Why we can't have nice things anymore

Reading Confidence Men where Ron Suskind does a fantastic job explaining the making of Obama's economic policy.  Some policy makers and advisers come out looking like heroes, some end up looking like villains, but most appear dangerously uninformed.    Here is Barney Frank in 2003 before Fannie and Freddie blew themselves up from buying mortgage backed securities to get around their solid underwriting standards that was essential if they were to have govt backing:    

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f%3A92231.wais

I think it is important that the variety of groups in our country who care about housing be invited, because that is my major focus here, as it has been during my service on this committee.
I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury.

I must say we have an interesting example of self-fulfilling prophecy. Some of the critics of Fannie Mae and Freddie Mac say that the problem is that the Federal Government is obligated to bail out people who might lose money in connection with them. I do not believe that we have any such obligation. And as I said, it is a self-fulfilling prophecy by some people.

The combination of lax regulation and government backing made these two a ticking-time-bomb.  The question wasn't if they'd explode, but when and how much it would cost.   The current figure? $154 billion plus most of what investors had in them.

Richard Baker, chairman of a congressional subcommittee on capital markets comes out like a good guy in the same hearing:

Recent developments have highlighted the extremely large, highly leveraged nature of these enterprises and the risks they are managing. Now, inappropriate or not, I find the IMF's concern about capital adequacy rather unique, but if they now have this concern, certainly the Congress should share it. To provide any level of assurance to taxpayer protection, we must have world-
class regulatory capability. 

Let me say in defense of OFHEO, it has been dramatically underfunded since its creation in 1992, and this lack of support translates into lack of resources and capabilities to analyze the world's most sophisticated financial institutions. The regulator has not only been outmanned, it has been outlobbied. But those observations are not sufficient to explain why OFHEO has taken 10 years to develop a capital stress test and being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. 

This is not world-class regulatory work. There are too many unanswered questions, the stakes, too high. It is up to the committee to take action needed to get appropriate answers. Taxpayers need to be assured. Potential homeowners need to have access to affordable homeownership opportunities. And contrary to the view of many, this effort will lead to enhanced mission compliance and opportunities for low-income and affordable housing. 

I am of the opinion, and have been of the opinion, these enterprises do not meet the satisfactory minimum level in providing homeownership opportunities to minorities and low-
income individuals. We cannot let protest in the past keep us from doing what is right in the present. It is time we create a strong, independent regulator, independently funded with all
the powers necessary to take on the task. I believe the Secretaries' testimony is pivotal in setting
out the initial step the committee must take. It is not time for additional reflection. I have been criticized in the past for having too many hearings and recommended legislative
approaches. Now it is time to act and put this chapter behind us and move on to doing what is right for our American economy.

Now Ohio Republican congressman Bob Ney who didn't run for re-election after being implicated with the Abramoff scandal:

I am also interested to hear what our witnesses think should be done regarding the capital requirements for Freddie Mac and Fannie Mae, if anything at all. Personally, I believe the minimum requirements Congress has mandated for GSEs have done a good job of setting a strong safety and soundness standard. I think it would be a mistake for this committee to change those requirements into a regulatory reform, massive bill. Likewise, I think we should allow the newly required risk-based capital requirement to take hold before we begin questioning it. I know there are many critics of OFHEO, obviously, and its risk-based capital regulation; however, we should allow a decent amount of time to evaluate its effects before we begin to completely dismantle it.