Home
In this issue
Nov. 20, 2009
Rabbi David Aaron: How to make every second of your life come first
Caroline B. Glick: Whither American Jewry
Nov. 19, 2009
Binyamin L. Jolkovsky: Please Listen to this Godcast (5 minutes)
Jonathan Tobin: ADL Crosses the Line with Report Bashing Obama Critics
Nov. 18, 2009
Rabbi Yonason Goldson: What Judaism has to say about the secret of the Mona Lisa's smile
JWisdom.com: The (Jewish) Dating Game with Rabbi Lawrence Hajioff (8 minutes)
Nov. 17, 2009
Steven Emerson: How Does the 4th Amendment Impact Terror Finance Investigations?
JWisdom.com: If Frank Sinatra married Edith Piaf with Rabbi Y.Y. Rubinstein (2 minutes) Life lessons from what would be regarded as the most inappropriate lyrics ever sung
Nov. 16, 2009
The Jewish Ethicist by Rabbi Dr. Asher Meir : When borrowing is stealing
JWisdom.com: Deconstructing faith with Rabbi Warren Goldstein (9 minutes)
Nov. 13, 2009
JWisdom.com Sarah's subjective reality with Rabbi Sroy Levitansky ( 6 minutes)
Caroline B. Glick: Obama's failure, Netanyahu's opportunity
Nov. 12, 2009
The Kosher Gourmet By Marialisa Calta : A sweet sweet potato treat
JWisdom.com Does God get tired? with Rabbi Harvey Belovski ( 5 minutes)
Nov. 11, 2009
Rabbi Avi Shafran: Jews and money: When anti-Semitism isn't
JWisdom.com Marriages are not made in Heaven with Rabbi Lawrence Hajioff (VERY fast 15 minutes)
Nov. 10, 2009
Michael Doyle: Author of book exposing CAIR ordered to remove supporting documents from Web
JWisdom.com If the creation so loudly shouts the existence of the Creator, why aren't more people believers? with Rabbi Naftali Brawer (9 minutes)
Nov. 9, 2009
Mark Steyn: Shooter exposes hole in U.S. terror strategy
JWisdom.com It's never too late to have a happy childhood with Sarah Chana Radcliffe (5 minutes)
Nov. 6, 2009
Rabbi Berel Wein: Choosing to hear
JWisdom.com Zero to 1/60th: How to Empower An Hour with Gavriel Aryeh Sande (7 minutes)
Caroline B. Glick The mullahs' big week
Suzanne Fields A Fallen Wall for Fallen Man
Nov. 5, 2009
The Kosher Gourmet: Three scrumptious -- but simple -- butternut squash dishes
JWisdom.com Hidden Hints: Unlocking Faith & Prayer with Rabbi Jay Yaacov Schwartz (10 minutes)
Nov. 4, 2009
Tom Hamburger and Kim Geiger: Should prayers be covered?
JWisdom.com When God played peacemaker With Rabbi Sroy Levitansky (5 minutes)
Nov. 3, 2009
Martin Peretz: Beware, Barack. Beware, Rahm. Beware, Axelrod
JWisdom.com Are you are closet idolater? With Sara Yoheved Rigler (10 minutes)
Nov. 2, 2009
Paul Greenberg: The Holocaust is now on Facebook
JWisdom.com Abraham's Strange Change With Rabbi Yitzchok Fingerer (5 minutes)
Oct. 29, 2003
Mortimer B. Zuckerman: Graffiti On History's Walls (MUST-READ!)

Jewish World Review July 18, 2008 / 15 Tamuz 5768

A crony capitalism meltdown

By Rich Lowry


Printer Friendly Version
Email this article

http://www.JewishWorldReview.com | During the famous "bank war" of the 19th century, the president of the embattled Second Bank of the United States, Nicholas Biddle, knew how to operate — spend money liberally. Bank defender Sen. Daniel Webster wrote him once, "If it is wished that my relation to the Bank should be continued, it may be well to send me the usual retainers."


It is unlikely any politician was ever so frank with Fannie Mae and Freddie Mac, the quasi-private mortgage lenders that have teetered on the verge of collapse. Washington has become a less, shall we say, direct place since the 1830s. But Fannie and Freddie have used the time-honored persuasiveness of cash to stave off reforms that might have avoided the near-disaster of recent days.


Fannie Mae and Freddie Mac are called government-sponsored enterprises. At times, Congress has seemed a Fannie Mae- and Freddie Mac-sponsored enterprise. The companies spent $200 million on lobbying and campaign contributions during the past decade. They lavished dollars on members of Congress, hired key Washington players for lucrative executive positions and extended the largesse to nonprofits through a charitable foundation and to congressional districts around the country through so-called partnership offices.


For a senator or congressman to get on the Senate Banking or House Financial Services committees was a guaranteed ride on the Fannie and Freddie gravy train. With their sharp lobbying elbows, sometimes it was unclear who was doing oversight on whom.


