[Congressional Record (Bound Edition), Volume 154 (2008), Part 15]
[House]
[Pages 21154-21155]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            CRONY CAPITALISM

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from North Carolina (Ms. Foxx) is recognized for 5 minutes.
  Ms. FOXX. Mr. Speaker, the American people won an important victory 
today, and we all should celebrate it. The Democrats finally allowed 
the moratorium on offshore drilling to expire. They did that because of 
the pressure brought on them by their constituents and by the 135 
Republicans who stayed on this floor every day in August while the 
Democrats were on vacation, and we spoke on the floor every day before 
that and since then.
  We called to the attention of the American people every day that the 
Democrats are in charge of the Congress and it was under their charge 
that gas prices doubled.
  So, when someone says to you there's no difference between Democrats 
and Republicans, you can point to this example of leadership by 
Republicans and how we brought this to the American people and with 
this support, changed the position of the Speaker.
  Now we have another task before us. It is our task to inform the 
American public about who is responsible for the U.S. mortgage and 
credit problem that we are grappling with.
  This is not a failure of the markets. But it is a failure of 
government.
  Mr. Speaker, I would like to put in the Record an editorial from 
investors.com entitled ``Crony Capitalism Is Root Cause of Fannie And 
Freddie Troubles.''
  ``In the past couple of weeks, as the financial crisis has 
intensified, a new talking point has emerged from the Democrats in 
Congress: This is all a 'crisis of capitalism,' in socialist financier 
George Soros' phrase, and a failure to regulate our market 
sufficiently.
  ``This is a crisis of politically driven crony capitalism, to be 
precise.
  ``Indeed, Democrats have so effectively mastered crony capitalism as 
a governing strategy that they've convinced many in the media and the 
public that they had nothing whatsoever to do with our current 
financial woes.
  ``Funny, because over the past 8 years, those who tried to fix Fannie 
Mae and Freddie Mac--the trigger for today's widespread global 
financial meltdown--were stymied repeatedly by congressional 
Democrats.''
  And as my colleagues on both sides of the aisle tonight have pointed 
out, these problems have been brought on under the leaders who were 
Democrats when Congress was controlled by the Democrats on several 
occasions.
  ``Although some key Republicans deserve blame as well, it was a 
concentrated Democratic effort that made reform of Fannie and Freddie 
impossible.''
  In fact, earlier tonight on FOX News, to their credit, they showed 
comments being made by Chairman Frank and Chairman Schumer about why 
Fannie and Freddie were great and didn't need any reform, and going 
back to 2001 pointed out how President Bush and members of his Cabinet 
pointed out we were going to have a crisis because of Fannie and 
Freddie. As my colleague just previously said, we don't have enough 
regulations of these markets, but I would say we have the wrong kind of 
regulations, and more and more is going to come out about that and put 
it where it deserves.
  Again, I'm going to quote some more from this article:
  ``Fannie and Freddie gobbled up the market. Using extraordinary 
leverage,

[[Page 21155]]

they eventually controlled 90 percent of the secondary market 
mortgages. Their total portfolio of loans topped $5.4 trillion--half of 
all U.S. mortgage lending. This created the problem that we're having 
today.''
  But they also ``became a kind of jobs program for out-of-work 
Democrats.
  ``Franklin Raines and Jim Johnson, the CEOs under whom the worst 
excesses took place in the late 1990s to mid-2000s, were both high-
placed Democratic operatives and advisors to Presidential candidate 
Barack Obama.
  ``On the surface, this sounds innocent. Someone has to head the 
highly political Fannie and Freddie, right? But this is why crony 
capitalism is so dangerous. Those in power at Fannie and Freddie, as 
the sirens began to wail about some of their more egregious practices, 
began to bully those who opposed them.
  ``We now know that many of the Senators who protected Fannie and 
Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, 
have received mind-boggling levels of financial support from them over 
the years.''
  The SPEAKER pro tempore. The time of the gentlewoman has expired.
  Ms. FOXX. Thank you, Mr. Speaker.

   ``Crony'' Capitalism Is Root Cause Of Fannie And Freddie Troubles

                            (By Terry Jones)

       In the past couple of weeks, as the financial crisis has 
     intensified, a new talking point has emerged from the 
     Democrats in Congress: This is all a ``crisis of 
     capitalism,'' in socialist financier George Soros' phrase, 
     and a failure to regulate our markets sufficiently.
       Well, those critics may be right--it is a crisis of 
     capitalism. A crisis of politically driven crony capitalism, 
     to be precise.
       Indeed, Democrats have so effectively mastered crony 
     capitalism as a governing strategy that they've convinced 
     many in the media and the public that they had nothing 
     whatsoever to do with our current financial woes.
       Barack Obama has repeatedly blasted ``Bush-McCain'' 
     economic policies as the cause, as if the two were joined at 
     the hip.
       Funny, because over the past 8 years, those who tried to 
     fix Fannie Mae (FNM) and Freddie Mac (FRE)--the trigger for 
     today's widespread global financial meltdown--were stymied 
     repeatedly by congressional Democrats.
       This wasn't an accident. Though some key Republicans 
     deserve blame as well, it was a concerted Democratic effort 
     that made reform of Fannie and Freddie impossible.
       The reason for this is simple: Fannie and Freddie became 
     massive providers both of reliable votes among grateful low-
     income homeowners, and of massive giving to the Democratic 
     Party by grateful investment bankers, both at the two 
     government-sponsored enterprises and on Wall Street.
       The result: A huge taxpayer rescue that at last estimate is 
     approaching $700 billion but may go even higher.
       It all started, innocently enough, in 1994 with President 
     Clinton's rewrite of the Carter-era Community Reinvestment 
     Act.
       Ostensibly intended to help deserving minority families 
     afford homes--a noble idea--it instead led to a reckless 
     surge in mortgage lending that has pushed our financial 
     system to the brink of chaos.


