ALARMS & DENIAL
WARNINGS ON ROAD TO BAILOUT - AND REFUSALS TO LISTEN

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September 25, 2008 The following segment ran yesterday on Fox News' "Special Report."
BRIT HUME: Many financial analysts are saying that if mortgage giants Fannie Mae and Freddie Mac had been effectively regulated years ago, the supercharged subprime mortgage meltdown that led to the current financial mess would either never have happened or would have been nowhere near as severe.
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Chief White House correspondent Bret Baier rejoins us now to examine the timeline. What were those warning signs? Who raised them?
And who disputed them?
BRET BAIER, FOX NEWS CHIEF WHITE HOUSE CORRESPONDENT (voice-over):
The Bush administration raised red flags starting in April 2001.
The '02 budget request declares that the size of mortgage giants, Fannie Mae and Freddie Mac, is "a potential problem" because financial trouble and either one of them could "cause strong repercussions in financial markets."
In 2003, the White House warning about Fannie and Freddie was upgraded to a systemic risk that could spread beyond just the housing sector. In fall of '03, the Bush administration was pushing Congress hard to create a new federal agency to regulate and supervise Fannie and Freddie, both government-sponsored enterprises or GSEs.
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JOHN SNOW, TREASURY SECRETARY: We need a strong, world-class regulatory agency to oversee the prudential operations of the GSEs and the safety and the soundness of their financial activities.
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BAIER: But then Treasury Secretary Snow was getting a lot of pushback from then-ranking-member, now chairman of the House Financial Services Committee, Democratic Congressman Barney Frank.
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BARNEY FRANK (D), MASSACHUSETTS REPRESENTATIVE: Fannie Mae and Freddie Mac are not in crisis.
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BAIER: In fact, Frank said the federal government should be encouraging Fannie and Freddie to do more to get low-income families into homes, and he believed too many people had a sky-is-falling mentality.
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FRANK: The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. And even if there were a problem, the federal government does not bail them out. But the more pressure there is there, then the less I think we see in terms of affordable housing.
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BAIER: The legislation was blocked.
In 2005, Fed Chairman Alan Greenspan added his voice on Fannie and Freddie, after Fannie leaders admitted major accounting screwups. "Enabling these institutions to increase in size - and they will once the crisis in their judgment passes - we are placing the total financial system of the future at a substantial risk."
Adding later at another hearing on the topic -
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ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: If we fail to strengthen GSE regulation, we increase the possibility of insolvency in crisis.
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BAIER: But the two mortgage giants had staunch defenders. Democratic Sen. Charles Schumer said, "I think Fannie and Freddie over the years have done an incredibly good job and are an intrinsic part of making America the best-housed people in the world. If you look over the last 20 or whatever years, they've done a very, very good job."
And Sen. John McCain co-sponsored legislation pushing for regulation, delivering a speech on the Senate floor in 2006. "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac. And the sheer magnitude of these companies and the role they play in the housing market, the GSEs need to be reformed without delay."
(END VIDEOTAPE)
BAIER: That bill made it out of the Senate Banking committee with a party-line vote. All of the Democrats voted against it. But fearing that they didn't have the votes to pass it, Republicans didn't even bring it up on the Senate floor. Sen. Obama did not weigh in on that bill.