We will save the senator some trouble. Here is what we saw firsthand at the White House from late 2002 through 2007: Starting in 2002, White House and Treasury Department economic policy staffers, with support from then-Chief of Staff Andy Card, began to press for meaningful reforms of Fannie, Freddie and other government-sponsored enterprises (GSEs).

The crux of their concern was this: Investors believed that the GSEs were government-backed, so shouldn’t the GSEs also be subject to meaningful government supervision?

This was not the first time a White House had tried to confront this issue. During the Clinton years, Treasury Secretary Larry Summers and Treasury official Gary Gensler both spoke out on the issue of Fannie and Freddie’s investment portfolios, which had already begun to resemble hedge funds with risky holdings. Nor were others silent: As chairman of the Federal Reserve, Alan Greenspan regularly warned about the risks posed by Fannie and Freddie’s holdings. President Bush was receptive to reform. He withheld nominees for Fannie and Freddie’s boards — a presidential privilege. While it would have been valuable politically to use such positions to reward supporters, the president put good policy above good politics.

In subsequent years, officials at Treasury and the Council of Economic Advisersn(especially Chairmen Greg Mankiw and Harvey Rosen) pressed for the following: Requiring Fannie and Freddie to submit to regulations of the Securities and Exchange Commission; to adopt financial accounting standards; to follow bank standards for capital requirements; to shrink their portfolios of assets from risky levels; and empowering regulators such as the Office of Federal Housing Oversight to monitor the firms.

The administration did not accept half-measures. In 2005, Republican Mike Oxley, then chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddie’s lobbyists set out to weaken it. The bill was rendered so toothless that Card called Oxley the night before markup and promised to oppose it. Oxley pulled the bill instead.
During this period, Sen. Richard Shelby led a small group of legislators favoring reform, including fellow Republican Sens. John Sununu, Chuck Hagel and Elizabeth Dole. Meanwhile, Dodd — who along with Democratic Sens. John Kerry, Barack Obama and Hillary Clinton were the top four recipients of Fannie and Freddie campaign contributions from 1988 to 2008 — actively opposed such measures and further weakened existing regulation.

The president’s budget proposals reflected the nature of the challenge. Note the following passage from the 2005 budget: Fannie, Freddie and other GSEs “are highly leveraged, holding much less capital in relation to their assets than similarly sized financial institutions. . . . A misjudgment or unexpected economic event could quickly deplete this capital, potentially making it difficult for a GSE to meet its debt obligations. Given the very large size of each enterprise, even a small mistake by a GSE could have consequences throughout the economy.”

That passage was published in February 2004. Dodd can find it on Page 82 of the budget’s Analytical Perspectives.

The administration not only identified the problem, it also recommended a solution. In June 2004, then-Deputy Treasury Secretary Samuel Bodman said: “We do not have a world-class system of supervision of the housing government-sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision.”

Bush got involved in the effort personally, speaking out for the cause of reform: “Congress needs to pass legislation strengthening the independent regulator of government-sponsored enterprises like Freddie Mac and Fannie Mae, so we can keep them focused on the mission to expand home ownership,” he said in December. He even mentioned GSE reform in this year’s State of the Union address.

How did Fannie and Freddie counter such efforts? They flooded Washington with lobbying dollars, doled out tens of thousands in political contributions and put offices in key congressional districts. Not surprisingly, these efforts worked. Leaders in Congress did not just balk at proposals to rein in Fannie and Freddie. They mocked the proposals as unserious and unnecessary.

Rep. Barney Frank (D-Mass.) said the following on Sept. 11, 2003: “We see entities that are fundamentally sound financially. . . . And even if there were a problem, the federal government doesn’t bail them out.”

Sen. Thomas Carper (D-Del.), later that year: “If it ain’t broke, don’t fix it.”

As recently as last summer, when housing prices had clearly peaked and the mortgage market had started to seize up, Dodd called on Bush to “immediately reconsider his ill-advised” reform proposals. Frank, now chairman of the House Financial Services Committee, said that the president’s suggestion for a strong, independent regulator of Fannie and Freddie was “inane.”
Sen. Dodd wonders what the Bush administration did to address the risks of Fannie and Freddie. Now, he knows. The real question is: Where was he?

Is it any surprise to you that Reid And Pelosi blame Bush?

“What we are seeing on Wall Street is the legacy of the Bush-McCain economic policies that have failed this nation,” Senate Majority Leader Harry Reid said in a statement.

“Failing to police lenders and neglecting to protect consumers ushered in the subprime crisis that has brought the American economy and Wall Street to their knees. This ‘anything goes’ approach to governing has resulted in lost jobs and carries an enormous price tag for the American taxpayer.”

Reid reiterated his call for a second economic stimulus package, which is sure to meet GOP opposition.

UPDATE: House Speaker Nancy Pelosi also weighs in on who is to blame and not-so-surprisingly, it isn’t the Democrats.

“Eight years of weakened regulation of our nation’s financial system ” including a failure to regulate risky, and often predatory, lending practices ” by the Bush administration and Republicans in Congress have led us to this point, and could further erode our nation’s economic health,” Pelosi said in a statement.

Karl has a must read:

Obama-Friendly Lehman Bros. to file Chapter 11 bankruptcy

Barack Obama has extensive ties to the subprime mortgage industry, starting with his National Finance Chairwoman, Chicago billionaire Penny Pritzker.  As I previously noted at Protein Wisdom:

Pritzker was an owner and board member of Superior Bank of Chicago, which went bust in 2001 with over $1 billion in deposits.  Timothy Anderson ” who obsessively pursued the late Rep. Henry Hyde (R-IL) over his role in the failure of Clyde Federal Savings & Loan  ” has been quoted as saying that “Superior’s owners were to sub-prime lending what Michael Milken was to junk bonds.”

Coincidentally, Obama’s policy proposals have also been pretty subprime mortgage-friendly, perhaps influenced by advisers like Austan Goolsbee (Economic Man of Mystery).

The establishment media that sought every opportunity to tie the failure of Enron and its executives to George W. Bush has generally failed to note that Barack Obama is neck deep in money from issuers of subprime loans, even as he crusades against predatory mortgage lenders.  Maybe they will get to it when their investigators return from scouring the frozen tundra in Alaska for gossip about Sarah Palin’s family.  But I would not bet any more money on it than I would invest with Lehman Bros.

HMM: “The failure of Fannie Mae and Freddie Mac, setting in motion the biggest government bailout/takeover in U.S. history, brings a grim sense of fulfillment to competent economists. After all, what did people expect, that water would flow uphill forever? This financial mega-mess is the same sort of event as the collapse of the USSR’s centrally planned economy, another economically unworkable Rube Goldberg apparatus that was kept going, more or less badly, for decades before it fell apart completely. . . . Each of these time bombs has at least one element in common: it promises current benefits, often seemingly without cost; but if it must acknowledge a substantial cost, it places that burden somewhere in the distant future, where it will be borne by somebody else. From the standpoint of society in general, every such scheme is a species of eating the seed corn. . . . And are members of the public so dense that they will fall for such promises? Yes.”

Others blogging:

• HotAir
• Disingenuous Dems Lying About Credit Crisis « The Dude’s Blog
• Big government fails again; Obama demands more of the same | Cold Fury
• Flopping Aces » Blog Archive » Democrats Rewriting History Once More

Ah, yes, job approval, this is the Most Hated Congress In The 232-Year History Of America.

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