Rep. Barney Frank (D-MA) announced today that he will retire from Congress at the end of his term. Frank cited a series of scandals as his reasons for leaving–from the prostitution ring that ran from his apartment in the late 1980s; to his role in placing his then-boyfriend in a job at government-backed mortgage giant Fannie Mae in the 1990s, while Frank was on the House Financial Services Committee; to new questions raised today about Frank’s potential involvement in the unfolding insider trading scandal in Congress.

Frank finally apologized for his role in the housing bubble that led to the financial crisis of 2007-8 and set the stage for the worst recession since the Great Depression. Frank had shielded Fannie Mae and Freddie Mac from regulation, which in turn encouraged banks and buyers to embrace unstable mortgages. These were repackaged and sold as securities whose instability was masked due to their implicit government guarantees.

That’s not actually what happened today, though it is what should have happened long ago. Instead, Frank is retiring because he barely survived a tough challenge by Sean Bielat in the 2010 elections, because redistricting will make it harder for him to hold onto his seat, and because he cannot foresee Democrats re-taking the House. The road ahead is rough, and Frank believes he has better–perhaps more lucrative–things to do.

I am not celebrating Frank’s departure–partly because it is long overdue, partly because it would have been more satisfying to see him defeated, and partly because he is somewhat responsible for launching my political career in an exchange that went viral on YouTube:

As I recalled in Jonah Goldberg’s anthology, Proud to Be Right (HarperCollins 2010): (more…)

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Zeke Miller to discuss the burst of the housing bubble, Obama’s latest push for mortgage relief efforts, and how proposed changes in federal policy changes will impact the 2012 elections.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

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Here Is Obama’s Latest Plan To Stave Off The Housing Disaster
Obama Knew Housing Aid Wasn’t Likely To Work, But Promised Big Anyway
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Obama Refi Plan is Not Housing Stimulus
Obama administration tries to reset federal response to mortgage crisis
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Zeke Miller at Business Insider

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss earnings season, Google and Microsoft bidding for Yahoo, and the $1 trillion in student loans that me be the next bubble to burst.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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There is a long 20^th century history of Wall Street protests in America.  After all, Wall Street is the financial center of the country. Today, we’re in a financial crisis so Wall Street (or its financial center equivalent in other cities) is the logical place to protest, right?

Actually, we think it’s a poor second to Lafayette Park across from the White House — where the current crisis was hatched and nurtured.  No, this isn’t an anti Obama screed.  His predecessors (several of them) are far more to blame for the current economic disarray in which we find ourselves, although we think his proposed remedies are anything but remedial.

“Occupy Wall Street” and “Wall Street Greed” are great memes.  They are highly memorable and easily passed on as a rallying cry. Unsurprisingly, President Obama and the left has sought to adopt them.  Of course, the protestors are an outgrowth of the wider sense of entitlement many young people have developed (including quotas disguised under the term “diversity”).  As George Will stated in his column in The Washington Post on October 13, 2011:

“Demands posted in [Occupy Wall Street’s] name include a ‘guaranteed living wage income regardless of employment’; a $20‑an‑hour minimum wage (above the $16.00 entry wage the UAW just negotiated with GM); ending ‘the fossil fuel economy’; ‘open borders’ so ‘anyone can travel anywhere to work and live’; $1 trillion dollars for infrastructure; $1 trillion dollars for ‘ecological restoration’; ‘free college education’, and forgiveness of ‘all debt on the entire planet.”

But abuses by Wall Street are an affect, not the cause of the current economic disarray. As anyone who has read our essays knows, we carry no brief for Wall Street excesses or those of the various Government Sponsored Enterprises (GSE’s) that are the real culprits. But Wall Street was simply the vehicle by which the White House, Congress, the Fed and the Washington bureaucracy carried out very ill advised objectives. As is well known by now, the seeds of our current discontent were sowed a quarter century ago when President Jimmy Carter signed the Community Reinvestment Act (CRA).  This legislation and the regulatory policies that it set in motion may have been well intentioned, but as history teaches, roads paved merely with good intentions often lead where no one wants to go.

