordable housing plaguing far too
many communities, and it will help reduce the huge ownership gap dividing whites and
minorities and suburbs and cities.”
Andrew Cuomo
1999 – The Bill Clinton administration continues to push financial institutions into “secondary market”
agreements. Allowing financial institutions to bundle mortgages and sell them as mortgage-backed
securities. The National Community Reinvestment Coalition advised it’s members; “CRA agreements
should, where possible, included commitments by secondary market institutions to purchase loans so
that the banks can obtain more capital for making additional CRA loans.”
“Yet, without the Community Reinvestment Act as an impetus, this market would likely not have
developed.”
Ellen Seidman, Special Assistant for Economic Policy
1999-2008 – Fannie or Freddie purchases or guarantees 50% of $3.2 trillion of toxic mortgages written.
The growth trajectory that James Johnson had dreamed of for Fannie has become a reality.
1993–2003 – The Enterprise Foundation receives $11.1MM from the Fannie Mae Foundation.
2000 – Illinois State Senator Barak Obama receives an $112,000 legal retainer from Robert Blackwell.
Barak Obama helps Blackwell’s table tennis company receive $320,000 in Illinois tourism grants to
subsidize a state Ping-Pong tournament.
2000 – Fannie Mae and Freddie Mac’s lobbying and campaign contributions exceed $25 million this
election cycle. Home ownership rates in the United States reach 67.7%. 71.6 million American families
own their own home – a record in American history.
2000 – Rahm Emanuel, political advisor and future chief of staff for Barak Obama, is appointed to the
board of Freddie Mac by Bill Clinton. Rahm Emanuel serves for 14 months, attends just seven board
meetings and sits on no committees. He receives more than $320,000 in compensation ($46,000 an
hour for his service.)
“At heart, Fannie and Freddie have become classic examples of “crony capitalism.”
Gerald O’Driscoll, former Vice President of the Federal Reserve Bank of Dallas
1993 – 2000 – Subprime lending increases twentyfold during the Bill Clinton years. The number of
subprime leaders surges from a handful to more than 50.
2000 – Henry B. Gonzalez dies in November, never to witness how his efforts on behalf of Fannie Mae
turned the American dream of homeownership into a nightmare.
2001 The George W. Bush Presidency Begins
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2001 – The Federal Reserve lowers interest rates to counter the possibility of recession after the
September 11th attacks, dropping the rate from 6% to 1.75%.
"True, governments can reduce the rate of interest in the short run. They can issue additional
paper money. They can open the way to credit expansion by the banks. They can thus create an
artificial boom and the appearance of prosperity. But such a boom is bound to collapse sooner
later and bring about a depression."
Ludwig von Mises, Omnipotent Government
2001 – Wall Street banks begin working with the rating agencies, Standard & Poor, Moody’s and Fitch
Ratings to develop new risk models that will allow riskier and higher-yielding private-label securities to
garner AAA and AA ratings that allow those securities to earn lower risk weighting.
2001 – Standard & Poor is intent on downplaying risks in Fannie and Freddie debt. The Republican
Congress and the George Bush administration worried about the companies possible cost to the
taxpayer and put pressure on Fannie and Freddie to make more frequent public financial disclosures.
The companies agreed to request and release to the public each year a rating, without considering their
implied federal guarantee that will measure any risks they may pose to the government. The
companies chose Standard & Poor to conduct the analysis. The risk-to-the-government rating on the
companies barely budged . It is not until August 11, 2008, three weeks before Fannie is taken over by
taxpayers, that their rating is lowered from A+ to A.
2001 – David Rosenblum, an expert in structured finance at Goldman Sachs, outlines a strategy,
“Project Libra”, that will allow Fannie Mae to artificially set aside earnings the company can use in the
future when it is needed help meet its forecasts. The complex deal allows Fannie to misrepresent the
true state of its financial position to investors, and gives the company a way to shift $107MM of
earnings into future years when they may need them.
2001 – Henry Cisneros, Secretary of HUD from 1993 to 1997, joins the board of Countrywide Financial.
Henry Cisneros and James Johnson also serve on the board of KB Homes.
2001 – Henry Cisneros, Countrywide board member, conceives of a 428-home development aimed at
low-income and inner-city in Cisneros’s hometown of San Antonio, named Lago Vista. The “lake” in the
development’s name has been a runoff pit for an asphalt producer and is ringed by a chain-link fence.
Countrywide joins KB Home pitching homes that required no down payments to firefighters, teachers
and police officers. HUD insured the mortgages. By 2008 defaults swamped Lago Vista. Residents
report high-pressure sales tactics to sign mortgage documents that many do not understand. HUD (a.k.a
the taxpayer) has to buy many of the homes and resell them at a loss.
2001 – Freddie Mac holds forty fund-raisers for Michael Oxley (R), Chairman of the House Financial
Services Committee.
2002 – The Fed continues to cut rates taking them from 1.75% to 1.25%.
2002 – Joseph Stiglitz and Peter Orszag, who later becomes the head of the Congressional Budget Office
under Barak Obama, publishes a paper that pushes back against Fannie Mae critics who argued that the
company poses significant risk to the taxpayer.
