The link below contains a purported list of the top 25 in Congress who got contributions from the folks at Fannie and Freddie. Obama is listed third, after Dodd and Kerry, even though Obama is just a junior Senator. Obama is followed next by Clinton. Barney Frank and Nancy Pelosi are on the list as well.
http://www.investors.com/editorial/IBDArticles.asp?artsec=16&artnum=1&issue=20080918
Then there is the Senate Banking Committee Chairman Christopher J. Dodd who allegedly got special mortgage deals from Countrywide, who gave preferential rates to 'friends' of company's chairman.
http://www.msnbc.msn.com/id/25140560/
For an interesting article purporting to detail the House Financial Services Committee Chairs long history with Fannie Mae, See http://www.businessandmedia.org/printer/2008/20080924145932.aspx
"House Financial Services Committee Chair promoted GSEs while former 'spouse' was Fannie Mae executive."
The link below describes how some in Congress tried to use the original version of the bailout bill to divert money eventually recovered to groups like ACORN, a group Obama has a long association with. See:
http://online.wsj.com/article/SB122247015469280723.html?mod=googlenews_wsj
And then there is House Speaker Nancy Pelosi, who allegedly has directed nearly $100,000 from her political action committee to her husband's real estate and investment firm.
http://www.washtimes.com/news/2008/oct/01/pelosis-pac-pays-bills-for-spouses-firm.
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The Great Confidence Game
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Next, the Fed and the Treasury prevented bankruptcies that might otherwise have occurred. With the Fed's backing, the investment bank Bear Stearns was merged into JPMorgan Chase. Fannie Mae and Freddie Mac, the mortgage giants, were taken over by the government; their subprime losses had also depleted their meager capital. And now AIG has been rescued.
How much all this will cost taxpayers is unclear. It could be many billions—or nothing. For example, the Fed is charging AIG a hefty interest rate and expects to be repaid from the sales of the firm's businesses. But turning the Fed into a massive lending agency supporting specific firms and types of credit (mortgages, corporate bonds) was a dramatic shift from its familiar role of regulating interest rates and credit conditions.The justification: intervention prevented a disastrous chain reaction. Securities didn't get dumped on markets, depressing prices; companies that lent to and traded with these firms didn't suffer further losses.
The trouble with these confidence-building exercises was that the more of them that occurred, the less effect they had. As today's surprise followed yesterday's, it became less convincing that Paulson and Bernanke understood or could control the crisis. There were also possible practical problems. The Fed has financed its lending program by reducing its massive holdings of U.S. Treasury securities. It could not do this indefinitely without exhausting all its present Treasuries. A danger: the Fed would then resort to old-fashioned—and potentially inflationary—money creation.
Against that backdrop, Paulson suggested something like the Resolution Trust Corp. that was used in the savings and loan crisis to dispose of distressed real estate. This entity would buy subprime mortgage securities to stabilize the financial system. But hard questions remain. Which securities would be eligible? Just subprime? How about alt-A (mortgages with low documentation)? Suppose a weaker economy creates new classes of bad debt—say credit card securities? Might they become eligible? What about U.S. securities held by foreigners? What price would the government pay? Would the government hold them to maturity or sell them?
Objections to Paulson's proposal abound. It would rescue some investors and financial institutions from bad decisions and erode a useful discipline—the fear of losses. Some investors (how many no one knows) doubtlessly bought subprime securities at huge discounts and would reap massive profits by reselling to the government. That might trigger an angry public backlash. The program would be huge ("hundreds of billions," says Paulson) and could burden future taxpayers. To which Paulson has one powerful retort: It's better than the alternative of continued turmoil and possible panic. But that presumes that the program succeeds and raises the most unsettling question: If this fails, what—if anything—could the government do next?
© 2008
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