(more…)

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the worsening job market, the stagnant economy and the effect it may have on Obama’s reelection in 2012.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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On the Maddeningly Inexact Relationship Between Unemployment and Re-Election
Boneheaded Stimulus Never Works

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Dominique Strauss-Kahn, the Greek debt crisis and Francis’ thoughts on the 2012 race for President.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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On today’s edition of Coffee and Markets, Brad Jackson is joined by Pejman Yousefzadeh and Elizabeth Blackney to discuss how the Fed’s monetary policy has created a two tier economy and the impact that has had on the jobs market and the average American family.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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Pej: My Kingdom For a Coherent Monetary Policy (Paul Ryan Edition)
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Coffee & Markets: David Malpass on the Government as a “Silent Partner”

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“If the average citizen understood economics as well as it was understood by economists 200 years ago, most of the nonsense that’s done in Washington would be impossible politically.”

Our Uncommon Knowledge all-star guest, economist Thomas Sowell, joins us to talk Basic Economics.  He argues that Congress cannot help the economy recover, but instead needs to “let the economy recover.”  The so-called financial crisis wasn’t a financial crisis at all.  It was a housing crisis that overflowed into the financial world.  Congress’s meddling, by making new rules to increase homeownership and access to mortgages, was a primary reason that the housing crisis even existed at all.

Sowell goes on to discuss the disaster that is the Federal Reserve, the irrefutable truth that tax cuts lead to tax revenue (therefore invalidating the “we can’t afford tax cuts” argument), and the misconception that our health care system pre-Obamacare was broken.

He expresses frustration at the lack of articulate Republicans (although seems to be quite the Chris Christie fan!) and little belief that the US will maintain its status as the world’s greatest economy.

Watch the full episode below.

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Charlie Gasparino in today’s New York Post:

The municipal-bond market is in crisis, with prices fall ing and investors running for cover — and for good reason.

Munis — bonds sold by states, cities, counties and other localities to finance government operations — are in trouble because the Ponzi scheme of Big Government is coming unglued. The markets are merely reflecting this reality, as they always do.

The $3 trillion muni market was once regarded as the safest of all investments because the bonds are backed by government taxes. Now it’s showing all the earmarks of the 2007-08 meltdown.

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As we are about to enter year 5 of this ‘Great Recession’, I have been trying to remember how things were before 2007 and over the last few years, take an inventory of what I have seen and heard in my daily and professional life. Pearl Buck famously said, “If you want to understand today, you have to search yesterday.”

So, here is what I’ve found:

Surprisingly, it seems that almost everywhere I look jobs are being offered. ‘Help Wanted’ signs are creeping up both in store fronts and on internet websites. If you know where to look and you have the skills needed for this new economy, there is a job for the taking. I don’t know if unemployment checks are keeping potential workers at home, but there are opportunities out there.

Construction has been virtually nonexistent, while remodeling is certainly in vogue. Just about the only place I see construction anymore, is in very close proximity to one of those American Recovery and Reinvestment Act signs. Infrastructure spending has been the lifeblood of this industry but that can’t continue indefinitely.
What about the consumer? When the market tanked in 2007 and a lot of folks began losing their homes, jobs, and investment accounts, something happened to the American consumer: they stopped spending on things they didn’t need and they started to save.

People are now more conscious than ever about saving money. Clients in my CPA office generally say one of two things to me (or both): How can I make my money work harder for me and how can I keep more of my paycheck every month? I’ve heard these questions a lot over the years, and in good times it was followed with, ‘…because I want to buy a boat/vacation home/etc’. Now, people simply want to keep their homes and hopefully put their kids through college.

Is this a welcome development for the consumer-driven America? Not likely, but it probably should be. Last week I talked about how the Fed is hoping to use propaganda to trick Americans into spending more money in hopes that it will stimulate the economy.

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If you listen to Rep. Barney Frank (D-MA) defend his role in the meltdown of Fannie Mae and Freddie Mac, he was just as blindsided as the rest of us when the two government sponsored enterprises collapsed, triggering the financial crisis.