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The Epic Financial Crisis of 2008
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2002 – Fannie Mae and Freddie Mac’s lobbying and campaign contributions exceed $37 million this
election cycle.
2002 – Political heat on Fannie and Freddie is rising. Christopher Shay and Edward Markey introduce
legislation that will end the special exemption on financial disclosure that the two companies enjoyed.
George Bush throws his weight behind increased disclosure and the companies agreed to “voluntarily”
register their stock with the SEC. However their debt securities are not subject to registration.
Republican/Republican Congress
“We used to, by virtue of our peculiarity, be able to write rules that worked for us. We now
operate in a world where we will have to be ‘normal.”
Daniel Mudd, COO of Fannie Mae in an email to Franklin Raines
2002 – Peter Fisher is appointed undersecretary for domestic finance at Treasury. Fisher supports the
“latest voluntary initiative” but states that the Shay-Markey legislation is not necessary. During Peter
Fisher’s transition from Wall Street to Treasury, he had been staying at the home of his old school chum
Daniel Mudd, Fannie Mae’s vice-chairman.
2002 – Rahm Emanuel runs for Congress and receives more than $25,000 in contributions from Freddie
Mac’s senior management team. Rahm Emanuel is elected and takes a slot on the Financial Services
Committee, where he sits on the subcommittee with direct oversight of Freddie Mac. When the political
fund-raising scandal breaks, Freddie Mac CEO Leland Brendsel is forced out. Emanuel’s subcommittee
organizes a series of hearings to the get to the bottom of the scandal. The hearings last more than a
year and according to congressional records, Emanuel does not attend a single meeting.
2002 – The National Training and Information Center celebrates the life and work of Gale Cincotta at
the Chicago Cultural Center. Fannie Mae sponsors the event and Daniel Mudd, CEO of Fannie, gives the
keynote address. Mudd’s speech marks the complete takeover of the GSE’s by the activist wing of the
Democratic Party, effectively becoming the property of the Congressional Black and Hispanic Caucuses
and their allies inside and outside of government.
-
It is worth paying attention to Fannie and Freddie because their story is currently being
replicated by Barak Obama and his team – which is largely composed of Clinton retreads – in
numerous policy areas, including energy, health care, education even once again housing.
2002 – Senator Phil Gramm retires from the senate and is appointed vice-chairman of UBS Warburg.
2003 – Armando Falcon, head of OFHEO, sends a letter to Richard Shelby, chairman of the Senate
Banking Committee, and to House Financial Services Committee chairman Michael Oxley. Paul
Sarbanes and Barney Frank are copied. The letter is accompanied by a newly published paper entitled
“Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO.” The paper makes clear that without
proper regulatory authorities – including the authority to close down and unwind a failing governmentsponsored-enterprise – there may be not be a way of preventing a debt default from leading to
“contagious illiquidity” that could “cause or worsen illiquidity problems at other financial institutions.”
Falcon is not only directly threatened Fannie and Freddie, but also the fastest-growing business on Wall
Street: the sale and trading of derivatives, including credit default swaps.
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The Epic Financial Crisis of 2008
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2003 –The Federal Reserve lowers interest rates to 1% – the lowest since the 1960s. The rate allows
borrowers to borrow at an interest rate lower than the rate of inflation, effectively subsidizing
borrowers, encouraging banks and individuals to borrow as much as possible.
2003 – George Bush calls for reforming Fannie Mae and Freddie Mac by increasing their capital-reserve
requirements (the percentage of liquid assets lending institutions must keep on hand incase of financial
trouble.) Third-party groups call for the two GSEs to be fully privatized, rather than the current status
which privatizes profits but socializes risk.
2003 – Congress heavily lobbied by Fannie Mae and Freddie Mac to oppose the reform.
Republican/Republican Congress
"I do not think we are facing any kind of a crisis. That is, in my view, the two government
sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a
crisis. . . . I do not think at this point there is a problem with a threat to the Treasury.”
Rep. Barney Frank (D-Mass.), at a hearing in 2003
2003 – Fannie Mae discloses a $1.2 billion accounting "error". It is later revealed the former political
appointees manipulated the numbers to bring themselves bigger bonuses.
2003 – Countrywide Financial, which sells many of its loans to Fannie Mae and Freddie Mac, makes a
special VIP loan to President Bush’s Secretary of HUD Alphonso Jackson for a below market rate under
the program now known as “Friends of Angelo”, named after the CEO of Countrywide, Angelo Mozilo, a
central player in Bill Clinton’s public-private partnership. Other “Friends of Angelo” include, Franklin
Raines, James Johnson ($10MM in loans), Christopher Dodd (D-CT), Kent Conrad (D-ND), Richard
Holbrooke (senior official in the Barak Obama administration), Barbara Boxer (D-CA) and Donna Shalala
(former head of Health and Human Services under Bill Clinton).
2003 – Homeownership stands at 68% and a record $3.84 trillion in mortgages is written, tripling the
amount originated just three years prior. Wall Street’s mortgage securities factory purchases and pools
into securities 13.6 million loans and sells them to investors around the corner or around the world.
2003 – Countrywide revenues are $8 billion up from $1.7 billion in 2000 generating almost 3 million
mortgages. For all the talk of wanting to help minorities and low-income people secure a mortgage, the
company’s systems are designed to increase costs for these borrowers. Countrywide’s margins on
subprime loans reach 15%.
