During the October 5 Fox News special Saving Our Economy, chief White House
correspondent Brett Baier repeated or failed to challenge numerous false assertions about the
role of affordable housing initiatives in the financial crisis and Democratic responses to the
crisis, including the following: the false suggestion that banks were
pressured under the Community Reinvestment Act (CRA) to lend to unqualified buyers, causing the
mortgage crisis; a repetition of his false suggestion that Rep. Barney
Frank (D-MA) opposed strengthening oversight over Fannie Mae and Freddie Mac; the false claim that congressional
Democrats sought to give $20 billion in taxpayer money to a controversial community organization
during negotiations over legislation to authorize the U.S. Treasury to purchase up to $700
billion in mortgage-backed assets; the false claim that during a House vote
on the bill, Speaker Nancy Pelosi's floor speech resulted in "10 to 20" Republicans deciding to
vote against the bill; and the false claim that Democrats held the majority in the Senate in 2006
and caused a reform bill to "fail[]."
During the report, Amity Shlaes, a former Wall Street Journal columnist and author of
The Forgotten Man: A New History of the Great Depression, claimed of the CRA:
"We want to have everyone be able to buy a house anywhere. We're going to lend to people of all
colors. Nothing wrong with that. We're going to make sure those banks do it, and they don't
discriminate. But the law went overboard. Institutions made loans that they probably didn't want
to make, because they couldn't seem racist." But the suggestion that the financial crisis was
caused by banks lending irresponsibly to comply with the CRA is false. The CRA applies only
to depository institutions -- such as banks and savings and loan associations -- which have been
estimated to have issued approximately 20 percent of subprime mortgages.
Further, a study released earlier this year by a law firm specializing in CRA compliance
estimated that in the 15 most populous metropolitan areas, 84.3 percent of high-cost loans in
2006 were made by financial institutions not governed by the CRA. In fact, Janet Yellen,
president and CEO of the Federal Reserve Bank of San Francisco, stated in a March speech that "studies have shown that the CRA has
increased the volume of responsible lending to low- and moderate-income households"
[emphasis added].
During the Fox News special, Baier further claimed of subprime loans given to low- and
middle-income borrowers, "[A]t the tail end of the Clinton administration, Fannie Mae was told to
substantially increase the percentage of those mortgages in its portfolio." Baier later asserted,
"In April 2001, during the Bush administration's first year, the White House saw danger on the
horizon." Baier went on to discuss legislative efforts to enhance oversight of Fannie Mae and
Freddie Mac, showing Frank's comments from 2003 on the issue. But at no point did Baier or host
David Asman point out Frank's efforts in 2005 and 2007 to pass
legislation in the House to provide greater oversight of Fannie Mae and Freddie Mac. Moreover,
neither Baier nor Asman pointed out that in 2004, the Bush administration
increased Fannie Mae and Freddie Mac's affordable housing goals from 50 percent to 56
percent. Indeed, in a June 10 article, The Washington Post reported
that in 2004, "President Bush's HUD ratcheted up the main affordable-housing goal over the next
four years, from 50 percent to 56 percent."
Moreover, in
Financial Shock, Mark Zandi, chief economist and cofounder of Moody's Economy.com and
reportedly a McCain campaign economic adviser, wrote [Page 151]:
The Clinton administration was especially proud of the rise in home ownership during the 1990s,
particularly among lower income and minority groups. While home ownership rose 7% among white
households during the decade, it increased 13% among African American households and 18% among
Hispanic households. This could not have happened without the regulators' blessing and
encouragement.
President Bush readily took up the homeownership baton at the start of his administration in
2001. Owning a home became one pillar of his "ownership society," a vision in which everyone
would possess a stake in the American economy. For millions, this meant owning their own home. In
summer 2002, Bush challenged lenders to add 5.5 million new minority homeowners by the end of the
decade; in 2003 he signed the American Dream Downpayment Act, a program offering money to lower
income households to help with down payments and closing costs on a first home. Lenders gladly
accepted Bush's challenge.
To reinforce this effort, the Bush administration put substantial pressure on Fannie Mae and
Freddie Mac to increase their funding of mortgage loans to lower-income groups. Both Fannie and
Freddie had been shown to have substantial problems during the corporate accounting scandals in
the early 2000s, and both were willing to go along with any request from the administration. [The
Office of Federal Housing Enterprise Oversight] OFHEO set aggressive goals for the two giant
institutions, which they met in part by purchasing subprime mortgage securities. By the time of
the subprime financial shock, both had become sizable buyers of the Aaa tranches of these
securities.
