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Sunday, September 28, 2008

Oxley: Financial crisis could have been avoided
By LOU WILIN

STAFF WRITER

Three years ago, then-U.S. Rep. Michael Oxley saw cracks creeping through what is now a crumbled financial system.

This week, Oxley said it could have been prevented by an ill-fated attempt to regulate Fannie Mae and Freddie Mac, which provide funding for about 75 percent of home mortgages.

"This (financial crisis) did not have to happen," he said. "It should not have happened."

"Weaknesses" and "accounting irregularities" at the mortgage giants had been exposed by the 2002 Sarbanes-Oxley Act, which Oxley co-authored with Sen. Paul Sarbanes, D-Md., to reform corporate financial reporting.

Oxley, a Findlay native and a Republican, was the chairman of the House Financial Services Committee and served 25 years in the House, retiring in December 2006.

In 2005, he and others wanted to put Fannie and Freddie on a shorter leash.

They backed a bill to set up a regulator with power to put the mortgage giants in receivership. It also would have increased the companies' ability to absorb bad loans by tightening their debt and risk limits. The bill passed in the House, 331-90.

But, Oxley said, it ran into "ideologues" in the White House who wanted to privatize Fannie and Freddie and who opposed a bigger government role. The bill also ran into opposition in the Senate.

"The Senate did what they do best, which is nothing," Oxley said.

That the bill never became law was a "failure of graphic proportions," he said.

"(The bill) would have had an enormous impact," Oxley said. "It would have had two years to work."

It needed time to work, he said, because the crisis was years in the making and had deeper roots: "cheap money."

"(Former Federal Reserve Chairman Alan) Greenspan kept interest rates too low for too long," Oxley said. "It fostered the concept that everybody ought to have a house."

Housing prices skyrocketed. Loans were given with no down payments. More and more mortgages were given to people with low credit ratings. Sometimes they were given to people whom lenders knew lacked the ability to repay.

Fannie Mae and Freddie Mac, which buy mortgages so lenders have cash to keep on lending, bought many of the risky mortgages. The two agencies sometimes kept them in their portfolios or packaged and sold them as mortgage-backed securities to unsuspecting investors.

Some of the doomed mortgage-backed securities were rated AAA by credit agencies, Oxley said.

"The world changed dramatically. You had a passing on of the risk at each step without any accountability," Oxley said. "You had no transparency."

In a sense, he said, the mess resembles the corporate scandals several years ago involving Enron, WorldCom, Tyco and Adelphia. The credit agencies back then gave those companies favorable ratings which proved unwarranted, he said.

But in the corporate scandals, the companies committed "out-and-out accounting fraud," he said. Oxley said that was not the case this time.

"For the most part, this was greed, trying to keep up with the Joneses, particularly on Wall Street, and a lot of smart people making bad decisions," he said.

When the bad decisions came home to roost, he said, those holding the defaulting mortgages did not have enough to cover their losses.

Their weakened positions undermined their ability to win the confidence and more cash from investors.

Lehman Brothers Holdings Inc., for example, sunk because of its losses from mortgage securities and real estate investments.

American International Group lost billions by insuring investors against default in an array of investments, including subprime mortgages.

The Treasury Department decided to rescue Fannie Mae, Freddie Mac and American International for the sake of the economy.

Oxley supports the Bush administration's $700 billion plan to buy soured mortgages and mortgage-related investments from financial institutions.

"I have not seen anybody that has got a better idea," Oxley said.

Doing nothing would allow the financial system to implode, and that will affect everybody, he said.

"If they do this right ... once things settle down, the government will be able to sell the assets it is taking now at a profit," Oxley said.

That is how the savings and loan crisis of the 1980s and 1990s was resolved and ended up costing taxpayers "very little," Oxley said.

However, this crisis and the investments involved are more complicated than those of the savings and loan crisis.

"It is just going to be a lot more complicated and difficult," Oxley said.

"At the end of the day, you have to figure these properties are going to increase in value. The question is how long (will it take)."