2003 – Maxine Waters (D-CA), in a hearing sponsored by the Committee on Financial Services, implores
the housing finance industry to eliminate down payments altogether. Stating that requiring a down
payment is too onerous and they were unnecessary.
“I think we ought to be encouraging our private institutions, our financial institutions to have
more products where you have no down payments. There are people who will never have a
down payment, who make their rental payments every month on time, and they would b just
fine if they could get a product that could be offered to them by the people who really do the
financing, who do the mortgages.”
Maxine Waters
2003 – ACORN issues a press release accusing Wells Fargo of predatory lending.
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The Epic Financial Crisis of 2008
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2003 – Timothy Geithner, future Treasury Secretary under Barak Obama and a freshman acolyte of
Robert Rubin, is named president of the Federal Reserve Board of New York.
2004 – Countrywide supplies 26% of the loans purchased by Fannie Mae; in three years this figure rises
to 28%. Billions of dollars in toxic mortgages go straight from Countrywide to Fannie Mae. From 1999 to
2004 Mozilo earns $43MM in salary and bonuses and cashes in over $400MM in stock.
2004 – More than half the mortgages generated by Countrywide are adjustable-rate mortgages,
products that lure unsuspecting borrowers in with low teaser rates, only to adjust to sky-high levels in a
few years.
Mid 2000’s – Paul Pelosi Jr., son of Nancy Pelosi, former speaker of the House, is hired as a mortgage
broker and sales manager at the Countrywide office in San Mateo, CA.
2004 - 2006 – The Federal Reserve finally begins raising interest rates, taking the rate from 1% to 5.25%
by June 2006.
2004 – 2006 – Devel Patrick serves on the board of ACC Capital Holdings, the parent of Ameriquest, for
which he is paid $360,000 per year.
2004 – Responding to the surge in cash-out mortgage refinancing, Alan Greenspan in a speech to the
American Community Bankers, “This type of financing has likely improved rather than worsen the
financial condition of the average homeowner. “Some of the equity extracted through mortgage
refinancing is used to pay down more-expensive, non-tax-deductible consumer debt or to make
purchases that would otherwise be financed by more-expensive and less tax-favored credit.” There was
no mention of the long-term consequences of the cash extractions if home prices fell. The Federal
Reserve, the steward of the nation’s economy, was clueless about the amount of leverage in the system.
The Fed was flying into the biggest credit storm in almost a century without instruments.
2004 – The SEC allows five primary dealers (Lehman Brothers, Bear Sterns, Merrill Lynch, Goldman
Sachs, and Morgan Stanley) to more than triple their leverage, the amount of borrowed money they use
for investments. This little-noticed decision dramatically increases the riskiness of firms with systemic
importance and accelerates the growth of the worldwide asset bubble. Of the five companies, only two
remain in business by November, 2008, and both require taxpayer funding through the TARP and other
regulatory interventions to survive.
2004 – Fannie Mae and Freddie Mac’s lobbying and campaign contributions exceed $51 million in the
2004 election cycle.
2004 – Franklin Raines, CEO of Fannie Mae, goes into "early retirement" as his company is investigated
for accounting irregularities, is paid more than $90 million between 1998 and 2003 by Fannie Mae. The
company pays record high fines for cooking the books (an estimated $11 billion has been misreported
on financial statements) to inflate Fannie Mae quarterly profits that pays high ranking management
millions of dollars in bonuses, including Franklin Raines. Raines will go on to serve as a confidant of
Barak Obama. Enron had overstated its earnings by $567 million a fraction of Fannie Mae’s financial
irregularities. A LexisNexis search reveals that the major news outlets blanketed Enron with coverage
mentioning the story 1,385 times over an eighteen-month period. The Fannie Mae scandal was
mentioned by the entire media – ABC, CBS, NBC and CNN – just thirty seven times over the same period.
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The Epic Financial Crisis of 2008
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2001 – 2004 – Freddie Mac has $5 billion in accounting irregularities and is later fined $125 million. To
put this in perspective, Enron’s accounting scandal was but 5 percent of Fannie Mae’s and set off a
firestorm on Capital Hill.
“Shameful corruption” at Enron
Barney Frank
Question - “What’s the difference between Enron and Fannie Mae?”
Answer – “The guys at Enron have been convicted.”
2004 – Leland Brendsel, CEO of Freddie Mac, goes into "early retirement" as his company is investigated
for accounting irregularities. Brendsel receives a package worth $24 million, on top of $16 million in
unexercised options he has owed.
2004 – Daniel Mudd becomes the CEO of Fannie Mae. While at Fannie Mae Mudd’s compensation is
$80 million.
2004-2005 – ACORN Housing takes in donations of $400K from Citigroup, $130K from Ameriquest
Mortgage, $120K from Fannie Mae, $1MM from JP Morgan, $1.3MM from Bank of America, $175K
from Washington Mutual and in 2004 alone $3MM in taxpayer funds.