Frank has been peddling this fiction ever since the economy collapsed in September 2008. But as the The Boston Globe notes in a new, devastating article published on October 14, not many people are buying Frank’s lies anymore. And Frank knows it. He’s facing a surprisingly tough reelection fight, so he’s on an apology tour through the media to save his seat. (Judicial Watch does not endorse or oppose candidates for public office.)

Here’s an excerpt from the Globe piece (although I highly recommend you read the article in full):

When US Representative Barney Frank spoke in a packed hearing room on Capitol Hill seven years ago, he did not imagine that his words would eventually haunt a reelection bid.

The issue that day in 2003 was whether mortgage backers Fannie Mae and Freddie Mac were fiscally strong. Frank declared with his trademark confidence that they were, accusing critics and regulators of exaggerating threats to Fannie’s and Freddie’s financial integrity. And, the Massachusetts Democrat maintained, “even if there were problems, the federal government doesn’t bail them out.”

Now, it’s clear he was wrong on both points…

Here’s the thing. Frank wasn’t wrong. He was lying.

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The document trail below reveals some extremely troubling questions for Representative Barney Frank. Is the GAO report cited below truly the first serious investigation of the mortgage meltdown? Did Congress or the Financial Services committee he chairs have access to mortgage meltdown information from other sources, especially with said GAO report already well on its way to completion?

Why was Barney Frank pushing for his “expanding home ownership bill” in the midst of this looming crisis he already has good reason to suspect was going to get worse? Was he pushing it for purely political purposes prior to the 2008 election, while knowing full well the American housing market was headed for disaster and American taxpayers would be left on the hook as a result of his policies?

While not quite a smoking gun, an examination of the record suggests that while Rep. Barney Frank had good reason to be concerned of a pending meltdown in the housing sector, either out of sheer incompetence, or political maneuvering, he did the exact opposite of what he should have done as a representative of the people of Massachusetts.

Via Mortgage News Daily, on April 24, 2007, problems within the mortgage industry were already coming to light. And it was happening right in front of Barney Frank’s committee.

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The great Charlie Gasparino in today’s New York Post:

The notion of “housing” as a God-given right had been promoted by people like Barney Frank for nearly two decades. Their vehicles to expand homeownership for all were “government-sponsored enterprises” Fannie and Freddie — which, starting in the mid 90s, began buying up and placing guarantees on mortgages taken out by people with lower incomes and lousy credit histories.

Giving low-income people access to the housing market sounds nice enough — but the reality was far different. Housing prices were bid up to levels that made repaying mortgages nearly impossible. When the bubble burst, the government “sponsored” agencies were in hock for billions — and so was their “sponsor,” the US taxpayer.

And once Fannie and Freddie stopped making loans to anyone with a hearbeat (and many people without jobs), housing prices began to deflate, taking the banking system and the rest of the economy with it.

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Under pressure from a barrage of bad midterm-election polls, President Obama has gone on the campaign trail to blame Pres. George W. Bush for all our economic problems, and to bash House Republican leader John Boehner as nothing more than a Bush retread.

In Friday’s dreary news conference, Obama acknowledged that economic progress is “painfully slow,” and that voters may blame him for the economy. Yet he nonetheless continued to finger Bush “for policies that cut taxes, especially for millionaires and billionaires, cut regulations for corporations and for special interests, and left everyone else pretty much fending for themselves.”

“Millionaires and billionaires” has become Obama’s favorite phrase as he calls for tax hikes on the wealthy and renews his attacks on Bush. In Cleveland last week, Obama actually blamed the Bush tax cuts for the financial meltdown and severe recession. Now that’s a reach. A big reach.

While Mr. Bush made plenty of economic mistakes, his 2003 reductions of marginal tax rates led to more than 8 million new jobs in the next four and a half years. Under Bush, the unemployment rate dropped to 4.6 percent.

And almost all economists agree that the 2007-08 financial meltdown was a housing-bubble and credit event. It had nothing at all to do with cutting taxes.

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From today’s New York Times:

With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical.

