Rove: Blame Fannie and Fred, not George

MP to Churchill re Clement Attlee, Labor Prime Minister: “You know, Winston, Clement is a very humble man.” WC: “He has a lot to be humble about.”

People ask why most of my blog comes from other sources. I am humble, yes. But I also know I’m well separated from the events and ideas I cover, so defer to those who have better access.

Karl Rove was there when government made decisions leading to our current financial crisis. So let’s hear him out. Writing in the Wall Street Journal, Rove makes these points about how Fannie Mae and Freddie Mac contributed to our current mess, and what Bush did to try and head it off:

• the housing meltdown shows what happens when government grants special privileges to favored private entities; Fannie and Freddie had implicit taxpayer backing and could borrow money at rates well below competitors.

• the Bush administration warned in its April 2001 budget that Fannie and Freddie were too large and overleveraged. Bush wanted to raise Fannie and Fred’s capital requirements, compelling preapproval of new activities, and sought to limit their portfolios.

• Fannie and Fred, not wanting a level playing field for their competitors, fought back, engaged in a lobbying frenzy, hired high-profile Democrats and Republicans, and spent $170 million on lobbying over the past decade.

• When Republicans pushed for comprehensive reform in 2005, Democrat Chris Dodd of Connecticut successfully threatened a filibuster, Rep. Barney Frank of Massachusetts defended Fannie and Freddie as "fundamentally sound" and labeled the president's proposals as "inane," and Charles Schumer of New York dismissed Bush's "safety and soundness concerns" as "a straw man."

• Angelo Mozilo, CEO of Countrywide Financial [which gave highly favorable home mortgage loans to Dodd and other key Democrats], complained that "an overly cumbersome regulatory process" would "reduce, or even eliminate, the incentives for [Fannie and Fred]."

• Fannie and Freddie, which held $2.1 trillion in mortgages and mortgage-backed securities in 2000, held $4 trillion by 2005, and $5 trillion by 2008, almost half of all American mortgages.

• Peter Wallison of the American Enterprise Institute and Charles Calomiris of the Columbia Business School suggest $1 trillion of this debt was subprime and "liar loans," almost all bought between 2005 and 2007.

• If Democrats had granted Bush the regulatory powers he sought, the housing crisis wouldn't have been nearly so severe.