2004-2005 – After both Fannie and Freddie are embroiled in massive accounting scandals, the
Republican Congress once again raises the possibility of reigning in the government sponsored
enterprises to reduce the risk of a taxpayer bailout by strengthening the companies’ regulator and giving
the it the ability to take over the companies in a crisis. Standard and Poor, Moody’s and Fitch Ratings
come to Fannie and Freddie’s rescue by threatening to downgrade the securities, $4 trillion, issued by
the companies if Congress acts. Their extortion is successful and helps shift the losses into the future
and onto the shoulders of the U.S. taxpayer. Republican/Republican Congress
“The subsidy (to the GSE’s)creates a source of systemic risk for our financial system,”
Gregory Mankiw, chief economist for the Bush White House
2004 – Robert T. Parry, former president of the Federal Reserve Bank of San Francisco, joins the
Countrywide board. Countrywide pays its directors a stipend of $70,000 and gives shares of stock
valued at $200,000. By 2007 directors were receiving $557,000 a year.
2004 – Jonathan McCarthy, a senior economist at the Federal Reserve Bank of New York, and Richard
Peach, one of its vice presidents, author a study “Are Home Prices the Next ‘Bubble’?” In the paper
they conclude that any fears that a housing collapse would harm the U.S. economy were unfounded.
“As for the likelihood of a severe drop in home prices, our examination of historical national home prices
finds no basis for concern.”
2005 – Democrats continue to block GSE Reform and Fannie and Freddie begin adding to their portfolios
more than $1 trillion dollars in unpaid principal balance on subprime and Alternative mortgages.
Republican/Republican Congress
2005 – Alan Greenspan voices concerns over Fannie Mae and Freddie Mac saying, "The Federal Reserve
has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie
other than the creation of profit through the exploitation of the market-granted subsidy."
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"Each Federal reserve bank shall keep itself informed of the general character and amount of the
loans and investments of its member banks with a view to ascertaining whether undue use is
being made of bank credit for the speculative carrying of or trading in securities, real estate, or
commodities, or for any other purpose inconsistent with the maintenance of sound credit
conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit Page | 18
accommodations, the Federal reserve bank shall give consideration to such information."
- U.S. Code Title 12, Chapter 3, Subchapter 7, Section 301. Powers and duties of board of
directors; suspension of member bank for undue use of bank credit
2005 – Senate Banking Committee member Chuck Hagel (R-NE) sponsors another bill to reform and
regulate the Government Sponsored Enterprises Fannie Mae and Freddie Mac. The bill is passed out of
the Senate Banking Committee. “All Republican members of the committee support it; all Democrats
oppose it” according to the Associate Press. Twenty six Republican Senators plead in a letter to Senate
Majority Leader Bill Frist (R-Tenn.) to allow a full Senate vote saying, "If effective regulatory reform
legislation ... is not enacted this year, 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." Freddie Mac ramps up its aggressive lobbying against reform, and a full Senate
vote is not called. Republican/Republican Congress
2005 – The Office of Federal Housing Enterprise Oversight unearths accounting fraud at Fannie.
2005 – 2008 – Senator Barak Obama receives more than $120,000 from Fannie Mae and Freddie Mac.
2005 – James Johnson, board member of KB Homes, brokers a deal involving KB Homes and
Countrywide that will boost Countrywide’s loan production overnight. Under a joint venture,
Countrywide pays $42.4 million in cash to KB Home while KB contributes $15 million. Over the next two
years the venture makes thirty-three thousand loans for a total of $8 billion. By 2007 almost threequarters of the KB Home customers financed their home purchases thorough Countrywide.
2005 – HUD announces a settlement of $3.2 million with KB Home Mortgage for numerous violations, it
is the largest fine ever collected by HUD’s mortgage review board. KB Home is a regular rogue operator.
“KB Home’s whole objective was to get the loans signed. Over and over again we found KB
Home would take people who had extremely bad credit, take all their car loans and furniture
loans and roll it into a loan that’s backed by the taxpayers. Now HUD and the taxpayers have
been saddled with all these failed subdivisions.”
Janet Ahmad, President of Homeowners for Better Building, San Antonio
2005 – Charles Himmelberg, a senior economists in research and statistics at the Federal Reserve of
New York, publishes a paper entitled “Assessing High House Prices; Bubbles, Fundamentals and
Misperceptions.” Along with two coauthors, he concluded that there was no real estate bubble.
2005 – The Alternative Energy Loan and Grant Program is created to support “green energy”. However,
few loans or grants are offered during the George Bush administration because the law requires that
the companies receiving loans and grants have a sizable amount of their own money in the game, a
“down payment” on projects. The 2009 stimulus bill removed that provision under the Barak Obama
administration.
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
2006 – The OFHEO report notes that if Fannie Mae had used appropriate accounting methods in 1998,
the company’s performance would have generated no bonuses for the executives including James
Johnson. Fannie had inaccurately disclosed that James Johnson earned a total of $7MM in 1998 when in
fact he was paid more than $21MM.
2006 – Housing prices peak and start to decline. Nominal housing prices drop 1.4% during the second
and third quarters of 2006. Foreclosure rates increased by 43% during the third quarter.
2006 – Fannie Mae and Freddie Mac’s lobbying and campaign contributions exceed $43 million this
election cycle.
2006 – SEC files a lawsuit against Fannie claiming that the 1998 results were intentionally manipulated
to trigger bonuses.
