On both "opinion" and "straight news" programs, Fox News has channeled the GOP talking points that Fannie Mae and Freddie Mac caused the financial crisis and are "getting a free pass" because they are not overhauled by Democrats' financial regulatory reform legislation. But Fox repeatedly ignored that the Obama administration has initiated a separate effort to reform the housing finance system, including Fannie Mae and Freddie Mac, and have warned against moving too quickly on this front given the fragility of the housing market. Moreover, economists reject the notion that Fannie and Freddie were the root cause of the financial crisis.
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Fox trumpets GOP attack without mentioning Obama admin plans to reform Fannie/Freddie
Carlson: "Why the heck are they not anywhere in financial reform?" On April 23, Fox & Friends aired House Minority Leader John Boehner's statement, "[H]ow you can attempt to fix it without going to the root of the problem, Fannie Fae and Freddie Mac, is really beyond me," and co-host Gretchen Carlson asked, "Why the heck are they not anywhere in financial reform?" Fox Business host Stuart Varney responded: "Well, they're not in financial reform. Fannie and Freddie, the housing agencies, the whole housing sector, that essentially -- that's the forgotten bailout. We got 400 billion taxpayer dollars bailing out the housing industry. That's part of the financial industry, but it's not part of financial reform. That's totally separate, not included in this bill." During the segment, Fox & Friends aired on-screen text that stated, "Reform Wall St, But Not Fannie/Freddie?"
Doocy: "Fannie and Freddie did fan the flames of the original ignition in the financial meltdown, and it's not even in the president's idea." Later in the broadcast, Fox & Friends hosted Gov. Chris Christie (R-NJ) to discuss the financial regulatory reform proposal, and co-host Steve Doocy stated, "Fannie and Freddie did fan the flames of the original ignition in the financial meltdown, and it's not even in the president's idea." Christie responded: "[T]here's no question that Fannie and Freddie played a huge role in that, and I think that the more people look into this and investigate it, as I know they're going to, the more evident that's going to become. And so if you want to regulate, you should regulate everything that contributed to the crisis and look at all that and see what's appropriate." During the segment, Fox & Friends aired on-screen text stating, "Dems Want to Reform Wall St: Don't See Problems W/ Fannie & Freddie?"
Angle: "The financial legislation working its way through Congress leaves out one factor many critics say started the whole mess." During the April 22 edition of Fox News' Special Report, host Bret Baier stated: "Our next story is about something that is not in the president's plan. Chief Washington correspondent Jim Angle reports that omission has many people concerned." Angle stated, "The financial legislation working its way through Congress leaves out one factor many critics say started the whole mess." Angle's report quoted several Republicans blaming Fannie Mae and Freddie Mac for the financial crisis.
Kelly: "[A]re they really getting a free pass as we decide to crack down on all the fat cats?" Fox News' America Live host Megyn Kelly stated on April 22: "Well, they were public enemies number one and two in the economic meltdown. But when President Obama called for strict new regulations on the financial sector today, Fannie Mae and Freddie Mac were all but absent from the discussion. So are they really getting a free pass as we decide to crack down on all the fat cats?" Angle then stated: "It looks like they will. The financial reform legislation working its way through Congress leaves them out altogether, and plenty of critics are not happy about it." Angle went on to suggest that Fannie Mae and Freddie Mac started the financial crisis.
Obama admin has initiated reform of Fannie and Freddie
Politico: "Obama to overhaul Fannie Mae and Freddie Mac." Politico reported on March 24 that "the Obama administration Tuesday turned its attention to the next massive and controversial financial fight in Congress: overhauling Fannie Mae and Freddie Mac." The article noted that Treasury Secretary Tim Geithner stated in congressional testimony, "The administration intends to develop a comprehensive reform proposal for the GSEs' role in the broader housing finance system" and that "[a]fter reform, the GSEs will not exist in the same form as they did in the past. Private gains will no longer be subsidized by public losses, capital and underwriting standards will be appropriate, consumer protection will be strengthened, and excessive risk taking will be restrained."
Geithner: In addition to reform of "broader financial system," government must "address the specific flaws of the housing finance system." In March 23 testimony before the House Financial Services Committee, Geithner outlined Fannie Mae and Freddie Mac's flaws and stated that "[a]ction is needed" to address "the specific flaws of the housing finance system." Geithner addressed the administration's "objectives for reform of the mortgage finance system" and said that after gathering public comment "from a wide variety of constituents, market participants, academic experts, and consumer and community organizations," the administration will "develop a comprehensive reform proposal for delivery to Congress." He noted that reform should be enacted "at a time of greater market stability."
Wash. Post: Treasury Department "began the process of overhauling" Fannie Mae and Freddie Mac. The Washington Post reported on April 15 that the Treasury Department released seven questions for public comment on reforming Fannie Mae and Freddie Mac. The article noted that "[t]he administration has said it would like to make its legislative proposal early next year."
