Sunday, September 21, 2008
Cuomo For SEC? WTF?
Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.
What he did is important—not just because of what it tells us about how we got in this hole, but because of what it says about New York's attorney general, who has been trying for months to don a white hat in the subprime scandal, pursuing cases against banks, appraisers, brokers, rating agencies, and multitrillion-dollar, quasi-public Fannie and Freddie.
It all starts, as the headlines of recent weeks do, with these two giant banks. But in the hubbub about their bailout, few have noticed that the only federal agency with the power to regulate what Cuomo has called "the gods of Washington" was HUD. Congress granted that power in 1992, so there were only four pre-crisis secretaries at the notoriously political agency that had the ability to rein in Fannie and Freddie: ex–Texas mayor Henry Cisneros and Bush confidante Alfonso Jackson, who were driven from office by criminal investigations; Mel Martinez, who left to chase a U.S. Senate seat in Florida; and Cuomo, who used the agency as a launching pad for his disastrous 2002 gubernatorial candidacy.
With that many pols at the helm, it's no wonder that most analysts have portrayed Fannie and Freddie as if they were unregulated renegades, and rarely mentioned HUD in the ongoing finger-pointing exercise that has ranged, appropriately enough, from Wall Street to Alan Greenspan. But the near-collapse of these dual pillars in recent weeks is rooted in the HUD junkyard, where every Cuomo decision discussed here was later ratified by his Bush successors.
And that's not an accident: Perhaps the only domestic issue George Bush and Bill Clinton were in complete agreement about was maximizing home ownership, each trying to lay claim to a record percentage of homeowners, and both describing their efforts as a boon to blacks and Hispanics. HUD, Fannie, and Freddie were their instruments, and, as is now apparent, the more unsavory the means, the greater the growth. But, as Paul Krugman noted in the Times recently, "homeownership isn't for everyone," adding that as many as 10 million of the new buyers are stuck now with negative home equity—meaning that with falling house prices, their mortgages exceed the value of their homes. So many others have gone through foreclosure that there's been a net loss in home ownership since 1998.
Read the whole piece: Making allowances for Barrett's ideological leanings, the article is well-reported.
Now, John McCain might not know all the intricacies of the financial crisis, but, of all the possible individuals out there to consider to head the Securities & Exchange Commission, the first person that comes to McCain's mind is Andrew Cuomo?
Oh, and considering Andrew Cuomo as possible head of the SEC in a McCain administration is also problematic given that, last week, McCain's campaign launched two ads linking Obama's relationship to two former Fannie Mae executives -- Franklin Raines and Jim Johnson!
UPDATE: Welcome, Instapundit and Politico readers! To underscore the point made above, the most troubling aspect of McCain's Cuomo reference isn't merely the glib nod toward "bipartisanship" and Washington-focused "respect." Instead, it's that McCain didn't seem to consider the HUD-Fannie/Freddie connection. Sure, he might not know the specific details of what Cuomo may have done in the late-'90s. But, you have to know that HUD has basic oversight of those agencies. Consider: HUD -- beginning in the Clinton-Cuomo era and continuing into the Bush years -- may have been far more culpable in creating the conditions for the current crisis than anything the SEC has done under Chris Cox. But McCain is suggesting replacing Cox with Cuomo. Unbelievable. No wonder George Will said Sunday (before the "60 Minutes" piece aired), "John McCain showed his personality this week, and it made some of us fearful."