2006 – George Bush signs into law the Credit Rating Reform Act of 2006 requiring rating agencies to
register with the SEC and be subject to oversight by the agency. Republican/Republican Congress
2006 – Subprime lending increased from 6% of the total mortgage market in 2002, to 20% in 2006.
2006 – Almost two-thirds of the subprime loans underwritten by Countrywide have a loan-to-value ratio
of 100 percent.
2007 – Federal Programs like Medicare, Medicaid and others account for 46% of all health care
spending in the United States.
2007 – Countrywide Financial alone originates 23% of Fannie Mae and Freddie Mac’s total volume of
mortgages.
2007 – Freddie Mac pays its Chairman and CEO Richard Syron nearly $20 million and Fannie Mae’s CEO
Daniel Mudd is paid over $12 million.
2007 – Fannie and Freddie leverage exceeds a staggeringly 130 to 1. Normal banks operate on 10 or 12
to 1 leverage ratio.
2007 – Senator Chuck Schumer (D-NY) files the “Protecting Access to Safe Mortgages” bill to allow
Fannie Mae to increase its portfolio by another $145 billion. The George Bush administration and
Federal Reserve Chairman Ben Bernanke oppose the idea and are criticized by Barney Frank for failing
to support affordable housing.
2007 – Ameriquest Mortgage is in desperate need of cash due to the subprime crisis. Devel Patrick,
now Governor of Massachusetts, contacts Robert Rubin, senior advisor at Citigroup, asking for Citigroup
for an infusion of cash into Ameriquest, vouching for the “current management and character of the
company.” Ameriquest originated the stated income loan, which allowed a potential borrower to
state their income without any process of verification. In 2008 Citibank purchases the assets of
Ameriquest and shuts down the company.
2008 - Bear Stearns Bailout. The Federal Reserve Bank of New York guarantees $29 billion in toxic
assets from Bear Stearns as part of a deal to merge the insolvent company with rival J.P. Morgan. Bear
Stearns was one of the major originators and holders of mortgage backed securities.
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"We have a good deal of comfort about the capital cushions at these firms at the moment."
Christopher Cox, chairman of the SEC, when asked about Bearn Stearns on March 11, days
before its collapse.
2008 – Bush Administration regulator James Lockhart reduces the capital reserve requirements of
Fannie and Freddie by one-third, setting the stage for their final collapse and hundreds of billions of
dollars in eventual losses for taxpayers. Democrat/Democrat Congress
2008 – Treasury Secretary Hank Paulson tells the Wall Street Journal, "The worst is likely to be behind
us."
2008 – Countrywide Financial Corporation and its Chief Executive Angelo Mozilo are exposed for
loaning at lower than market rates to key politicians and other executives involved with regulation and
oversight of Countrywide Financial through the group called the “Friends of Angelo”.
2008 – Senate Banking Committee Chairman Chris Dodd (D-Conn.) admits knowing he was a “special”
customer of Countrywide Financial, but still announces he will bring to the Senate floor a housing
bailout sure to help Countrywide, allowing mortgage lenders to dump up to $300 billion of their worst
loans on to taxpayers. Democrat/Democrat Congress
2008 – The federal government seizes insolvent Government Sponsored Enterprises Fannie Mae and
Freddie Mac and places them into conservatorship. The two are now regulated by the Federal Housing
Finance Agency (FHFA). Substantial reform of the failed GSEs is not a contingency of the bailout, which
could end up costing taxpayers anywhere from $200 billion to $1 trillion. Under direct Treasury control,
the GSEs are actually expanding their lending operations, adding to the taxpayer risk.
Democrat/Democrat Congress
2008 – American International Group, Inc. (AIG) receives an $85 billion loan from the government in
exchange for 79.9 percent of the company (interest payments on corporate debt are tax deductible
unless they are to an entity that controls 80 percent or more of the shares, hence 79.9 percent). The
company sold insurance on credit default swaps involving mortgage backed securities from subprime
loans, including many sold by GSEs Fannie Mae and Freddie Mac. The money is not enough to keep the
company solvent and the government gives AIG a second loan for $37.8 billion in October. That
additional money is still not enough and the government expands the loan to $150 billion total in
November. Democrat/Democrat Congress
2008 – The Emergency Economic Stabilization Act of 2008 creating the Troubled Asset Relief Program
(TARP) is passed to buy underperforming assets from banks. The Treasury is authorized to buy primarily
mortgage backed securities from banks. Treasury Secretary Henry Paulson, however, uses some of the
$700 billion to directly purchase shares of stock in banks. The government also announces plans to use
Fannie Mae and Freddie Mac to buy assets from banks before TARP comes into effect.
Democrat/Democrat Congress
2008 – By the end of the year the federal government has pledged more than $7 trillion in loans and
guarantees to shore up the financial system.
2009 The Barak Obama Presidency Begins
2009 – Fannie and Freddie are behemoths of debt and the prime incubators of the economic crisis. The
two companies hold potential liabilities of $5 trillion (equaling about half of the U.S. national debt) with
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
an estimated $1.45 trillion of their debt held overseas. Much of the debt in the form of mortgagebacked securities and a significant portion of that in subprime loans.