                           Subprime's Mentors

       Fannie and Freddie, the main vehicle for Clinton's 
     multicultural housing policy, drove the explosion of the 
     subprime housing market by buying up literally hundreds of 
     billions of dollars in substandard loans--funding loans that 
     ordinarily wouldn't have been made based on such time-honored 
     notions as putting money down, having sufficient income, and 
     maintaining a payment record indicating creditworthiness.
       With all the old rules out the window, Fannie and Freddie 
     gobbled up the market. Using extraordinary leverage, they 
     eventually controlled 90% of the secondary market mortgages. 
     Their total portfolio of loans topped $5.4 trillion--half of 
     all U.S. mortgage lending. They borrowed $1.5 trillion from 
     U.S. capital markets with--wink, wink--an ``implicit'' 
     government guarantee of the debts.
       This created the problem we are having today.
       As we noted a week ago, subprime lending surged from around 
     $35 billion in 1994 to nearly $1 trillion last year--for 
     total growth of 2,757% as of last year.
       No real market grows that fast for that long without being 
     fixed.
       And that's just what Fannie and Freddie were--fixed. They 
     became a government-run, privately owned home finance 
     monopoly.
       Fannie and Freddie became huge contributors to Congress, 
     spending millions to influence votes. As we've noted here 
     before, the bulk of the money went to Democrats.


                            Dollars To Dems

       Meanwhile, Fannie and Freddie also became a kind of jobs 
     program for out-of-work Democrats.
       Franklin Raines and Jim Johnson, the CEOs under whom the 
     worst excesses took place in the late 1990s to mid-2000s, 
     were both high-placed Democratic operatives and advisers to 
     presidential candidate Barack Obama.
       Clinton administration official Jamie Gorelick also got 
     taken care of by the Fannie-Freddie circle. So did top 
     Clinton aide Rahm Emanuel, among others.
       On the surface, this sounds innocent. Someone has to head 
     the highly political Fannie and Freddie, right?
       But this is why crony capitalism is so dangerous. Those in 
     power at Fannie and Freddie, as the sirens began to wail 
     about some of their more egregious practices, began to bully 
     those who opposed them.
       That included journalists, like the Wall Street Journal's 
     Paul Gigot, and GOP congressmen, like Wisconsin Rep. Paul 
     Ryan, whom Fannie and Freddie actively lobbied against in his 
     own district. Rep. Cliff Stearns, R-Fla., who tried to hold 
     hearings on Fannie's and Freddie's questionable accounting 
     practices in 2004, found himself stripped of responsibility 
     for their oversight by House Speaker Dennis Hastert--a 
     Republican.
       Where, you ask, were the regulators?
       Congress created a weak regulator to oversee Freddie and 
     Fannie--the Office of Federal Housing Enterprise Oversight--
     which had to go hat in hand each year to Capitol Hill for its 
     budget, unlike other major regulators.
       With lax oversight, Fannie and Freddie had a green light to 
     expand their operations at breakneck speed.
       Fannie and Freddie had a reliable coterie of supporters in 
     the Senate, especially among Democrats.
       ``We now know that many of the senators who protected 
     Fannie and Freddie, including Barack Obama, Hillary Clinton 
     and Christopher Dodd, have received mind-boggling levels of 
     financial support from them over the years,'' wrote economist 
     Kevin Hassett on Bloomberg.com this week.


                     Buying Friends In High Places

       Over the span of his career, Obama ranks No. 2 in campaign 
     donations from Fannie and Freddie, taking over $125,000. 
     Dodd, head of the Senate Banking panel, is tops at $165,000. 
     Clinton, ranked 12th, has collected $75,000.
       Meanwhile, Freddie and Fannie opened what were 
     euphemistically called ``Partnership Offices'' in the 
     districts of key members of Congress to channel millions of 
     dollars in funding and patronage to their supporters.
       In the space of a little more than a decade, Fannie and 
     Freddie spent close to $150 million on lobbying efforts. So 
     pervasive were their efforts, they seemed unassailable, even 
     during a Republican administration.
       Yet, by 2004, the crony capitalism had gone too far. Even 
     OFHEO issued a report essentially criticizing Fannie and 
     Freddie for Enron-style accounting that let them boost 
     profits in order to pay their politically well-connected 
     executives hefty bonuses.
       It emerged that Clinton aide Raines, who took Fannie Mae's 
     helm as CEO in 1999, took in nearly $100 million by the time 
     he left in 2005. Others, including former Clinton Justice 
     Department official Gorelick, took $75 million from the 
     Fannie-Freddie piggy bank.
       Even so, Fannie and Freddie were forced to restate their 
     earnings by some $3.5 billion, due to the accounting 
     shenanigans.
       As we noted, those who tried to halt this frenzy of 
     activity found themselves hit by a political buzz saw.
       President Bush, reviled and criticized by Democrats, tried 
     no fewer than 17 times, by White House count, to raise the 
     issue of Fannie-Freddie reform. A bill cleared the Senate 
     Banking panel in 2005, but stalled due to implacable 
     opposition from Democrats and a critical core of GOP 
     abettors. Rep. Barney Frank, who now runs the powerful House 
     Financial Services Committee, helped spearhead that fight.
       Now, with the taxpayer tab approaching $1 trillion or more, 
     we're learning the costs of crony capitalism.
       In the coming days, an IBD series will look into this 
     phenomenon in greater detail--how we got here, who's 
     responsible, and why nothing was done.

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