Mike Oxley – Another Congressman Trying to Lie His Way Out of Blame for the Mortgage Crash
Posted by iusbvision on October 5, 2008
Former Republican Representative Mike Oxley shares some responsibility for the mortgage crisis and he is trying to lie his way out of his role in what appears to be an attempt to preserve his legacy and his future income.
Oxley has a mixed record, and as we have reported before, to his credit he did try to end the corruption with Fannie Mae and Freddie Mac and he did try to get some more effective oversight of it. We wrote about the mortgage crisis in detail (links below).
So what did Representative Oxley do? To answer that question we first have to go back in time just a litle bit.
He co-wrote the now infamous Sarbanes-Oxley law which was a “response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of the affected companies collapsed, shook public confidence in the nation’s securities markets. Named after sponsors Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH)”.
The law had some major unintended consequences. While it did do some good such as introducing criminal penalties for executives who commit fraud. It was too costly to administrate and yielded limited results. Some of the latest corporate institutions covered by that law crashed and the Sarbanes-Oxley law not only failed to prevent it, it actually made things WORSE.
How did it make things worse you ask? The non-indexed mark to market accounting rule.
What it does, according to federal accounting rules, is artificially lower the value of an asset or security that has lost value and artificially inflates an asset’s or security’s value when the market is going up. So when these mortgage securities crashed companies had to say they were worth nothing (because no one wanted to buy them) in spite of the fact that there is a house there that has some value. This problem was a real factor in why things crashed so quickly because it lowered the liquidity rating and solvency rating of those assets artificially.
When the housing market was going up the companies holding them had their rating inflated by them, making it all look dandy on paper and when they crashed they had their rating set artificially low and the company fell below solvency standards.
Former House Speaker Newt Gingrich and many business leaders and economists asked to have this rule fixed; no one in government listened. Several analysts have stated that SEC Chairman Chris Cox could have changed this rule with the flexibility included in the bill, but in spite of the calls to fix this rule he enforced it as it was.
Instead of just owning up to a mistake, an unintended consequence, and not pushing to fix this rule when he had the chance, Oxley is now lying about what happened to the mortgage industry. And they aren’t very good lies either because after about two hours of public records searching I was able to debunk his story easily.
In the September 9, 2008 Financial Times Oxley said this:
Instead, the Ohio Republican who headed the House financial services committee until his retirement after mid-term elections last year, blames the mess on ideologues within the White House as well as Alan Greenspan, former chairman of the Federal Reserve.
The critics have forgotten that the House passed a GSE reform bill in 2005 that could well have prevented the current crisis, says Mr Oxley, now vice-chairman of Nasdaq.
He fumes about the criticism of his House colleagues. “All the handwringing and bedwetting is going on without remembering how the House stepped up on this,” he says. “What did we get from the White House? We got a one-finger salute.”
The House bill, the 2005 Federal Housing Finance Reform Act, would have created a stronger regulator with new powers to increase capital at Fannie and Freddie, to limit their portfolios and to deal with the possibility of receivership.
Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration.
Adamant that the only solution to the problems posed by Fannie and Freddie was their privatisation, the White House attacked the bill. Mr Greenspan also weighed in, saying that the House legislation was worse than no bill at all.
“We missed a golden opportunity that would have avoided a lot of the problems we’re facing now, if we hadn’t had such a firm ideological position at the White House and the Treasury and the Fed,” Mr Oxley says.
Folks, the record shows that almost all of that is simply not the case.
1. Oxley reached out to Barney Frank he says..
Misleading – Frank voted no and tried to block the efforts to pass the legislation in the House and most Democrats voted no as well. In 2005 the Republicans didn’t need Democrats to pass a bill in the House but did need them to pass anything in the Senate.
2. Oxley says that Alan Greenspan opposed the reforms.
Lie – you can read Greenspan’s Congressional testimony for yourself HERE and HERE and we wrote about it HERE. Greenspan was very much in favor of the new Republican proposed regulation to fix the old regulation that was being skirted.
Alan Greenspan testimony – If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis. … As I concluded last year, the GSEs need a regulator with authority on a par with banking regulators, with a free hand to set appropriate capital standards, and with a clear and credible process sanctioned by the Congress for placing a GSE in receivership, where the conditions under which debt holders take losses are made clear.
3. Oxley says that the White House and the Treasury opposed reforms.
Lie. The White House and the Treasury pushed Congress many many times to get these reforms passed and each attempt is listed HERE. Excerpts:
2001 April:The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”
2002 May:The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)
2004 June:Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)
2005 April:Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding home-ownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05)
4. Oxley says the Legislation lacked a champion in the Senate.
Lie – Sen. Hagel, Dole, and Sununnu pushed for these reforms for years. After S.190 got hung up in the Senate because the Democrats were filibustering everything and could not get 60 votes, and the Democrats in the finance committee all voted no, John McCain became a co-sponsor to try and hammer the legislation through but no Democrats would budge. In fact Senators Sununnu, Hagel and Dole introduced this legislation repeatedly (link HERE and video HERE).
5. Oxley says that the administration wanted privatization of Fannie Mae and Freddie Mac or nothing.
Lie – Nothing in Alan Greenspan’s testimony (which is linked in its entirety above) , Secretary Snow’s testimony, Deputy Secretary Bodmon’s testimony, nor any known statement by President Bush say privatize or nothing or any such argument. All of them pushed for the reforms pushed by Dole, Hagel, and Sunnunu. In fact here is an article by “All Business” about the hearings make no mention of Republicans trying to privatize it, but they do make mention of Democrats opposing tighter regulation and accounting practices saying that it would restrict Fannie and Freddie’s mission to give low cost loans to poor people and minorities. Of course those were loans that too many of the poor could not pay back.
HERE is the record of the 2005 hearings in the House on this legislation and no one brings up the White House or a push by Republicans to push for privatization of Fannie Mae and Freddie Mac.
You can also read quotes of what Senators, Representatives and others said about Fannie Mae and Freddie Mac in hearings HERE.
So the question is, why is a former member of Congress lying through his teeth about what happend and trying to blame Bush for all this?
There are several reasons:
1. The White House has never been aggressive about defending itself from untrue allegations. They seem perfectly content with letting partisans and the elite media with little regard for the truth define them . So blaming Bush means you will get away with it and the Democrats will gleefully pile on to give credibility to the bogus claim as Barney Frank did HERE.
2. The Sarbanes-Oxley Law is his legacy and he does not want that legacy sullied with a layer of blame from the worst financial scandal in the history of the world.
3. Oxley speaks and consults for big fees about Sarbanes-Oxley compliance and if word got out that a screw up of this magnitude was a contributor to the mortgage meltdown it would certainly damage his gravy train of fees; not to mention his cushy job at NASDAQ.
UPDATE: Newt Gingrich Explains in some detail