2009 – Federal Budget Deficit crossed $1 trillion
Now we leave the sordid events that led us to the Housing Crisis and focus on The Economic Stimulus
and the croyn capitalism of the Obama Administration.
2009 – Under Barak Obama and the Democratic congress, the U.S. embarks on the greatest reverse
transfer of wealth in history. Tax money is taken from, rich and poor, and given to billionaires.
Democrat/Democrat Congress
2009 – Steve Spinner, a member of Barak Obama’s National Finance Committee and a bundler of
campaign contributions, joins the Department of Energy as the “chief strategic operations officer.”
2009 – Sanjay Wagle, co-chairman of Cleantech and Green Business Leaders for Barak Obama and a
principle in Vantage Point Venture Partners, joins the Department of Energy as the “renewable energy
grants advisor.”
2009 – Jonathan Silver, formerly counselor to the secretary of the interior and assistant deputy
secretary of the Department of Commerce in the Bill Clinton administration, joins the Department of
Energy as the “executive director” of loan programs. As executive director, he is responsible for staffing
the programs and leading organization analysis and negotiation.
2009 – Cathy Zoi, formerly chief of staff on environmental policy in the Bill Clinton administration and
CEO of Al Gore’s Alliance for Climate Protection, joins the Department of Energy as the assistant
secretary of energy for efficiency and renewable energy.
2009 – Mortgage backed securities are denounced by indignant Democrats as the product of unfettered
greed by Wall Street speculators. Ironically, the role of Democrats and their allies in vigorously pushing
these risky products on the banking industry has gone strangely unremarked by the mainstream media.
2009 – Solyndra, a company 35% owned by George Kaiser, an Oklahoma billionaire and bundler for
Barak Obama, receives $573 million in loan guarantees and the knowledge that if it could not repay the
loan, the tax payer would pick up the tab. Since receiving the loan, the company has declared
bankruptcy, laid of workers and closed down its first factory. The company loses money on every solar
panel it sells and has never been profitable. The plan for these types of companies is simple; secure
government money, go public and get out.
2009 – Leucadia Energy, subsidiary of Leucadia National, chaired by Ian Cumming a member of Barak
Obama’s 2008 National Finance Committee, receives $260 million for an industrial carbon capture
project in Lake Charles, LA; a $1.6 billion in loan guarantees for a coal gasification project in Indiana and
another $1.6 billion for a synthetic gas project in Chicago. The ostensible purpose of these massive
stimulus loans was to create jobs. 18 after the loans were made, three jobs had been created.
2009 – Solar Trust of America receives $2.1 billion to build a solar facility. Citigroup and Deutsche Bank
have $6 billion invested in the company. Louis Susman, former vice chairman of Citigroup was member
of Barak Obama’s National Finance Committee and raised so much for the Obama campaign he was
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
nicknamed “the Vacuum Cleaner.” Seth Waugh, Deutsche Bank NA’s CEO, was an Obama bundler. And
the projects partner is Chevron, which heavily favored Obama over McCain in 2008 campaign
contributions.
2009 – Solar Reserve receives $737 million in loan guarantees. Michael Froman is the head of
CitiAlternatives one of the largest investors in Solar Reserve. Froman and Barak Obama served on the
Harvard Law Review while attending Harvard. In 2004 Froman introduced Obama to major Democratic
Party players like Robert Rubin and the 2008 campaign raised large sums of money for Obama.
2009 – Brightsource receives $1.4 billion in loan guarantees to build the Ivanpah Solar Electrical System
on federal land in California. Sanjay Wagle’s Vantage Point Partners is the largest shareholder at 25%.
Robert Kennedy, Jr. is one of four partners at Vantage. The company had debt obligations of $1.8
billion. In 2010 the company lost $71.6 million on revenue of just $13.4 million.
“Our ability to complete Ivanpah and the planning, development and construction of all three
phases are subject to significant risk and uncertainty.”
A billion dollars in taxpayer money being sent to wealthy investors to bail them out.
2009 – Abound Solar cashes in $400 million in grants to increase its production of solar panels.
Billionaire heiress Pat Stryker an early supporter of Barak Obama who has given hundreds of thousands
to Democrats, $87,000 to Obama’s Inauguration Committee and $500,000 to the Coalition for Progress,
is the largest investor in Abound.
2009 – First Solar receives $4.7 billion in loan guarantees for three solar projects. The largest investors
in the company are Ted Turner and Goldman Sachs. Goldman Sach’s employees gave Barak Obama
more than $1 million in campaign contributions in 2008 and two of their executives sat on Obama’s
National Finance Committee. Paul Tudor Jones, a bundler for Obama, also holds a significant stake in
the company.
2009 – Peco Energy receives a $200 million grant from the U.S. Treasury Department. Frank Clark CEO
of the company’s ComEd unit and board member John Rogers, Jr. were both members of Barak
Obama’s National Finance Committee. By December 2010, 102 jobs were created.
2009 – Basin Electric Power Cooperative is awarded $100 million by the Department of Energy. The coop’s partner is Powerspan, a small alternative energy company whose largest investors are Daniel Weiss
and Zeb Rice of the Angeleno Group, who both served on Barak Obama’s National Finance Committee.