Whatever the question, the answer in Congress was always forestalling significant tightening of Fannie and Freddie's operations. After the savings and loan debacle in the early 1990s, the institutions fought off meaningful new regulations. After Fannie was caught cooking its books to the tune of $6.3 billion a few years ago, the institutions still escaped reform. With the subprime mortgage market in meltdown lately, Congress has wanted Fannie and Freddie to assume even more risk.


Fannie and Freddie exist to bolster mortgage lenders — and therefore homeownership — by buying mortgages, guaranteeing them and selling them on the secondary market. With an implicit promise of federal backing, Fannie and Freddie have borrowed money at low rates and used these funds to purchase and hold large portfolios of mortgages and mortgage-backed securities, now totaling $1.4 trillion. In short, the government gets the risk, the executives and shareholders get the profits.


"Unlike many well-capitalized savings and loans and commercial banks," Alan Greenspan warned in 2004, "Fannie and Freddie have chosen not to manage that risk by holding greater capital." Why would they, if Uncle Sam is underwriting them? Fannie and Freddie kept Congress from limiting their expansion and from tightening their capital requirements. Instead, Fannie and Freddie have been recklessly undercapitalized at debt-to-equity ratios of 20-1 or more, when Bank of America and J.P. Morgan are at roughly 4-1.


When a market loss of confidence plunged Fannie and Freddie toward the abyss, Treasury Secretary Henry Paulson made the implicit federal guarantee explicit. The feds had no choice, lest Fannie and Freddie take down the financial markets with them. But, incredibly, Congress wants to pony up the tax dollars without asking for major reform.


The usual Democratic horsemen of regulation — Sen. Chris Dodd (the top recipient of Fannie and Freddie contributions since 1989), Sen. Chuck Schumer, and Rep. Barney Frank — are Fannie and Freddie apologists. That's not surprising. If the institutions are bipartisan influence-buyers, they have had a Democratic coloration. Former Walter Mondale aide Jim Johnson headed Fannie during the Clinton years, and was replaced by former Clinton OMB director Franklin Raines.


Breaking up a political cash cow is hard to do. But ultimately Fannie and Freddie should be put in federal receivership, busted up and sold off. It's an experiment in crony capitalism that has failed. Even Nicholas Biddle lost his battle to save his bank so long ago. Fannie and Freddie may, unfortunately, prove a more enduring lesson in how to win friends in Washington.

Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.

Comment by clicking here.

Rich Lowry Archives

© 2008 King Features Syndicate

Insight (Our Columnists)

 Arnold Ahlert
 Mitch Albom
 Michael Barone
  Dave Barry
 Tony Blankley
 Andy Borowitz
 David Broder
 Stratfor Briefing
 Mona Charen
 Linda Chavez
 Ann Coulter
 Greg Crosby
 Larry Elder
 Suzanne Fields
 John Fund
 Frank J. Gaffney
 Lloyd Garver
 Jonah Goldberg
 Julia Gorin
 Jonathan Gurwitz
 Paul Greenberg
 Lewis Grossberger
 Victor Davis Hanson
 Betsy Hart
 Nat Hentoff
 David Horowitz
 Laura Ingraham
 Cheri Jacobus
Jeff Jacoby
 Paul Johnson
 Jack Kelly
 Ed Koch
 Ch. Krauthammer
 Michael Ledeen
 John Leo
 David Limbaugh
 Kathryn Lopez
 Rich Lowry
 Michelle Malkin
 Jackie Mason
 Dick Morris
 Bill O'Reilly
 Jim Mullen
 Clarence Page
 Kathleen Parker
 Dennis Prager
 Wesley Pruden
 Tom Purcell
 Jonathan Rauch
 Celia Rivenbark
 Robert Robb
 Cokie & Steve Roberts
 Pat Sajak
 Debra J. Saunders
 Culture Shlock
 Roger Simon
 Michael Smerconish
 Thomas Sowell
 Mark Steyn
 John Stossel
 Cal Thomas
 Bob Tyrrell
 Diana West
 Dave Weinbaum
 George Will
 Walter Williams
 Byron York
 Mort Zuckerman

'Toons
 Robert Arial
 Chuck Asay
 Baloo
 Chip Bok
 Dry Bones
  Lisa Benson
 John Branch
 Gary Brookins
 John Cole
 J. D. Crowe
 John Deering
 Brian Duffy
 Everything's Relative
 Mallard Fillmore
 Jake Fuller
 Bob Gorrel
 Joe Heller
 David Hitch
 Jerry Holber
 Steve Kelley
 Jeff Koterba
 Dick Locher
 Chan Lowe
 Ranan R. Lurie
 Jimmy Margulies
 Rick McKee
 Michael Ramirez
 Kevin Siers
 Jeff Stahler
 Ed Stein
 Danna Summers
 John Trever
 Gary Varvel
 Kirk Walters

Lifestyles
 How 2
 Lori Borgman
 The Savvy Consumer
 Elder matters
 Fixit
 Dr. Peter Gott
 GET A JOB! by Marty Nemko
 Richard Lederer
 Tech Maven
 Every Monday Matters
 Nutrition Myths
 Bookmark These
 Bruce Williams
 How Stuff Works