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CLINTON'S RECORD ON FANNIE AND FREDDIE.
When I asked Bill Clinton last night what he would've done differently as president to help prevent today's financial crisis, he said he would have pushed harder late in his second term to reign in Fannie Mae and Freddie Mac. But, via Mark Thoma, here's a Washington Post article that explains how the Clinton administration was partly responsible for the mortgage giant's out-of-control growth in the first place:
The Clinton administration wanted to expand the share of Americans who owned homes, which had stagnated below 65 percent throughout the 1980s. Encouraging the growth of the two companies was a key part of that plan."We began to stress homeownership as an explicit goal for this period of American history," said Henry Cisneros, then Secretary of Housing and Urban Development. "Fannie and Freddie became part of that equation."
The result was a period of unrestrained growth for the companies. They had pioneered the business of selling bundled mortgage loans to investors and now, as demand from investors soared, so did their profits.
By the time Treasury Secretary Lawrence Summers warned that Fannie and Freddie needed to be brought under control, it was too late. The lenders had become so politically powerful that they successfully resisted reform efforts, aided by politicians of both parties who wanted to share the credit for growing home ownership rates. Ironically, we now know that renting can actually be very smart for both family and national economics. That's a message, though, that's been lost in the kerfuffle of the past few weeks.
--Dana Goldstein
COMMENTS (6)
Everyone I know that has money for retirement has it because their homes appreciated. How do we "now know" that renting is smart? Buying a home in a weak market is dumb, but renting is not smart.
Posted by: John | September 23, 2008 11:46 AM
Rein in--think horses, not queens.
/peeve
Posted by: Not Prince Hamlet | September 23, 2008 12:56 PM
Here is a contemporaneous article covering the story of the Gramm-Leach repeal of the Glass-Seagall Act.
…The breakthrough in Friday's legislation came in a backroom meeting at the Capitol soon after midnight, when a group of moderate Senate Democrats -- led by Christopher Dodd of Connecticut and Charles E. Schumer of New York -- forced a compromise between Gramm and the White House over the legislation's effect on the Community Reinvestment Act, a 1977 anti-discrimination law intended to encourage lending to minorities and others historically denied access to credit....
The persons most directly responsible were Phil Gramm, supporter of John McCain, Dodd, Schumer, Jim Leach, Robert Rubin and Joe Biden, all supporters of Barack Obama. Since the bill passed by a veto-proof majority, Congress should bear the blame.
Here's McCain's attemptreform Fanny Mae, 2006
May 25, 2006 Sen. John McCain [R-AZ]: 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....
Of course, the Bill died. Barack Obama who was in the Senate for mere months and already was the number 2 recipient of contributions from Fannie Mae, voted against the legislation.
Posted by: Mike | September 23, 2008 1:16 PM
Dana!
I want you to come back to me at age 58, after 35 years of renting, and tell me again that renting is smart.
There's a reason why owning a home is an "American dream". (See, e.g., "Raisin in the Sun".)
Posted by: captcrisis | September 23, 2008 4:13 PM
Those skeptical of the renting argument should follow the link I handily provided in the post. If you aren't going to stay someplace for more than 5 years, research shows renting is smarter than buying. Additionally, homeownership in regions with depressed property values often prevents people from moving on to greener pastures to look for a job.
I agree ownership is a goal that people should work toward. However, it must be pursued wisely and at the right stage of life for each individual and family.
Posted by: Dana | September 23, 2008 4:32 PM
Over a period of 47 years we have purchased and lived in numerous homes and never stayed over 5 years. We have always made money when we sold.
Posted by: Joyce | October 2, 2008 1:03 PM