Washington & Wall Street: Watt Nomination Is Chicago-Style Crony Capitalism
Most Americans did not notice when President Barack Obama tapped Representative Melvin L. Watt (D-NC) to become the new director of the Federal Housing Finance Agency. Created in 2008 to be an independent “world class regulator” for housing giants Fannie Mae and Freddie Mac, FHFA has yet to have a director confirmed by the Senate.
The appointment of Mel Watt to replace interim director Ed DeMarco at FHFA illustrates how President Obama really operates. With trusted advisers like Chicagoan Valerie Jarrett calling the shots on cabinet appointments, the Watt choice makes a certain amount of sense. For months, members of Congress like Elizabeth Warren (D-MA) tried to bully Ed DeMarco to embrace loan forgiveness, but instead DeMarco followed the law. The acting FHFA head is protected by civil service rules, so he cannot be intimidated by either Warren or the White House.
Even “independent” agency heads are expected to report up to the Obama White House and must support the Democrat agenda to restart federal housing subsidies. Mel Watt meets those criteria and more. He not only supports giving taxpayer subsidized loans to people who really cannot afford to own homes, but he also wants to start forgiving principal on loans held by private investors--even loans currently performing.
This is not to suggest that the Watt appointment is well-considered, even in political terms. Getting Watt confirmed by the Senate is a long shot. Suffice to say that the NC congressman took his fair share of money from Fannie Mae, both for himself and the Congressional Black Caucus. North Carolina Republican Richard Burr supports Watt’s nomination, but most Senate Republicans likely will not.
“I could not be more disappointed in this nomination,” declares Senator Bob Corker (R-TN), a member of the Senate Banking Committee. The Center for Public Integrity notes: “Rep. Mel Watt has plenty of friends in the financial services industry: [he] has received more campaign money from financial interests than any other industry or special interest.”
If you understand that the state Attorney Generals’ settlement with the big banks over foreclosure abuse was about raising money for “aspiring governors,” then the logic of a federal program to give home owners debt forgiveness becomes clear. Read Bob Kuttner, “The Debt We Should Not Pay,” in The New York Review of Books for the full agenda. For Democrats, having a loyal operative like Watt at FHFA supports a larger plan to use debt forgiveness and easy credit to buy support from voters--as well as powerful Wall Street and corporate supporters.
Despite some excellent exposes, like “Reckless Endangerment” by Gretchen Morgenson and Joshua Rosner, most Americans still do not understand that the roots of the housing crisis come from social engineering by the affordable housing lobby and Congress. Through President Bill Clinton’s “great leap forward” to boost home ownership in the 1990s, Washington and Wall Street facilitated the subprime crisis a decade later. Look at the loan-level data just released by Freddie Mac and tell me that the housing agencies were not enablers of low money down, low credit quality subprime loans.
But Democrats like Mel Watt, for the most part, don’t care about data. They talk about how “profitable” Fannie and Freddie are today, but ignore tens of billions worth of unrealized losses on bad loans and property still on the books. When you show the Children of the New Deal the data which proves that low or no money down loans have a far greater probability of default, they don’t care. We’ll just forgive the loans later, they say. It’s all about growth today.
By the rules of crony capitalism Chicago style, spending tax dollars by making bad loans is an essential part of building the Democratic electoral base for the long term. This means debt relief for consumers and subsidies for deserving Democrat-leaning businesses, like the hedge funds buying Fannie and Freddie preferred securities. If you think of Mel Watt as the heir to Jimmy Johnson, the disgraced former CEO of Fannie Mae, then you’ll get the idea.