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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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News Briefs Work scheduled on Findlay streets
Findlay's Main Street, northbound, will be reduced at times to one lane between 8 a.m. and 5 p.m. for waterline connection.

Main Street will not be accessible from East Lincoln Street. Lincoln Street will be closed to through traffic from South Main Street to South Blanchard Street from 8 a.m. to 5 p.m. for continued improvement work. Access to local businesses and residents only will be maintained.

Recount planned in trustee's race
OTTAWA -- After certifying election results on Wednesday, the Putnam County Board of Elections has announced a recount will be required for the Union Township trustee race, according to Deputy Director Shelly Burkhart.

The recount will be completed on Wednesday at the county elections board office, 336 E. Main Street, Ottawa.

Incumbent Daniel R. Ellerbrock has secured his position on the board, earning 685 votes. However the remaining trustee spot will require a recount as Gery P. Wurth earned 598 votes and Mark J. Kahle collected 601 votes, according to official results.

An automatic recount is necessary if the margin is within one-half of 1 percent of total votes cast, according to state law.

Road to be closed
Forest Lake Drive, between Marion Township 237 and Indian Lake Drive/Forest Lane, will be closed today for a pipe installation.

The road is expected to open by 5 p.m., weather permitting.

Motorists are advised to use Township 242.