The other major investor is George Soros, an early Obama supporter. On April 2009, Powerspan
revealed that the Angeleno Group and Soros were new investors; less than two months later,
Department of Energy Secretary Steve Chu announced the grant.
2009 – Duke Energy receives $200 million for a smart-grid project and an additional $90.4 million for its
Notress Wind power project in Texas which was already under construction and would be finished in
April 2009; just two months after the stimulus bill became law. The $90.4 million was delivered in
September 2009 after construction was completed. Environmental waivers were granted for both
projects. Jim Rogers, CEO of Duke Energy is a major DNC contributor.
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The Epic Financial Crisis of 2008
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2009 – Hydrogen Energy California receives $308 million. The company is a joint venture between
energy giant BP and the mining company Rio Tinto. BP gave more to Barak Obama’s political campaigns
than to any other candidate over the past twenty years. The project created 23 jobs.
2009 – First Wind receives $115 million in tax payer money for wind energy projects in Utah and New
York. Both projects were already underway when the funds are received. The largest share holder in the Page | 23
company is D.E. Shaw a hedge fund founded by David Shaw. D.E. Shaw is one of the top three
contributors to Democrats and Mr. Shaw was a bundler for Barak Obama. Larry Summers is employed
by D.E. Shaw. 42% of First Wind is owned by Madison Dearborn Partners an investment firm with close
ties to Rahm Emanual. Madison Dearborn gave more to Rahm Emanual’s congressional campaign than
did any other business.
2009 – Sapphire Energy receives $135 million for an algae biorefinery, which will create “super algae”
that can be converted to energy. ARCH Venture Partners is a major investor in Sapphire. Bob Nelson,
founding partner of ARCH, was a member of Barak Obama’s National Finance Committee.
2009 – Vantage Wind Energy, a subsidiary of Invenergy a Chicago based company headed by CEO
Michael Polsky, receives $60 million in stimulus from the Treasury Department. Polsky is a major Barak
Obama supporter giving $30,000 to the 2008 campaign and another $50,000 for the Obama
inauguration.
2009 – Summit Texas Clean Energy, a subsidiary of Summit Energy located in Bainbridge Island, WA,
receives $1.5 billion. Eric Redman is CEO of Summit and a major DMC donor. The project manager for
the project is former Dallas Mayor Laura Miller a democrat and environmental activists who has never
worked in the energy industry. Summit created 8 jobs.
2009 – Tesla Motors receives $465 million in government loans to build an electric car. Steve Westly is a
board member and his venture capital firm owns more than 2.5 million shares in the company and he
personally owns an undisclosed number of shares. Tesla founder Elon Musk is a major DNC contributor
and donated $35,800 to the Barak Obama Victory Fund. Steve Spinner was an advisor to Tesla before
joining the Obama campaign. In 2010 the company went public. The stock price surged 40%. Steve
Westly made $1.2 million and Elon Musk $15 million. Since the IPO the stock price continues to drop and
the company continues to lose money.
2009 – Fisker Automotive receives $529 million in government-backed loans to build a high-end hybridelectric sports coupe called the Karma, which will costs $89,000. Fisker’s top investors are John Doerr
and Al Gore. The company continues to lose money is heavily in debt. Of the companies listed on
Doerr’s website as part of his Greentech venture-capital portfolio, well over 50% of them received
taxpayer grants or loan guarantees through the Barak Obama stimulus program. Of the 27 listed, 16
received direct taxpayer support in the form of loans, grants or stimulus work; Altarock, Amonix,
Amyris, Aquion Energy, Ausra, MIaSole ($102 million in special clean-tech credits), OSIsoft, Primus
Power, Transphorm, Recyclebank, Silver Spring, Great Point Energy, Hara, Harvest Power, Lilliputian
Systems and Mascoma.
-
“God bless the Obama Administration and the U.S. government. We have really got the A-team
now working on green innovation in our country.”
John Doerr
The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
2009 – Amyris a John Doerr investment receives $24 million to build a plant to use altered yeast to turn
sugar into hydrocarbons. Steve Westly is also a shareholder and just weeks before the grant is
announced, Senator Dianne Feinstein and her husband buy $1 million of equity in the company. Amyris
goes public in 2010 raising $85 million. John Doerr’s firm Kleiner Perkins more than triples it investment
turning $16 million into $69 million. Amyris continues to lose money and the grant creates 40 jobs.
2009 – Coskata receives $250 million loan guarantee to make fuel out of waste. Vinod Khosla a major
investor in the company had been the head of Barak Obama’s India Policy Team and was a heavy
contributor to Democratic candidates. Khosla’s Nordic Windpower receives another $16 million for a
wind power manufacturing facility in Idaho and another of his companies, AltaRock receives an
additional $25 million in stimulus money.
2010 – ZeaChem receives $25 million to modify a “demonstration sale” biorefinery. Steve Farber lobbies
on behalf to the company. Major investors include Democratic Party contributors Jonathan Seelig of
Globespan Capital and Paul Batchellar of PrairieGold Venture Partners. Batchellar is a former aide to
Senator Tom Daschle. The project creates 2 jobs as of December 2010.
2010 – First Wind receives another $117 million for a project in Hawaii called Kahuka Wind. The plan
was to secure tax payer money and then go public. But in October 2010 the IPO was delayed due to
weak demand. The project created 125 jobs.