Fannie and Freddie amplified the housing boom by buying mortgages from lenders, allowing them to originate even more loans. They grew into behemoths because they lobbied aggressively and played the Washington political game to a T. But after both companies bought boatloads of risky mortgages, they required a federal rescue.

The Treasury’s study on Fannie, Freddie and housing finance must be delivered to Congress by the end of January 2011. In a speech last week, Timothy F. Geithner, the Treasury secretary, told a New York audience that resolving the companies isn’t “rocket science.”

But attaining genuine remedies for our housing finance system could actually be harder than rocket science. That’s because it would require an honest dialogue about the role the federal government should play in housing. It also requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we’ve just lived through.

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Since the early twentieth century, periods of real or perceived national emergency have been “critical episodes” in the growth of government’s size, scope, and power in the United States and in many other countries. Hence, the concise conceptualization: Crisis and Leviathan (the main title of my 1987 book on the growth of government in the United States from the late nineteenth century to the late twentieth century).

In the past century, the first five such critical episodes in the United States were: World War I; the Great Depression; World War II; a multi-faceted set of crises associated with the civil-rights revolution and the Vietnam War, roughly coincident with the presidencies of Lyndon B. Johnson and Richard M. Nixon; and the post 9/11 events associated with the so-called War on Terror and the U.S. attacks on and occupations of Afghanistan and Iraq. We are now amid another such critical episode, which springs from the housing bust that began in 2006, the economic recession that began late in 2007, and the financial debacle that reached its climax in September 2008.

The current troubles are complex and raise a multitude of questions. Many books and articles no doubt will be written to analyze these various issues in scholarly depth and detail, and certainly anything we might say today must be regarded as preliminary, at best. I focus here on a few aspects of the present episode that relate closely to my own research on the growth of government, a field of study to which I have returned again and again over the past thirty years.

I

The current recession has elicited many comparisons with earlier business downturns, especially with the Great Depression. Federal Reserve chairman Ben Bernanke is often described as an expert on the Great Depression who takes its lessons, as he understands them, deeply into account as he formulates and implements Fed policies. Likewise, many other economists have revisited the Great Depression recently in search of lessons applicable to current policy-making. In all of these reflections, the mainstream economics profession in general has distinguished itself by an astonishing superficiality of historical knowledge and lack of theoretical prowess.

The swiftness with which a great many mainstream economists have reverted to the simplistic “vulgar Keynesianism” that had its heyday from the late 1940s to the late 1960s has been nothing short of shocking, given that by the end of the 1970s such old-fashioned Keynesianism seemed to have been completely discredited and superseded in the leading echelons of the mainstream economics profession. Now it has come roaring back.

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Congress and the Administration have now picked their targets for regulatory reform following the long-inflating credit bubble that finally burst in 2008, the aftermath of which still suppresses economic activity here in America as well as the rest of the world.

Commercial banks, investment banks, financial products, derivatives, etc. . . .all were placed in the crosshairs of the big legislative and regulatory guns in Washington and, perhaps, well they should be. One trophy-size culprit, however, seems nowhere to be found on the target lists of the Congressional or Administration grenadiers. Fannie Mae, that publically traded, congressionally created, private enterprise (GSE or government-sponsored enterprise in beltway speak) seems to have totally escaped the purview of the government blame seekers.  Small wonder.

Of all of the bailouts handed over to private banks, investment firms, automobile companies and insurance companies, none have been more outrageous than the bailouts provided to Fannie Mae and it’s first cousin, Freddie Mac.  Although the government very belatedly seized these GSEs, taxpayer money continues to be provided to these hybrid public‑private creations right under our collective noses each and every day.  The Congressional pontificators have focused attention on every miscreant except the one they (or their predecessors) created and which they continue to feed.

Everyone agrees that the overheated housing market created a pricing bubble that was destined, like the San Andreas Fault or Eyjafjalljokull, the volcanic mountain in Iceland, to experience a major blow-up.

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Today the leading Austrian economic think tank, the Ludwig von Mises Institute held a conference at the University Club in Manhattan in which Marc Faber, famed contrarian investor and publisher of the “Gloom, Boom and Doom Report” gave his perspective on the financial crisis and his outlook for the future.