In addition, Baier stated, "Fannie and Freddie spread around the campaign contributions, too,"
and later asserted, "For the record, Republican presidential nominee John McCain took $21,550."
But a September 9 New York Times article
reported that McCain accepted at least $169,000 from "directors, officers and lobbyists"
connected to Fannie Mae and Freddie Mac during the 2008 election cycle, and Obama has received
"smaller amounts" from similar officials. The Times reported that the Center for
Responsive Politics said Obama "received $122,850, of which $101,150 was from Fannie Mae."
During the Fox broadcast, Baier also failed to challenge an assertion by Fox News political
contributor and former House Speaker Newt Gingrich (R-GA) that during the congressional
debate over the bailout bill, Democrats "wanted, for example, to have $20 billion ultimately go
to ACORN and other left-wing groups out of tax money." In fact, neither the
draft proposal nor the
final version of the bill contained any language mentioning ACORN (Association of Community
Organizations for Reform Now). Gingrich's false claim misrepresented a provision --
since removed -- that would have directed 20 percent of any profits realized on troubled
assets purchased under the plan into two previously established funds, the Housing Trust Fund and
the Capital Magnet Fund, which would be distributed through block grants to the states and
through a competitive bidding process, respectively.
Gingrich further claimed of the initial House bill -- without challenge -- "Speaker Pelosi gave a
speech that was very different from her prepared text, and I think it was designed to appease her
left, which was mad at her for being for the bill. And if you were a conservative Republican
trying to talk yourself into voting for this bill, Pelosi gave you every possible excuse not to.
And I suspect they lost 10 to 20 votes." Baier did not point out that Fox News senior House
producer Chad Pergram reported nearly an hour before
Pelosi's speech began that he was "hearing from the Republican side of the aisle, they may
only have 40 to 60 of their members" supporting the bill, a number that Pergram stated "leaves us
very short there." Moreover, several Republican House members dismissed as untrue the claim that
they and their colleagues opposed the bill for any reason other than personal conviction.
Moreover, Baier stated, "In 2006, Senate Republicans introduced another bill to deal with the
mushrooming problem," later asserting, "But once again, the votes went along party lines:
Republicans for, Democrats against. With the Democrats in the majority, the bill failed." In
fact, Republicans were in the majority in 2006.
From the October 5 Fox News special Saving Our Economy: What's Next?:
BAIER: And the risks kept rising over the years, in part because the federal government wanted it
that way. In particular there was the Community Reinvestment Act, or CRA, passed in 1977 during
Jimmy Carter's first year in office. The law increased oversight of financial institutions to
ensure that they were giving credit to low-income families so that more people would have the
chance to own homes.
SHLAES: We want to have everyone be able to buy a house anywhere. We're going to lend to people
of all colors. Nothing wrong with that. We're going to make sure those banks do it, and they
don't discriminate. But the law went overboard. Institutions made loans that they probably didn't
want to make, because they couldn't seem racist.
You might not be allowed to do things you were going to do -- regular course of business, such as
merge with another bank. It empowered these community groups, who would then bully the banks.
ACORN bullied the banks.
BAIER: Indeed, ACORN, the Association of Community Organizers for Reform Now, would before long
come up with a new tactic: challenging a thrift merger in Illinois, claiming they didn't make the
kind of loans that ACORN felt were required under the CRA. The bank complained that such loans
would be financially irresponsible.
A young community organizer named Barack Obama worked closely with the ACORN activists behind the
new strategy. And that strategy worked. ACORN prevailed in court, and soon credit standards were
being lowered across the country.
While at first Fannie actually resisted buying up some of those shaky mortgages, at the tail end
of the Clinton administration, Fannie Mae was told to substantially increase the percentage of
those mortgages in its portfolio.
[...]
BAIER: In April 2001, during the Bush administration's first year, the White House saw danger on
the horizon. In their budget request for the following year, the administration recognized Fannie
Mae and Freddie Mac were, quote, "a potential problem," and noted that if either were in trouble,
it could, quote, "cause strong repercussions in financial markets." But the markets had reeled
when the dot-com bubble burst, and then they were hit hard by 9-11. Few wanted to hear gloomy
talk about what seemed to be the one bright spot in the economy: the boom in real estate prices.
