S.190: Democrats Ignored The Warning Signs

This current financial crisis may have come as a surprise to some people, but there were a few legislators in Washington that foresaw this crisis as far back as 2005. Unfortunately, the warnings fell on the deaf ears of their colleagues.

A group of Senator’s offered legislation, S. 190 – The Federal Housing Enterprise Regulatory Reform Act of 2005, that was rejected by the Senate Democrats. S. 190 was a direct result of the irregularities that had been discovered at Fannie Mae / Freddie Mac:

Wall Street Journal: Blame Fannie Mae and Congress

Bill Tracker: Senate Bill 190

Text of S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005

One of the key supporters of S. 190 was so concerned about the dangers that existed at Fannie Mae and Freddie Mac he made the following statement on May 25, 2006:

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.

And the name of the Senator who made these comments….Senator John McCain. In fact if you review the co-sponsors of S.190, you will not see the name of one Democrat. Considering how much money that was donated to Senator Obama (second leading recipient of Fannie Mae/Freddie Mac donations) and Senator Dodd (leading recipient of Fannie Mae/Freddie Mac donations) it all make sense now.

Republican Conservatives such as Senator John Sununu (the bills author) and John McCain own this issue, and need to start hammering the Democrats on their reluctance to do what was best for those of us on Main Street. As our economy inched closer to the crisis we are now facing the Democrats did nothing, or worse attacked those that tried to prevent an economic meltdown.

Additionally the Democrats allowed a thief and a liar by the name of Franklin Raines to “get on with his life:”

July 2008:

In the four years since he stepped down as Fannie Mae's chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself. He has shaved eight points off his golf handicap, taken a corner office in Steve Case's D.C. conglomeration of finance, entertainment and health-care companies and more recently, taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters...When Daniel H. Mudd stepped in to succeed Raines after his ouster, Mudd promised a House committee that the days "of arrogant, defiant, 'my way' Fannie Mae" would end. Congress has recently moved forward on legislation that would create stronger federal oversight of Fannie Mae and Freddie Mac.

Washington Post: On the Outside Now, Watching Fannie Falter

Raines also had a close relationship with another Fannie Mae executive, Jim Johnson. Johnson has ties to the Obama campaign, having served on his Vice-Presidential Search Committee. Oh what a tangle web we weave…..

In the end, we as Americans must look at all of the facts and decide who would be best to lead us out of this mess….John McCain or Barrack Obama?