The Five Dumbest Things on Wall Street This Week

2. Schumer's Subprime Bombshell

Sen. Charles "Chuck" Schumer (D., N.Y.) is an unquestionably skilled politician. Indeed, so great are Schumer's talents that his recent actions evoked the grand tradition of not one, but two New York political giants: the late Daniel Patrick Moynihan and Alfonse D'Amato.

Strange bedfellows, indeed.

On his good days, Schumer embodies Moynihan's commitment to social justice and determination to stand up for society's underprivileged and powerless. These days, few constituencies are more underprivileged and powerless than borrowers facing foreclosure after being tricked (either by themselves or their lenders) into subprime mortgages and/or teaser rates. Embodying Moynihan's spirit, Schumer has been at the vanguard of congressional efforts to relieve their pain.

"The time to act is now while we still have a chance to save these homes and strengthen our floundering housing market," Schumer declared on the floor of the U.S. Senate on Nov. 15 as he passionately advocated two bills designed to help subprime borrowers refinance and avoid foreclosure.

The first bill, The FHA Modernization Act, will "give FHA greater flexibility to assist subprime borrowers with critical refinancing alternatives that will allow them to prevent foreclosure," according to a press release from the senator's office.

The second bill, The Promise Act, would provide Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote) a temporary six-month increase in their portfolio caps, with "85% of the increase to be dedicated to assisting in the refinancing of subprime mortgages at risk of foreclosure."

Like most Democrats, Schumer believes Freddie and Fannie can be a bigger part of a subprime solution and has chastised the Bush administration for acting "like an ostrich with its head in the sand" as the crisis unfolds. "Why? Why don't they see what everyone else sees?" Schumer rhetoricized. "The reason is quite simple, Mr. President. We have ideologues that run this Administration. Their view is government should never be involved. Let the homeowner pay the price. Let the economy pay the price. Because to get the government involved is bad."

Like most Democrats, Schumer believes getting the government involved is good, and proudly touted these "urgently necessary" bills as being "designed to use the tools of the Federal Government to assist in helping the two million subprime borrowers facing foreclosure."

But Schumer's desire for urgent action using the tools of the federal government apparently doesn't extend to the Federal Home Loan Bank (FHLB).

On Monday, Schumer sent shudders through the markets by asking regulators to examine stepped-up lending by the Atlanta branch of the FHLB to Countrywide Financial (CFC Quote). The struggling mortgage lender has used the FHLB "like its personal ATM," Schumer declared.

Given that the Federal Home Loan Bank system was set up in 1932 for the very purpose of aiding failing banks and to support mortgage lending, and that Countrywide sure could use a helping hand, Schumer's broadside evoked former Sen. D'Amato, a Republican best remembered for his strange, occasionally offensive and often perplexing filibusters.

Dumb-o-meter score: 88. Countrywide of course has "ample liquidity to fund our growth and operational needs" and the firm will "say it until we turn blue in the face," says investor relations managing director David Bigelow. He might turn bluer if the $50-plus billion FHLB borrowing gorilla in the room takes all the air.