By 2002, one powerful voice, The Wall Street Journal editorial page, was starting to
send up flares.
GIGOT: When housing prices start to go up 10, 15, 20 percent a year. You know that that just
can't last.
BAIER: Paul Gigot is the editorial page editor of the Journal, which was acquired by
News Corp., the parent company of Fox News, in 2008.
GIGOT: You add that to these institutions Fannie Mae and Freddie Mac, which channeled so much
money from abroad into housing, because investors could channel some of their savings into these
mortgage-backed securities where they got a really nice deal, because they got a nice yield. So
they loved channeling money into these instruments, and that flowed right into the housing
market.
BAIER: And few in Washington, on Wall Street, and along Main Street wanted to hear about the
risks.
GIGOT: They had so much political support, both in Washington because the members of Congress
were bathed in their campaign contributions, and they loved all that support from Fannie and
Freddie, and then from Wall Street as well, because Wall Street could sell those mortgage-backed
securities -- guaranteed by Fannie Mae, guaranteed by the taxpayer -- and they made terrific
fees.
BAIER: Gigot says that when the Journal tried to question what was happening in the
mortgage market, he ran right into what he calls a Fannie Mae-Freddie Mac buzz saw.
GIGOT: I just remember one episode regarding the former CEO of Countrywide Financial, Angelo
Mozillo, and he got right into my face and started yelling at me and said, "You don't know what
you're talking about. You don't understand the mortgage market. You are in the pockets of the
competitors of Fannie Mae and Freddie Mac," and went on like that for a while.
So it is an illustration of the degree to which people who were a part of this mania didn't want
anybody to say, "Are you sure this is the right way to go?"
WALLISON: They were thugs, and where you crossed them in any way, you got into trouble.
BAIER: And you didn't have to be a journalist, says Peter Wallison, the former general counsel of
the Treasury Department.
WALLISON: Well, I'm sure congressmen and senators were very afraid. There was a real question in
my mind whether Congress controlled Fannie Mae, or Fannie Mae controlled Congress.
BAIER: A question underscored in 2003. The Bush administration nevertheless decided to take on
the mortgage giants. It recommended significant regulatory changes. As then-Treasury Secretary
John Snow told the House Financial Services Committee, more supervision was needed for Fannie Mae
and Freddie Mac, known in Washington terms as government-supported enterprises, or GSEs.
SNOW: We need a strong, world-class regulatory agency to oversee the prudential operations of the
GSEs.
FRANK: I think we see entities that are fundamentally sound financially, and --
BAIER: Democratic Representative Barney Frank was then the ranking member of the Financial
Services Committee.
FRANK: The more pressure there is there, then the less I think we see in terms of affordable
housing.
BAIER: Affordable housing. That was the primary concern of Democrats, even in the face of
increasingly dire warnings about Fannie and Freddie.
WALLISON: The affordable housing that Congress really wanted was the housing that Democrats
represented, and when Fannie and Freddie supported affordable housing by buying subprime and
similar kinds of weak loans, they got a lot of political support from Congress.
BAIER: In the meantime, Fannie Mae and Freddie Mac had begun cooking their books. That made the
situation seem less risky than it actually was. It also allowed Fannie and Freddie executives to
keep pocketing huge bonuses for their lending efforts. They were finally caught in 2004.
Fannie Mae chairman Franklin Raines, who had been appointed by President Clinton, stepped down.
The Securities and Exchange Commission is still investigating the accounting issues.
WALLISON: The accounting scandals were very important, because what they did was convince some
people -- and some important people -- that these were companies that really had to be watched.
They were a threat. And one of those people was the chairman of the Federal Reserve Board, Alan
Greenspan.
GREENSPAN: If we fail to strengthen GSE regulation, we increase the possibility of insolvency and
crisis. We put at risk our ability to preserve safe and sound financial markets in the United
States.
BAIER: But Fannie Mae and Freddie Mac still had powerful defenders. For instance, Democratic
Senator Charles Schumer of New York.
SCHUMER: Things are good in the housing market. Why are people entertaining radical change?
WALLISON: Chuck Schumer would go to an area of the state of New York. He would get Fannie Mae or
Freddie Mac to make loans in that area. What they knew was that political support from a Chuck
Schumer was a very important thing for them. That would protect their privileges in Congress.