Gooslbee: Geithner has "outlined a process by which we're going to revive and change completely the mortgage financing business." During the April 22 edition of CNN's The Situation Room, White House economic adviser Austan Goolsbee addressed criticism that reform of Fannie Mae and Freddie Mac are not included in the current financial regulatory reform proposals:
GOOLSBEE: The president has never been a fan of the old Fannie and Freddie business model. He said throughout the campaign and while he's been in office that we can never go back to the privatizing profits and socializing losses business model that they had. Secretary Geithner's outlined a process by which we're going to revive and change completely the mortgage financing business. But that's a complete red herring to say that ought to be in this bank reform bill. The president has spoken about that many, many times. To say that that's not in this and therefore it's a failure, I think, is almost willfully trying to change the subject.
Financial policy analyst: There are economic reasons to move slowly on Fannie Mae and Freddie Mac. The Associated Press reported that HUD Secretary Shaun Donovan said acting too quickly to change Fannie Mae and Freddie Mac "could threaten another breakdown in the market." The Los Angeles Times further reported that Jaret Seiberg, a financial policy analyst, said there are economic reasons for moving slowly on reform:
Fed Chairman Ben S. Bernanke said last week he expected that Fannie Mae and Freddie Mac would be restructured.
"My assumption is that sometime soon -- I'd hope soon -- the Congress will reform Fannie and Freddie, perhaps break them up, perhaps make them officially governmental," Bernanke said.
But Fannie Mae and Freddie Mac still are playing a large role in housing finance because banks remain hesitant to lend, so there are strong economic and political reasons Congress and the Obama administration need to move slowly, said Jaret Seiberg, a financial policy analyst at Concept Capital's Washington Research Group.
"The first rule has to be to do no harm to the housing market, and it's difficult to fathom how, when credit is tight, you can restructure the primary drivers of home financing," he said. "You just can't risk upsetting the part of the housing financing system that is working."
Economists reject claim that Fannie and Freddie were root cause of financial crisis
Baker: Claim that Fannie and Freddie are "responsible for the financial disaster is absurd on its face." Economist Dean Baker reported in September 2008 that the accusation that "the financial crisis is attributable to the close government relationship with Fannie Mae and Freddie Mac" is "obviously not true." He further wrote:
Fannie and Freddie got into subprime junk and helped fuel the housing bubble, but they were trailing the irrational exuberance of the private sector. They lost market share in the years 2002-2007, as the volume of private issue mortgage backed securities exploded. In short, while Fannie and Freddie were completely irresponsible in their lending practices, the claim that they were responsible for the financial disaster is absurd on its face -- kind of like the claim that the earth is flat.
Krugman: "[W]hile Fannie and Freddie are problematic institutions, they aren't responsible for the mess we're in." Nobel laureate Paul Krugman wrote on July 14, 2009, that "while Fannie and Freddie are problematic institutions, they aren't responsible for the mess we're in." Krugman further wrote that "Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble."
Thoma: "[B]est behavior of Fannie and Freddie would not have been enough to stop the bubble from inflating in other parts of the financial sector." University of Oregon economist Mark Thoma wrote on October 5, 2008, that "Fannie and Freddie followed the shadow banking sector downward." He added that while "[t]here is lots to fault in the behavior of Fannie and Freddie and in government oversight of them," the "best behavior of Fannie and Freddie would not have been enough to stop the bubble from inflating in other parts of the financial sector, and then turning into a full fledged financial crisis as housing prices plunged."
Mankiw: Fannie, Freddie "were only one element." Economist N. Gregory Mankiw, who advised President Bush, wrote on March 26 that the government is not good at "regulat[ing] financial institutions," noting that Congress did not reform Fannie Mae and Freddie Mac during the Bush administration even though economists had voiced concerns. Mankiw added, "I recount this story not because Fannie Mae and Freddie Mac were the main cause of the recent financial crisis -- they were only one element -- but because it shows the kind of problem we'll encounter on a larger scale as we reform oversight of the financial system."
Former Lehman Brothers CEO Richard Fuld: Fannie and Freddie played "de minimis" role. In an October 2008 Newsweek article, Daniel Gross reported that the following happened during testimony by Lehman Brothers CEO Richard Fuld before the House Committee on Oversight and Government Reform:
At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis."
From Fuld's testimony:
MICA: And one of your big com -- well, one of the big packagers, or the competitor, so to speak, was Fannie Mae, which was deep into this. And you were -- you were dealing in some of the paper, I think, for secondary markets and other securitized mortgage paper, to basically package it and make money off it. Is that right?
FULD: Yes, sir.
MICA: What was Lehman Brothers' exposure to the debt of Fannie Mae and Freddie Mac, and what role did their collapse play in precipitating some of your financial troubles?
FULD: Our --
MICA: It didn't matter or you --
FULD: Our exposure to both Fannie Mae and Freddie Mac was de minimis, sir.