Below are his main points and entertaining quotes:

• Central banks will never tighten monetary policy again, merely print, print, print
• Bubbles used to be concentrated in 1 sector or region in the 19th century, but off of the gold standard this concentration has ended
• “The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere.”
• “Central banks love to see asset prices go up,” and their policy reflects their desperation to perpetuate this
• US housing bubble that Greenspan could not spot (even though he has recently spotted bubbles in Asia) stands in stark contrast to that of Hong Kong in 1997, where prices fell by 70%, yet none of the major developers went bankrupt; this was a result of a system not built on excessive debt like that of the US
• “You have to ask what they were smoking at the Federal Reserve,” during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004
• Over the last couple of years, when the gross increase in public debt has exceeded the gross decrease in private debt, markets have risen, whereas when private debt growth has outpaced public debt growth, markets have tanked
• The next 3-5 years will be highly volatile

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If any further proof is needed that Barney Frank has been completely incompetent in his oversight of the financial services industry, one need look no further than this past week. Just one day after Frank sent a memo to the White House urging the President to reject the attempt by Republicans to include GSE reform in any financial reform bill, Freddie Mac requested an additional government bailout of $10.6 billion to cover losses incurred in the first quarter. Only one day (!) after Frank defended the GSE’s, writing that “as Fannie and Freddie operate today, going forward, there is no loss”.

There is no loss.

Rep. Frank, of course, has a distinguished history of ineptitude when it comes to regulation of the housing industry, and his role in the financial market collapse. But when it comes to avoiding culpability, he is second to no one in his ability to spin a web of deceipt and reinvent history.

“It was Tom DeLay’s fault, he was in charge back then. Republicans were the ones pushing home ownership on the poor. I only advocated for rental housing.”

Lies, demonstrable lies.

But let’s not forget that Frank became chair of the House Financial Services Committee in January 2007, after the Democrats re-took congress. While the housing market decline had already begun, it would be well over a year before the financial crisis really began to accelerate. Fannie and Freddie, in fact, were not placed under federal control until September 2008.

Surely Barney Frank, with his vast intellect and experience, saw these problems developing and was preparing to do everything within his power to reign in the mortgage industry, and stem this crisis, as he assumed his new leadership role. Right?

Source: CSPAN

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While most of the public is consumed by the health care-death-march spectacle, Senators Bob Corker and Chris Dodd are making serious progress on the Senate’s “financial services reform” legislation. The legislation was dead just a couple weeks ago, but Sen. Corker thought he could snag a seat at the grown-up table and stepped forward to ‘cut a deal.’

As is the new DC operating procedure for major legislation, there are almost no firm details on the current language. We know there will be a large new federal bureaucracy, somewhere within government, to provide “consumer protection” for financial products. We know there will be a $50 billion tax on banking customers to provide a permanent bailout fund, or as Sen. Corker would describe it, a “wind-down” fund. Unfortunately, we also know that the bill will do nothing to reform Fannie Mae or Freddie Mac, who continue to drain billions from the U.S. Treasury.

We’re told the Corker-Dodd Bailout Bill is a necessary response to the financial melt-down triggered by the collapse of the housing bubble. But, if it doesn’t take even small steps to reform Fannie and Freddie, then, simply, it isn’t a serious proposal. Its like rebuilding the porch on a house, while ignoring it’s cracked foundation.

Washington politicians would rather ignore this, but the housing bubble was the result of very explicit government policy. Throughout the 90’s and early 2000’s, officials from both parties became addicted to forever pushing homeownership rates higher than the laws of economics would otherwise allow.

If you want to identify the roots of the homeownership-cult among elected officials, fire-up the way-back machine and check out a little report issued by the Federal Reserve Bank of Boston in the early 90’s. Under the leadership of Richard Syron, then-President of the Boston Fed (more on him later), the report was the result of discussion among the bank’s staff and the usual collection of academics and professional activists. It was to make recommendations to the nation’s bankers on addressing alleged discrimination in mortgage lending.

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