In My Time - Dick Cheney [266]
PRESIDENT BUSH AND I had come into office dedicated to the proposition that cutting taxes and getting more money back into the hands of private individuals and businesses was the best way to encourage economic growth. We had secured two major rounds of tax cuts, the first in 2001 and the second in 2003, and they had helped spur growth and create jobs. This accomplishment was particularly notable against the backdrop of the attacks of 9/11, which had a major negative impact on the economy, and the subsequent costs of fighting the War on Terror and keeping the nation safe.
We were also committed to keeping spending down—a task we sometimes performed better than others. One innovation we put in place at the beginning of the administration was a budget review panel, which I chaired. Cabinet secretaries were not always happy when they heard from the Office of Management and Budget what their allotment would be for the year, and the panel, made up of the White House chief of staff, the director of the OMB, and me, was a place where they could appeal. The panel worked well, and did not have to meet very often, particularly after one cabinet member made an appeal that resulted in her budget numbers being lowered.
THE REASONS FOR THE financial crisis of 2008 are likely to be long debated. Many of the analyses I’ve read or watched on TV strike me as oversimplified, more interested in pointing out villains—greedy bankers or feckless deregulators—than in coming to a true understanding. One analysis I have found particularly thoughtful is the minority view in the Financial Crisis Inquiry Report of 2011. In it, commissioners Keith Hennessey and Douglas Holtz-Eakin and commission vice chairman Bill Thomas note a complexity of factors, including a surge in housing prices that was accompanied by a surge in mortgage lending. Convinced that housing prices would continue to escalate, both lenders and borrowers were willing to enter into mortgage agreements that were not sustainable. The idea was that the growth of home equity would enable buyers to refinance into loans they could carry for the long term. Mortgage lenders were particularly encouraged to discount the risk involved because they sold the mortgages and did not ultimately have to bear whatever losses they produced.
Government-sponsored entities Fannie Mae and Freddie Mac, along with companies in the private sector, combined mortgages, many of them high-risk, into mortgage-backed securities. Credit agencies gave these securities unduly high ratings, and too many institutions and investors failed to inquire as diligently as they should have into the risk they were assuming. Some institutions made big bets on mortgage-backed securities, and when the housing bubble burst, they suffered massive losses. Such losses, combined with heavy leveraging, brought the investment bank Bear Stearns to the edge of bankruptcy in March 2008. JPMorgan agreed to step in and acquire Bear Stearns, but only after Treasury Secretary Hank Paulson, working with Tim Geithner, then head of the Federal Reserve Bank of New York, and Ben Bernanke, chairman of the Federal Reserve, agreed to a $30 billion loan as part of the sale.
Mortgage giants Fannie Mae and Freddie Mac were also in trouble. For years Alan Greenspan had been warning about the unwarranted risks they were taking and the potential fallout. Small-town banks all over America held paper issued by Fannie Mae and Freddie Mac to meet their capital requirements. If Fannie and Freddie failed, there would be a systemic failure. It was also the case that Fannie’s and Freddie’s mortgage-backed securities were held around the world by investors who believed they were guaranteed by the United States government. Should Fannie or Freddie fail, an international crisis would ensue. In 2003, the administration had put forward legislation, which was blocked by Barney Frank, Democratic chairman of the House Banking Committee, that would have reformed these institutions