The Banking Crisis – Heads They Win, Tails You Lose

Remember when you thought you could pay for your kids’ college tuition? That you could retire and move to Florida for your golden years?

Guest what? You’ve just lost your nest egg faster than you would have in Vegas. What have you gotten for it? Nothing! At least in Vegas they would have thrown in free hotel and floor show!

The American taxpayer just got mugged – and we can’t figure out what happened, who did it and why no one protected us. And worst of all, we have no idea how much it will end up costing us later. At least when you get mugged they only take the cash in your wallet.

The biggest culprit is Fannie Mae – a quasi-government mortgage enterprise – regulated and guaranteed by Congress but privately owned. In other words, government sets the rules, taxpayers cover any losses, and private stockholders keep the profits. It’s Washington’s version of heads they win, tails you lose.

For decades, Americans bought their homes by getting a mortgage, which was usually sold to Fannie Mae. But you couldn’t get a mortgage unless you had enough savings for a 5-20% down-payment, proved you could afford the monthly payments, and had a good credit rating.

But all that changed in the 1990s. With pressure from the Clinton Administration and Democrats in Congress, Fannie Mae eased credit requirements for home loans. They wanted to curry favor with low-income voters by helping them buy houses, and with banks, because more loans meant more profits. They didn’t have to foot the bill if the mortgages went sour – the taxpayers would do that. Again, heads they win, tails you lose.

American banks went on a lending spree, and Americans went on a spending spree. They were called ninja loans– “no income, no job, no assets.” It was easy money. As long as housing prices went up, you could sell the house a year or two later and make a profit, without risking a dime of your own money.

The risky lending continued, despite efforts by President Bush to create a new oversight committee to clean up Fannie Mae, and John McCain’s calls for stricter regulations. Democrats in Congress, as well as many Republicans, their campaign coffers stuffed with Fannie Mae donations, refused to put on the brakes. For the six years from 1999 to 2005, Fannie Mae paid millions to 354 congressmen and senators.

By 2004 there were signs of trouble. An office of Management and Budget investigation found massive fraud in Fannie Mae’s bookkeeping practices. But those same Senators and Congressmen refused to hold hearings or hold any of the Fannie Mae leaders responsible. In fact, Fannie Mae CEO Franklin Raines gave himself a $100 million bonus.

But McCain continued to be one of the lone voices calling for reform. He introduced the Federal Housing Enterprise Regulatory Reform in 2005, claiming Fannie Mae posed an enormous risk to the “housing market, the overall financial system, and the economy as a whole.”

But Congressional Democrats blocked it, led by those who received the highest campaign contributions from Fannie Mae. Barack Obama called subprime lending a “good idea.”

But the problems couldn’t be ignored. Franklin Raines and other top executives were forced to resign. But none were charged with fraud, no one went to jail, and after paying some fines, Franklin Raines got to keep his $100 million bonus.

Fannie Mae, reeling under a mountain of bad debt, is now bankrupt. So are most of the banks that issued those risky mortgages. So is AIG, the company that insured them. But rather than go belly up, the government stepped in to bail everybody out. Once again, head they win, tails you lose. But this time you lose big.

The rescue plan will cost at least $700 billion; some say it could end up costing $2 trillion. Every American will have to fork over thousands of dollars we could have used for our kids’ college tuition or our retirement.

Wonder which politicians got the fattest campaign contributions? The top recipient was Senate Banking Committee Chairman Chris Dodd. And number two was Barack Obama.

Guess what happened to Franklin Raines, Mr. One Hundred Million? He’s one of Obama’s top campaign advisers.

And John McCain, the whistleblower who tried to reform Fannie Mae? Who pushed through legislation to limit campaign contributions? Who rails against earmarks and government corruption every time he opens his mouth? Somehow or other, as loony as it seems, McCain is getting the blame.

Go figure.