BAIER: Fannie and Freddie spread around the campaign contributions, too. Democratic Senator
Christopher Dodd of Connecticut had been the biggest recipient of money from Fannie Mae and
Freddie Mac for the past 20 years: more than $165,000.
And despite having been in the Senate just three-plus years, number two on that list: Barack
Obama, with more than $126,000. The Republican who got the most donations: Utah Senator Robert
Bennett, just under $108,000. For the record, Republican presidential nominee John McCain took
$21,550.
Fannie and Freddie's defenders stepped up big time in 2005, when the Bush administration renewed
its call for action.
SNOW: These large portfolios, unchecked in their growth over the last decade or so, pose a real
problem.
BAIER: The Senate Banking Committee adopted strong legislation, which would have stopped Fannie
and Freddie from acquiring these bad mortgages. All of the Republicans on the committee voted for
it. All of the Democrats, including now-Chairman Chris Dodd, voted against. But the Democrats
were able to block a vote by the whole Senate.
WALLISON: None of the Democrats would support the bill that came out of the Senate Banking
Committee. So a really tough bill that in 19 -- that in 2005 could have actually prevented a lot
of the problems we're seeing today probably would have prevented the collapse of Fannie and
Freddie.
BAIER: In 2006, Senate Republicans introduced another bill to deal with the mushrooming problem.
One of its sponsors: John McCain.
WALLISON: McCain made a statement on the floor of the Senate, saying it was necessary to adopt
this bill. He's always been an opponent of what he called corporate welfare, and Fannie and
Freddie were, I would say, the poster children for corporate welfare.
BAIER: But once again, the votes went along party lines: Republicans for, Democrats against. With
the Democrats in the majority, the bill failed.
As 2006 turned into 2007, the housing bubble was starting to burst. Bad mortgages began to
default, and as the defaults started to rise, the entire portfolio of Fannie Mae and Freddie Mac
was questioned. And with the entire structure headed for collapse, plenty of politicians have
come around to the view that GSEs were a major contributor to the crisis, especially after major
institutions that invested heavily in their subprime securities began to go under.
SEN. MEL MARTINEZ (R-FL): A lot of what we're dealing with today had its origins in Fannie Mae
and Freddie Mac.
SEN. ELIZABETH DOLE (R-NC): The mismanagement of Fannie Mae and Freddie Mac, which was made
possible by weak oversight and little accountability.
SEN. CHRISTOPHER DODD (D-CT): What is tragic and lamentable is that the ensuing calamity was
entirely foreseeable and preventable.
[...]
BAIER: Treasury Secretary Henry Paulson came up with a plan where the government would back up
$700 billion in mortgage-related assets, but the devil was going to be in the details. The
administration argued that a bailout was inevitable.
PAULSON: And it may make you angry -- it makes me angry -- when you ask about taxpayers being on
the hook. Guess what? They are already on the hook.
BAIER: But there were quite a few House Republicans who did not entirely agree. For one thing,
they balked at the idea of giving the government -- even a Republican treasury secretary -- a
blank taxpayer check without an independent body looking over his shoulder. For another thing,
they had strong objections to some goodies that the Democrats had stuck in the bill.
GINGRICH: So they wanted, for example, to have $20 billion ultimately go to ACORN and other
left-wing groups out of tax money.
BAIER: President Bush appeared on national television to lobby for the bailout.
[...]
BAIER: By the end of the weekend, it looked like they'd hammered out a deal, all ready to go on
Monday, September 29. Then, House Speaker Nancy Pelosi made this speech.
PELOSI: Seven hundred billion dollars, a staggering number but only a part of the cost of the
failed Bush economic policies to our country.
GINGRICH: Speaker Pelosi gave a speech that was very different from her prepared text, and I
think it was designed to appease her left, which was mad at her for being for the bill. And if
you were a conservative Republican trying to talk yourself into voting for this bill, Pelosi gave
you every possible excuse not to. And I suspect they lost 10 to 20 votes.
CANTOR: Right here is the reason I believe this vote failed, and this is Speaker Pelosi's speech
that frankly struck the tone of partisanship that frankly was inappropriate in this discussion.
BAIER: The House rejected the emergency act by a vote of 228 to 205. Republicans opposed the
measure 133 to 65, but Democrats were far from unified themselves, only supporting it 140 to 95.
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