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Why Did the Financial Crisis Inquiry Commission Let Andrew Cuomo Off the Hook?

If there are any doubts that a new federal report investigating the culprits behind the financial crisis was cooked in favor of Democrats, consider its expedient acquittal of former Housing Secretary Andrew Cuomo.

The Financial Crisis Inquiry Commission, led by Pelosi-appointed Democrat Phil Angelides, held 19 hearings in the course of its 15-month, $10 million "investigation." Yet it never called Cuomo, a well-connected Democrat, to publicly testify, even though the former HUD secretary deserved top billing on the list of suspects responsible for the subprime crime.

An honest inquiry would have grilled Cuomo about his role in mandating the reckless "affordable housing" targets that plunged HUD-regulated Fannie Mae and Freddie Mac headlong into the subprime abyss.

However, Cuomo managed to avoid not just the glare of the hearings but any closed-door interviews while successfully running for governor of New York.

It wasn't until last month (Dec. 17 to be precise) -- more than a month after the election and months after the hearings had ended -- that staff investigators caught up with Cuomo, and only then to give him a chance to rationalize the controversial affordable-housing mandates.

"Affordablity means many things," Cuomo explained. "There were moderate income loans. These were teachers, these were firefighters, these were municipal employees, these were people with jobs who paid mortgages. These were not subprime, predatory loans at all."

Only, that's not true. HUD's own reports proposing tougher social mandates for Fannie and Freddie put the lie to his story.

In HUD's 2000 regulatory proposal, Cuomo argued Fannie's and Freddie's "expanded presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas," and he therefore directed them to "play a significant role in the subprime market."

He wasn't talking about "firefighters" with "moderate incomes." He was talking about low-income minorities with weak credit, and using the federally chartered mortgage giants to expand credit to them specifically through the subprime market.

Two years later, as I detail in my just-released book, "The Great American Bank Robbery," the Urban Institute concluded in a report for HUD that "Fannie Mae and Freddie Mac are expanding their subprime business, partially in response to the higher affordable housing goals established by HUD."

In 2004, furthermore, HUD revealed the following in its rules and regulations report for that year: "Partly in response to higher affordable housing goals set by HUD in its new rule set in 2000, the GSEs [government-sponsored enterprises] are increasing their business in the subprime market. In the 2000 GSE Rule, HUD identified subprime borrowers as a market that can assist Fannie Mae and Freddie Mac in reaching their higher affordable housing goals."

Despite the Angelides Commission report's whitewashing, the historical record is clear that Cuomo plunged Freddie and Fannie into dangerous subprime lending, while also insisting they ease their "rigid" credit requirements. HUD's own documents show he prodded them to dominate the subprime market, arguing they would find their "goals-qualifying" mortgages there. He also authorized them to buy subprime securities to earn credits against his drastic Affordable Housing Goals.

Just before leaving office in 2001, Cuomo required that the mortgage giants for the first time devote fully half their business to loans tailored to the needs of low-income and minority borrowers with poor credit.

"It will help reduce the huge homeownership gap dividing whites from minorities and suburbs from cities," the then-HUD secretary argued.

But Fannie and Freddie strained under the tougher mandates, which remained in effect well into the Bush administration. Fannie complained in one internal report that it had to "absorb significant costs to meet the HUD purchase money goals."

Meanwhile, HUD buffaloed Countrywide Financial and hundreds of other mortgage lenders into signing so-called Fair Lending Master Agreements targeting minority communities with subprime loans, as also reported in "The Great American Bank Robbery."

Some of Cuomo's deputies, who were the chief architects of these disastrous policies, are back at HUD, heading Obama administration housing policy.

Instead of holding these policymakers accountable, the 633-page Financial Crisis Inquiry Report pins the blame on Wall Street and lax regulation, while recommending criminal prosecution of bankers.

The report, which was heavily shaped by panel chairman Angelides, cites nine causes of the crisis, none of which is federal housing policy -- the main culprit.

It's plain that Angelides, one-time head of the California Democratic Party, had no business running this important investigation.

As California state treasurer from 1999 to 2007, he actually contributed to the financial crisis by investing more than $3 billion in public funds in the same kinds of risky mortgage-back securities that caused the mess.
He even got Freddie to securitize them. It marked the first time a state had bought securities based on subprime and other nonprime home loans.

Angelides insisted the state's investment in such loans was sound, despite warnings from private economists that the state was taking on undue risk.

By whitewashing government's role in the crisis, Angelides covers not just fellow Democrat Cuomo's tracks, but also his own.

If government is exonerated in the financial mess, we will have created the biggest moral hazard of all -- politicians who can take even more risks with your money knowing they'll never have to face the consequences for their disastrous social engineering.

Paul Sperry, formerly Investor's Business Daily Washington Bureau chief, is a Hoover Institution media fellow and author of "The Great American Bank Robbery: The Unauthorized Report About What Really Caused the Great Recession" (Thomas Nelson Publishers, 2011)."