On January 28, Fox News host Glenn Beck purported to explain the origins of the financial crisis but instead made several false claims. Beck misinformed his viewers on the difference between institutions that provide student loans and those that purchase existing home loans, his own previous comments about the financial bailouts, and the Federal Reserve's regulatory role.
Beck falsely claimed Fannie Mae “does student loans”
Beck: Fannie Mae and Sallie Mae are “who the government uses” to “give everybody [student] loans.” During the segment, Beck asserted:
BECK: Oh, by the way, you know the president? He talked about, you know, giving everybody student loans? You know, and taking care of that, last night? You know who the government uses to handle all that money and give everybody loans? Yeah, Fannie Mae and Freddie Mac. It's going to turn out well, don't you think?
Beck later clarified:
BECK: By the way, because we had an argument in the break -- Fannie does student loans, Freddie does not, but Fannie does, and Sallie [Mae] does. But, I just -- the reason why I lump them all together is because mom, dad, child: I mean, it's the same stuff.
Not “the same stuff” : Fannie and Freddie are GSEs that deal in mortgage lending; Sallie is a private corporation that provides student loans
Fannie and Freddie purchase existing home loans; Sallie provides student loans. Fannie Mae and Freddie Mac are government-sponsored entities that operate in the home mortgage market, not in student loans. The SLM corporation, or Sallie Mae, is a publically traded for-profit corporation that offers several types of educational loans. Sallie Mae terminated its government charter and completely privatized in 2004. As it notes on its website: “SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.” Student loans awarded through the Federal Family Education Loan (FFEL) program can be administered through the Department of Education's William D. Ford Direct Loan program or through any private lender, including Sallie Mae.
Beck again falsely claimed he didn't want “greedy bankers [...] to get the money in the first place”
Beck again falsely claimed he opposed bank bailouts. Beck also asserted of the “greedy bankers” who got bailout money: “I didn't want them to get the money in the first place.” In fact, in September 2008, Beck called for a bailout bigger than $700 billion, but subsequently claimed he “hated” former President Bush for starting the bailouts. Beck previously acknowledged supporting the bailout on the December 2, 2009, edition of his show.
Beck falsely suggested Fed “job” before financial crisis included overseeing Goldman Sachs
Beck: Greenspan's advisers were supposed to “oversee things like Goldman Sachs. ... That's their job.” From the January 28 edition of Fox News' Glenn Beck:
BECK: Ask anyone on Earth and they'll tell you the biggest fat cats on Wall -- the Wall Street bankers, the biggest fish in that evil sea, is Goldman Sachs. They're the worst of the worst.
BECK: Whose job was it to protect this before it all melted down? The Federal Reserve. See, that's their job. Their job is to protect the economy. Well, what were they doing at the time? Well, they were working with this guy. And they were lowering rates; they were making it easier to get money -- making it easier. They took money and make it less cheap, made it more enticing, and they gave it to these people and they gave it to these people. Got it? All the while, Alan Greenspan is on record blaming China. What he's saying is it's China, it's China, it's China.
Renowned economist Anna Schwartz said there has never been a subprime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for. Well, he had to have some pretty good advisers around, right? I mean, Alan Greenspan, he's no dummy. Greenspan had a bunch of advisers. He does. He has a bunch of people. They have a bunch of chairs. They have 12 Fed chairs all around the country, and really smart people sit in these Fed chairs and they oversee things like Goldman Sachs. They oversee Citigroup or Bank of America. That's their job.
In fact, the guy who sat in one of these chairs, the Fed chair, the New York Fed chair, it was his job under Alan Greenspan to watch these guys. To make sure that everything was on the up and up. Make sure nothing is wrong. The Fed's only job is to stand as a sentinel to guard against nefarious bankers.
In fact, the Fed had no authority to regulate Goldman until after financial crisis hit
Goldman sought Fed regulation after financial crisis because “regulation provides its members with full prudential supervision.” The Federal Reserve has regulatory and supervisory responsibilities over commercial banks:
In addition to monetary policy responsibilities, the Federal Reserve Board has regulatory and supervisory responsibilities over banks that are members of the System, bank holding companies, international banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member banks, and the U.S. activities of foreign-owned banks.
While the Federal Reserve had regulatory authority over banks, before the financial crisis, Goldman Sachs was an investment bank and not subject to Fed regulations. Goldman announced its conversion to a bank holding company on September 21, 2008 -- after the financial crisis became clear. In announcing its conversion, Goldman officials explicitly cited the benefits of Federal Reserve oversight as a reason for the move:
In recent weeks, particularly in view of market developments, Goldman Sachs has discussed with the Federal Reserve our intention to be regulated as a Bank Holding Company. We understand that the market views oversight by the Federal Reserve and the ability to source insured bank deposits as providing a greater degree of safety and soundness. We view regulation by the Federal Reserve Board as appropriate and in the best interests of protecting and growing our franchise across our diverse range of businesses.
“When Goldman Sachs was a private partnership, we made the decision to become a public company, recognizing the need for permanent capital to meet the demands of scale. While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding,” said Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs. “We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources.”
NY Times: Goldman, Morgan Stanley acknowledged model was “too risky” in seeking “far greater regulation” under Fed. In a September 22 article, The New York Times reported: “Goldman Sachs and Morgan Stanley, the last big independent investment banks on Wall Street, will transform themselves into bank holding companies subject to far greater regulation, the Federal Reserve said Sunday night, a move that fundamentally reshapes an era of high finance that defined the modern Gilded Age.” The article continued:
The firms requested the change themselves, even as Congress and the Bush administration rushed to pass a $700 billion rescue of financial firms. It was a blunt acknowledgment that their model of finance and investing had become too risky and that they needed the cushion of bank deposits that had kept big commercial banks like Bank of America and JPMorgan Chase relatively safe amid the recent turmoil.
It also is a turning point for the high-rolling culture of Wall Street, with its seven-figure bonuses and lavish perks for even midlevel executives. It effectively returns Wall Street to the way it was structured before Congress passed a law during the Great Depression separating investment banking from commercial banking, known as the Glass-Steagall Act.
By becoming bank holding companies, the firms are agreeing to significantly tighter regulations and much closer supervision by bank examiners from several government agencies rather than only the Securities and Exchange Commission. Now, the firms will look more like commercial banks, with more disclosure, higher capital reserves and less risk-taking.