2010 – Invenergy pulls in another $68 million in taxpayer money for the Beech Ridge Energy Wind
Farm.
2010 – Steve Westly, fundraiser and bundler for Barak Obama and co-chair of California’s Obama for
President campaign and who happens to serve on the advisory board of the Department of Energy,
receives loans, grants and stimulus money from the Department of Energy for four companies in which
he has a financial stake; Telso, Recyclebank, Edeniq, Amirys Biotechnologies, Amonix and CalStar
Products.
2011 – The Government Accountability Office examines the first eighteen loans made by the
Department of Energy and states that the process appears “arbitrary”, lacks transparency and that none
of the loans were properly documented. Also noting that officials “did not always record the results of
the analysis” of the loan applications stating as an example the loan program for electric cars “lacks
performance measures.” The GAO noted the loan program “had treated applicants inconsistently in the
application review process, favoring some applicants and disadvantaging others.” It was noted that the
Recovery Act “never defined what was meant by transparency.”
2011 – Gregory Freidman, inspector general of the Department of Energy who is not a political
appointee, in a statement to congress chastises the alternative energy loan and grant programs for their
absence of “sufficient transparency and accountability” and that the contracts have been steered to
“friends and family.” Tens of billions of dollars are being transferred to firms controlled or owned by
fundraisers, bundlers and political allies of Barak Obama.
2011 – Cathy Zoi leaves the Department of Energy to lead a new green-tech investment fund being
established by George Soros who had received taxpayer money through Zoi.
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The Epic Financial Crisis of 2008
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2012 – As a jobs program – the stated purpose of the stimulus – these billions in grants and loans were a
failure. But as a method for transferring billions in taxpayer funds to friends, cronies and supporters, it
worked perfectly.
“Government is a trust, and the officers of the government are trustees, and the both, the trust
and the trustees, are created for the benefit of the people.”
Henry Clay
Over the past forty years we have been governed by the best-educated political class in our history.
Today, debts mount, the financial markets are in turmoil, the economy is in terrible shape – and the
Washington games continue. The problem is not a lack of smart people in Washington. There is no
“smart gap.” There is however, a “character gap.” Like the financial crisis on Wall Street, the root of the
problem is not ignorance but arrogance.
“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”
Abraham Lincoln
The problem with Washington isn’t gridlock. It isn’t that things aren’t getting done. The problem is the
corruption of the public spirit. The Permanent Political Class has no sense of urgency to change because,
for them, business is good.
“If this spirit is ever corrupted to the point that it will tolerate a law which does not apply to
both the legislature and the people, then the people will be prepared to tolerate anything but
liberty.”
Federalist No. 57
Following is a listing of the cast of characters many in my opinion not patriots.
Franklin Roosevelt
Saul Alinsky
Lyndon Johnson
James Johnson
Bill Clinton
Jesse Jackson
Gale Cincotta
Shel Trapp
Joseph Kennedy
Richard Holbrooke
Barak Obama
ACORN
OPERATION PUSH
Barney Frank
Alan Greenspan
Gerald Corrigan
National Council of La Raza
Hillary Clinton
Robert Rubin
Boston Federal Reserve
Carol Moseley-Braun
Donald W. Riegle, Jr.
Paul Sarbanes
Henry B. Gonzalez
Countrywide Financial
Henry Cisneros
Devel Patrick
Larry Summers
Goldman Sachs
Citigroup
JPMorgan
David Lipton
William J. McDonough
Stephen Friedman
Andrew Cuomo
Dale Rathke
Wade Rathke
Sanford Weill
Roger Ferguson
Franklin Raines
Henry M. Paulson, Jr.
Timothy Geithner
Charles Ruma
Bart Harvey
Ellen Seidman
Robert Blackwell
Rahm Emanual
Standard & Poor
Moody’s
Fitch Ratings
David Rosenblum
KB Home
Michael Oxley
Joseph Stiglitz
Peter Orszag
Daniel Mudd
Leland Brendsel
Richard Shelby
Alphonso Jackson
Christopher Dodd
Angelo Mozila
Kent Conrad
Barbara Boxer
Donna Shalala
Maxine Waters
Nancy Pelosi
Robert T. Parry
Jonathan McCarthy
Richard Peach
Bill Frist
Charles Himmelberg
Richard Syron
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The Epic Financial Crisis of 2008
Liberal Activism and Crony Capitalism
Chuck Schumer
Christopher Cox
American International Group
Steve Spinner
George Soros
Sanjay Wagle
Jonathan Silver
Cathy Zoi
Al Gore
George Kaiser
Ian Cumming
Louis Susman
Seth Waugh
Michael Froman
Robert Kennedy, Jr.
Pat Stryker
Ted Turner
Paul Tudor Jones
Frank Clark
John Rogers, Jr.
Daniel Weiss
Zeb Rice
Steve Chu
David Shaw
Bob Nelson
Eric Redman
Laura Miller
Michael Polsky
Steve Westly
John Doerr
Dianne Feinstein
Vinod Khosla
Steve Farber
Jonathan Seelig
Paul Batchellar
Phil Gramm
Wendy Gramm
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