On the Fox News special Saving Our Economy, Bret 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.
During the October 5 Fox News special Saving Our Economy, chief White House correspondent Bret 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.”
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.
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.