Heart of Darkness

If Conrad were alive today he just might author a companion issue to the first. Yet instead of a journey into the savage heart of Africa, Kurtz would find himself in the bowels of FannieMae, there to find his dark and evil soul.

A stretch? Not to most Americans when they eventually come to understand that core operation which, when coupled with Greenspan’s gross mis management of the Fed cooked up what we are served today. That would be the Fannie/Freddie horror show.

We highlighted these GSE’s (gov’t sponsored enterprises) in an earlier post to explain their designed purpose and how that became corrupted through connections to Congress. Pressure was exerted from the majority of Democrats in the House for Fannie/Freddie to lower standards to access low-income families. The political dividend was obvious. Franklin Raines, the Clinton-appointed head of Fannie from 1998 to 2004 made it a priority to make mortgages easier to get, with little credit, few assets and next to nothing down.

As background, Jonah Goldberg of the National Review notes that, "The fine print to this noble intent was an ill-conceived loosening of standards." For example, the Clinton administration reinterpreted the Carter-era Community Reinvestment Act to politicize lending practices. Goldberg continues, "Under the CRA the government forced banks to prove they weren’t ‘redlining’ - discrimination against minorities - by approving loans to minorities and various left-wing ‘community group’ shakedown artists whether they were bad risks or not." (A young Obama got his start with exactly these sort of groups) It was extortion but no problem; the banks were happy to pass the risky loans to a Fannie being transformed by Raines from the stable institution FDR intended into the equivalent of a hedge fund. Fannie accepted this stuff, bundled it together with good loans, and sold the lot to Wall St types who in turn were happy to oblige since Fannie was deemed to be too big to fail.

This worked perfectly for Raines who enriched himself to the tune of some $40million. Yet things began to get a tad dicey - in 2005 Fannie revealed that it had overstated earnings by $10.6 bln and that it didn’t really know what was going on. The Bush administration pushed for reforms for what had become largely a Democratic cash cow; those efforts were rebuffed by Congress with Barney Frank and Chris Dodd in the lead. Why? Because Fannie and Freddie had spent millions on campaign contributions to these clowns and their pals.

Also in 2005 McCain sponsored legislation to thwart what he later called "the enormous risk that Fannie and Freddie pose to the housing market, the overall financial system and the economy as a whole." It went down in defeat, naturally.

Oh, and we almost forgot - Obama, the Senate’s second-greatest recipient of donations from Fannie and Freddie after Dodd, did nothing. My, my.

Robert Craven