Yesterday, after the Dodd financial takeover bill failed to achieve the 60 votes necessary to end debate, Senator Dick Durbin appeared on the floor to impugn the motives of Republicans. “It’s not surprising that the Republicans are reluctant to be a part of Wall Street reform… We’re trying to change the way Wall Street does business so we never have to face a recession like this again. The Republicans in the Senate, with only a few exceptions, have resisted our efforts to pass this bill.”
Durbin then hailed the amendment process, which in fact defeated every major Republican reform offered, including efforts to rein in Fannie Mae and Freddie Mac, which played such a major role in causing the financial crisis to begin with.
Durbin next posited his theory of why Republicans might oppose the legislation, “I only know of several groups across the country who want to stop the debate on this bill: Wall Street, the biggest credit card companies, and the biggest banks. They want to stop this bill, they want to kill it. And they’ve spent a fortune on lobbyists roaming around our offices here on Capitol Hill to try to convince members to stop this Wall Street reform bill. Well, they were at least successful today. They convinced all but two Republican Senators to come to their side of the issue and to stop this debate on Wall Street reform. Well, that is unfortunate because I think the American people expect us to get something done.”
Apparently, getting something done is better than getting it done right. Durbin continued by blaming Wall Street for economic crisis, and said, “I don’t think business as usual is the right way to go, but the Republican votes — all but two Republican Senators — voted to continue business as usual on Wall Street. They don’t want this bill to pass. And so they voted that way today. At the end of the day, 39 out of 41 Republican Senators voted for the status quo, to keep things just as they are on Wall Street.”
Senator Johnny Isakson, who probably didn’t like being impugned, then took to the floor to remind Durbin that one of the reasons Republicans voted no on cloture was in fact because the bill did nothing to address Fannie Mae and Freddie Mac, which drove the subprime mortgage market and the housing market as a whole to ruin.
“I think a little history lesson is due for all of us,” said Isakson. He noted that Fannie and Freddie built up so-called “affordable housing loans” into their portfolios. He rightly mentioned that the government sponsorship of these particular loans helped them to become very popular, and then the securities from Fannie and Freddie were sold all over the world.
Isakson is right. All told, Fannie and Freddie sold about $5 trillion worth of mortgage-backed securities by the time they went bankrupt. That included, in June 2008, some $1.835 trillion in higher-risk mortgages and mortgage-backed securities just before they were nationalized. These were high risk loans in whole loan form, most of which, $1.646 trillion, were GSE-issued mortgage-backed securities, and $189 billion of subprime and Alt-A private mortgage-backed securities.
Isakson explained, “The root of this problem is Freddie Mac and Fannie Mae and the direction of the United States Congress as to what they should do in their portfolios in terms of the securities they own… We have a financial reform bill in front of us that exempts Freddie Mac and Fannie Mae from reform. That doesn’t make any sense at all, and if you listen to the arguments in the debate as to why they weren’t there, is ‘cause it was too hard. Well, listen, these are hard times. Americans are having hard times. It’s time that we did the hard things.”
And then suddenly, a lapse of honesty broke out on the floor of the Senate. Durbin replied: “I will concede that this, what you pointed to as a fundamental flaw, a mistake that was made, there was a presumption made, that owning a home was such a valuable American ideal… but, we went too far, we extended the opportunity for home ownership to people who weren’t ready. And we believed that if you pushed them to the limit of how much they could pay, that the home would appreciate in value, their incomes would go up and everything would work out. And it turned out that gamble was wrong… on some people. And certainly, Fannie Mae and Freddie Mac as the ultimate guarantors of mortgages were part of that. So, there is a governmental element here, I don’t question that for a moment. So, certainly some blame lies there…”
Durbin continued, “I will concede to the gentleman from Georgia his premise. Do we need to reform Fannie Mae and Freddie Mac? Yes we do. And if we don’t we’re going to pay dearly for it. I don’t know that we can accomplish it in this bill, accomplish it at this moment, but it literally has to be done… [T]o argue that it doesn’t include Fannie Mae and Freddie Mac and therefore we can’t support it, I think that perhaps we just have a different point of view… [But] I think you’re right in what you said.”
Durbin even repeated himself, “I’m with you in terms of the reformation [of Fannie Mae and Freddie Mac], I just don’t believe it is reasonable to require this bill to do everything that needs to be done.”
Isakson thanked Durbin, and then Senator Chris Dodd jumped in. He too was apparently feeling rather honest yesterday: “I acknowledge that we in Congress have failed at this responsibility actually going back to 2003… there were various attempts… and we didn’t get the job done.” Because he blocked them. He left that part out.
Dodd continued, “We in Congress collectively did not get job done with Fannie and Freddie… I acknowledge that.” Dodd objected to eliminating Fannie and Freddie without replacing it with another “housing finance system,” presumably some other type of government-sponsored entity, although he claimed to be ignorant of knowing what the best option of replacing them were.
“I totally agree with your premise [that Fannie and Freddie need to be reformed],” said Dodd, explaining, “the question is that as Chairman of this committee I didn’t know how… we fix this thing at this point. And I’ve never suggested with this bill that we were dealing with every financial problem in the country. I mean, it would be an impossible task for us to take that on…”
That’s Dodd’s answer: “I didn’t know how… we fix this thing.”
Dodd continued by simply passing the buck: “So all I can say to you as someone who won’t be here next January, that I hope whoever sits in this chair, in this desk, or at this desk, or at this desk… that this will be a priority…” Because, at his desk, it was not a priority. And it still is not.
Dodd was somehow convinced, despite the fact that for him it was not a priority, went on professing that it ought to be a priority, “I can’t think of a more important priority for the Banking Committee of the United States Senate than to have the reform of Fannie and Freddie because I think we’re going to be in deeper and deeper trouble both financially and in terms of home ownership if we don’t.” Right, just not on his watch. Maybe next time.
Dodd concluded, “I would also plead that the failure to deal with that in this bill ought not to be justification for walking away from all the other good things we’re trying to accomplish in this legislation.”
Good? Does he mean seizing any company the government wants for whatever reason it deems to be essential to preserving the “financial stability of the United States”? Or perhaps monitoring every financial transaction in the country so government can become better central planners? Or maybe he meant the part of the bill that offers unlimited authority to bail out politically-favored entities by taxing everyone else?
In Washington, getting “something” done is often the enemy of the good. Senator Isakson, and the Republican caucus, are to be praised for insisting upon a bill that actually addresses the root causes of financial crisis that government was responsible for. They must hold the line, before the Senate does “something” we all will come to regret.
Robert Romano is the Senior Editor of ALG News Bureau.
