Opinion
Congress ignored regulators' repeated warnings on Fannie, Freddie
Examiner Editorial
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April 17, 2009
On Sept. 29, 2008, House Speaker Nancy Pelosi, D-CA, praised House Financial Services Committee chairman Barney Frank, D-MA, for his “leadership.” In the next breath, she blamed the sub-prime mortgage meltdown on a supposed lack of Wall Street regulation by right-wing ideologues in the Bush administration. Turns out Pelosi had it exactly wrong. The collapse of government-guaranteed Fannie Mae and Freddie Mac, which helped send the U.S. economy into a nose-dive, was a preventable man-made disaster, according to documents obtained by Judicial Watch under the Freedom of Information Act.
In fact, for at least six years prior, officials at the Federal Housing Finance Agency (FHFA) warned key members of Congress – in letters, congressional testimony and email - that post-Enron financial controls at the two mortgage giants were “inadequate.” They also found that neither Fannie nor Freddie were even filing disclosure documents required of all public companies in a timely fashion. Despite FHFA’s multiple alarms, Congress failed to rein in such illegal and reckless behavior. Prominent among Fannie and Freddie’s congressional defenders was Frank, who said on September 10, 2003 that Fannie and Freddie were “not in crisis.”
The same day, then-Treasury Secretary John Snow testified in favor of reforms for Fannie and Freddie. Then on Dec. 3, 2004, Frank was warned in an FHFA letter noting that outside auditors at Fannie and Freddie could not complete their reviews of its financial statements and “noted the possibility of up to a $9 billion loss dating back to 2001.” We are aware of no public statement by Frank correcting his earlier declaration that Fannie and Freddie were “not in crisis.”
“If Barney Frank was the head of a private company and he got a letter like this from his accountant, and the company later went belly-up and cost taxpayers $200 billion, I don’t think he’d be given a pass,” Judicial Watch president Tom Fitton told The Examiner. “He’d be up on SEC charges, to say the least.” Yet what Fitton described as “interlocking, incestuous relationships” between Fannie and Freddie executives and members of Congress continue to this day. Recent ads for zero down, no credit, no appraisal, no income verification mortgages indicate that the wily-nily cash handouts continue with tacit government approval, since no legitimate private lending institutions would dare repeat the same mistake that bankrupted so many of their counterparts.
Instead of investigating malfeasance, in February Treasury Secretary Tim Geithner rewarded Fannie and Freddie by raising the ceiling on the amount of taxpayer money they can receive from $100 billion to $200 billion. We will all be paying for Congress’ failure to listen to federal regulators for a long time to come.
