Republican presidential candidate John McCain’s recent attack on Securities and Exchange Commission Chairman Chris Cox shocked many who have known and worked with the respected former congressman over the years.
They were especially taken aback by McCain’s charge that Cox was largely responsible for not preventing the economic crisis in which the nation finds itself and that in failing to foree and prevent it he had “betrayed the public’s trust.”
Even more shocking was McCain’s statement to, CBS “60 Minutes” interviewer that he’d like to see Cox replaced by New York’s Democratic Attorney General Andrew Cuomo for whom he says he has “great respect.”
Cuomo has in recent days been making a lot of noise by suing or threatening financial firms in New York and elsewhere using the same sort of rhetoric that McCain seems to employ and it appears that his overheated quasi-populist rhetoric has caught the GOP candidate’s attention.
What McCain perhaps didn’t know in lauding Cuomo is that as President Bill Clinton’s Secretary of Housing and Urban Development (HUD), Cuomo opened to gates to the abuses that led directly to the financial crisis with which the nation is now contending.
In fact, McCain’s recent outrage is seen by Cuomo critics as part of an attempt to distance himself from the responsibility that a sober analyst might well assign him for the housing debacle that sparked the current crisis.
The story of Cuomo’s involvement is no where better detailed than in an August fifth investigative piece in New York’s Village Voice. Titled, “Andrew Cuomo and Fannie and Freddie: How the youngest Housing and Urban Development Sectary in history gave birth to the mortgage crisis.”
Wayne Barrett details how as HUD Secretary, Cuomo forced Fannie Mae and Freddie Mac into the sub-prime mortgage business, conspired with the two giant GSEs or Government Sponsored Enterprises to help them escape oversight, and helped them and the banks making the loans they were buying hide predatory practices from borrowers.
It’s a story McCain might want to absorb before popping off about what a great job Cuomo might do as a part of a McCain administration.
It seems that between 1997 and 2001 when he and Clinton left town, Cuomo made decisions at HUD which, as Barrett describes it, “gave birth to the country’s current crisis…. He took actions that – in combination with many other factors- helped plunge Fannie and Freddie into the sub-prime markets without putting in place the means to monitor their increasingly risky investments.
“He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded “kickbacks” to brokers that have fueled the sale of overpriced and unsupportable loans.”
Those are some charges, but the evidence suggests that they are dead accurate. In 2000, Cuomo forced the two GSEs to buy more and more questionable loans and increased dramatically the requirement that they take on a much higher percentage of loans in low and moderate income, minority neighborhoods while at the same time easing the requirements banks would have to adhere to in making such loans.
Even the New York Times, while lauding the intended goal of expanding the benefits of home ownership to more and more Americans, warned “Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government subsidized corporations may run into trouble in an economic downturn …”
To meet the aggressive goals Cuomo set, the GSEs developed what the Voice describes as a more “flexible” product line: mortgages requiring no down payment
and what have come to be known as “no doc” mortgages to borrowers who aren’t required to document their income or ability to pay.
Granted, Bush Administration appointees did nothing to reverse what Cuomo had started and therefore deserve a measure of the blame for what happened, but it was the Clinton Administration’s HUD Secretary Cuomo who set the whole thing in motion.
The gates were open: banks began pushing the new loans on people who couldn’t qualify before and quickly sold the paper to the GSEs which packaged them up and sold them off to pension funds and other institutional investors here and abroad.
When the housing bubble burst and home values crashed last year, the GSEs and those to whom they sold the paper found themselves in real trouble. The result is a proposal that America’s taxpayers take on up to a trillion dollars in new risk all thanks to the man McCain would like to make Chairman of the SEC.
David Keene is chairman of the American Conservative Union.