Wilin: 419-427-8413,

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3 Comments

Latest comments listed first.
ONLINE EDITOR wrote:
COMMENTS REMOVED
“ Comments from "Critical Thinker" have been removed because a bogus e-mail address was provided to the site administrator, which is a violation of our Electronic User Agreement. ”
Monday, September 29, 2008 9:09:13 AM
Don I wrote:
toothless legislation
“ Bush's administration refused half-measures. In 2005, Republican Mike Oxley,chairman of the House Financial Services Committee, brought up a reform bill (H.R. 1461), and Fannie and Freddies lobbyists began to attack it. The bill was rendered so toothless and Oxley pulled the bill instead.

 ”
Saturday, September 27, 2008 11:32:19 AM
Darrell Myers wrote:
Fannie Mae FreddieMack
“ Mike Oxley reported in the Findlay Courier that he saw that he was notified thata financil crisis was coming from Freddie Mac and Fannie Mae. Mike Oxley stated they could have stoped this financial crisis. Mike Oxley co-authoured a bill to stop this kind of crises. Like Mike Oxley stated the U.S. Senate did not pass the bill in which Oxley was upset about. Mike Oxley stated the "Senate does what it usally does which is nothing". Mike Oxley stated that they picked up from the Mike Oxley Sarbanes Act that "weaknesses and accounting irregularities" were reported under the 2002 Oxley Sarbanes act. Mike Oxley put this before the House of Representatives and it passed 331-90. Mike Oxley also compared this financial crisis to the Enron,World Com.,Tyco and Adelphipa in which Courupt leader's of these Corporation's took million's of dollar's of money away from people. Oxley does agree with the bailout of $700. Billion Dollar's and he said it will be corrected over time. He also stated this "financial crisis" did not have happened in the first place. I belive strongly that some one should be held accountable for this crisis that dind't need to have happened in the first place. I think we all know who worked for Enron before he got into the U.S. government. Richard Cheney was a high ranking Cooperative leader in Enron. I believe that there should be at least an ethic's commitee investigation. ”
Saturday, September 27, 2008 10:24:37 AM
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A trip to Washington, D.C. that Findlay and Ottawa officials were planning to make this week has been postponed because of the inclement weather.

Findlay Mayor Pete Sehnert said officials have rescheduled the trip for Feb. 23 to meet with a lobbying group and congressional representatives regarding federal spending on flood control projects.

Fostoria requires clearing sidewalks
FOSTORIA -- Fostoria residents are responsible for removing snow and ice from sidewalks within 12 hours of a storm, according to police Capt. Patrick Brooks.

The city code covers residential owners or tenants, and business owners of properties which abut a sidewalk.

An offense is a minor misdemeanor, with a fine of up to $100. Each day constitutes a separate offense.

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FOREST -- Because of the expected inclement weather, the Forest-Jackson Public Library has rescheduled its Valentine luncheon planned for Thursday to 11:30 a.m. Thursday, Feb. 18.

Reservations are required. Anyone with questions can call the library at 419-273-2400.

Disc golf tourney set for Saturday
The Ray Heverling Charity Ice Bowl Tournament has been rescheduled for 1 p.m. Saturday at Riverbend Recreation Area, off Ohio 568 east of Findlay.

Registration begins at noon.

The tournament was canceled last Saturday because of a snowstorm.

The Disc Golf Community Association, in cooperation with the Hancock Park District, sponsors the event. Proceeds go to the Family Center of Findlay-Hancock County.

For more information contact Nathan Buck at p_nate@thecatalystcc.com or 419-306-7405. Entry fee is $20. Additional donations are accepted.

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FOSTORIA -- Kaubisch Memorial Public Library will be closed Monday, Feb. 15, in observance of Presidents Day.

Crime Of The Week
Findlay/Hancock County Crime Stoppers is looking for information about a break-in at the Arlington Pharmacy, 200 Main St., at 12:51 a.m. Dec. 28.

A glass pane in the front door of the business was shattered, and entry was made. Once inside, the perpetrators took prescription medications and fled on foot.

Two white males were seen running from the business. The males were possibly in their late teens to early 20s, and possibly entered a vehicle.

People with information about this or any other crime that would lead to an arrest or indictment will be eligible for a cash reward of up to $1,000.

Crime Stoppers can be called weekdays from 8 a.m. to 4 p.m. at 419-425-TIPS or 419-425-8477. Callers can remain anonymous.

The Web site is www.hancockcrimestoppers.org.