Well, at least we now know why the Fed & the Treasury Dept are spending money they don’t have.
It seems that after the 1987 crash on Wall Street, Goldman Sachs went to Dodd and asked for legislation to protect them should it happen again. Dodd bent over like a good paid politician and made sure the corrupt bank bail-out legislation was added in at the last minute so that it went unnoticed except to those that knew:
There is also a question about the roots of the crisis: Did investment banks take greater risks in the past two decades because they knew the Fed could rescue them?
The 1991 legislation, authored by Sen. Christopher J. Dodd (D-Conn.), was requested by Goldman Sachs and other Wall Street firms in the wake of the 1987 market crisis, and it would save some of them a generation later.
I have a hard time believing that Dodd didn’t know of the implications that this type of unconstitutional legislation would bankrupt the enire nation because of the sinister way in which it was slid into the bill:
On the day before Thanksgiving in 1991, the U.S. Senate voted to vastly expand the emergency powers of the Federal Reserve.
Almost no one noticed.
The critical language was contained in a single, somewhat inscrutable sentence, and the only public explanation was offered during a final debate that began with a reminder that senators had airplanes to catch. Yet, in removing a long-standing prohibition on loans that supported financial speculation, the provision effectively allowed the Fed for the first time to lend money to Wall Street during a crisis.
Dodd, at the time chairman of the securities subcommittee of the Senate Banking, Housing and Urban Affairs Committee, agreed to insert the language into a bill whose primary purpose was to reform the Federal Deposit Insurance Corp., which guarantees commercial bank deposits.
Talk about a safety net! No wonder Dodd and Frank didn’t want the Bush regulations to go anywhere:
During a meeting to discuss the bill’s final language, a representative of the Federal Reserve was asked to comment. Donald L. Kohn, then the director of the Fed’s Division of Monetary Affairs, said the agency had no objections, according to people in attendance that day.
The Fed has extensive regulatory authority over commercial banks, to keep them from needing its safety net. But after Dodd’s language passed into law, the Fed did not seek new regulatory authority over investment banks, nor did Congress move to provide new authority.
Instead, over the next two decades, federal officials would emphasize that investment banks had an incentive to be cautious because they were operating without a safety net.
read entire article here for the complete story
This is outrageous!!! Time for more calls to DC come Monday and insist on the resignations of Dodd and Frank as the chairman of any financial committee!!!
UPDATE: WaPo Sept 12, 2008: Where Was Sen. Dodd? Playing the Blame Game On Fannie and Freddie
. . . from late 2002 through 2007: Starting in 2002, White House and Treasury Department economic policy staffers, with support from then-Chief of Staff Andy Card, began to press for meaningful reforms of Fannie, Freddie and other government-sponsored enterprises (GSEs).
The crux of their concern was this: Investors believed that the GSEs were government-backed, so shouldn’t the GSEs also be subject to meaningful government supervision?
President Bush was receptive to reform. He withheld nominees for Fannie and Freddie’s boards — a presidential privilege. While it would have been valuable politically to use such positions to reward supporters, the president put good policy above good politics.
The administration did not accept half-measures. In 2005, Republican Mike Oxley, then chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddie’s lobbyists set out to weaken it. The bill was rendered so toothless that Card called Oxley the night before markup and promised to oppose it. Oxley pulled the bill instead.
During this period, Sen. Richard Shelby led a small group of legislators favoring reform, including fellow Republican Sens. John Sununu, Chuck Hagel and Elizabeth Dole. Meanwhile, Dodd — who along with Democratic Sens. John Kerry, Barack Obama and Hillary Clinton were the top four recipients of Fannie and Freddie campaign contributions from 1988 to 2008 — actively opposed such measures and further weakened existing regulation.
The president’s budget proposals reflected the nature of the challenge. Note the following passage from the 2005 budget: Fannie, Freddie and other GSEs “are highly leveraged, holding much less capital in relation to their assets than similarly sized financial institutions. . . . A misjudgment or unexpected economic event could quickly deplete this capital, potentially making it difficult for a GSE to meet its debt obligations. Given the very large size of each enterprise, even a small mistake by a GSE could have consequences throughout the economy.”
That passage was published in February 2004. Dodd can find it on Page 82 of the budget’s Analytical Perspectives.
click HERE for the full article and outline of events that lead up to the collapse of the markets