fannie mae

You Were a Sucker If You Were Responsible, Thrifty, and Saved Money for a Down Payment

by Hans Bader on September 7, 2010 · 4 comments

in Bailout Watch, Economy, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

The Obama administration will launch today a new $14 billion program to bail out some people who are underwater on their mortgages.  During the housing bubble, hundreds of thousands of people made such small down payments on their home that their mortgage was almost as big as the price of their home.  When the housing bubble ended, their home value fell to less than their mortgage.  Thousands of these people will now receive taxpayer bailouts (although a majority of underwater borrowers won’t — read this Wall Street Journal article for some of the details).

So if you saved money for a down payment, you were a sucker.  If you’d spent your money instead, the government might give you a bailout.  But since your down payment reduced the size of your mortgage, your mortgage is smaller than the value of your house, and you don’t qualify for a bailout.

This bailout comes exactly two years after federal regulators took over the government-backed mortgage giants Fannie Mae and Freddie Mac, which were bailed out at a cost that may ultimately reach $400 billion.  The government took them over in order to stop their risky practices, but after Obama took office, he did the exact opposite.  Obama made them increase their losses by ordering them to bail out irresponsible mortgage borrowers, at a cost of $30 billion to Freddie Mac alone.  The Obama administration rewarded Fannie Mae and Freddie Mac executives for carrying out these foolish bailouts by showering them with $42 million in pay.  The bailouts benefited even irresponsible borrowers with high incomes.

Another Obama mortgage bailout program that cost taxpayers $75 billion actually harmed the real estate market and the economy, according to economists and real estate experts cited in the New York Times.  On first glance, it seems like the Obama administration is incapable of learning from its mistakes.  But the purpose of this new bailout is probably not to help the economy, but rather to buy votes in the upcoming election in states like Nevada, Florida, and California, which had the biggest housing bubbles.  It is a desperate form of political pandering.

Liberal politicians spawned the mortgage crisis through misguided policies such as affordable-housing mandates.  The mortgage crisis was also caused by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac. But the new Dodd-Frank financial “reform” law backed by Obama does absolutely nothing to reform Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.“ The Dodd-Frank law also creates a new bureaucratic agency to enforce the Community Reinvestment Act CRA without regard for banks’ safety and soundness.  The CRA, which pressures banks to make risky loans, was previously expanded through regulations in the 1990s, regulations often cited as a cause of the financial crisis.

Facing rising criticism of his economic policies, the president whined Monday about the way people  ”talk about me.”

Financial “Reform” Harms Farmers, While Leaving Corrupt Government-Sponsored Mortgage Giants Unreformed

by Hans Bader on August 11, 2010 · 2 comments

in Agriculture, Deregulate to Stimulate, Economy, Environment, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Farmer Betsy Jensen explains how the so-called financial “reform” bill signed by President Obama will harm agricultural markets, and thus farmers, in today’s New York Times. Particularly damaging will be its restrictions on derivatives, which “traders who buy and sell wheat or corn” use to insure themselves against risk. Worried farmers like Jensen are “well aware that the system would not function without” those traders. Farmers like Jensen also use derivatives to protect against swings in prices for the crops they sell, and “swings in the cost of fertilizer, fuel and other staples.”

While it imposes harmful red tape on agriculture, the financial reform bill deliberately does nothing to reform the corrupt government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though Treasury Secretary Geithner admits that they were a “core part of what went wrong“ in our financial system.  The bill’s 2,315 pages are full of payoffs for special interests.  (Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives.)

At Obama’s direction, Freddie Mac and Fannie Mae ran up tens of billions of dollars in losses bailing out out delinquent mortgage borrowers, some of whom had high incomes. The Obama administration rewarded them for going along with this by showering their executives with $42 million in pay.

The financial “reform” law’s restrictions on derivatives could cost U.S. companies as much as $1 trillion in lost capital and liquidity.  While regulators may ultimately decide to exempt farmers themselves from many of those harmful restrictions, it is doubtful that they will exempt the agricultural traders who are needed to provide “enough liquidity, or money” for the agricultural markets to “function” properly.

Why Mortgage Giant Freddie Mac Is Getting a Bailout: Costly Obama Policies and Giveaways

by Hans Bader on August 10, 2010

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Earlier, I wrote about mortgage giant Freddie Mac’s demand for $1.8 billion more in bailouts. Why does it still need more bailout money, when it and its sister company, Fannie Mae, have already received more than $148 billion from taxpayers, and will likely end up receiving over $400 billion?  The short answer is that the Obama administration forced Freddie Mac to run up tens of billions of dollars in losses to bail out mortgage borrowers, including irresponsible high-income households whose payments are getting reduced to a ridiculously low level. In conduct reminiscent of Enron, officials then tried to prevent Freddie from disclosing to the public and the SEC how Obama’s mortgage bailout was forcing it to lose even more money, reported The Washington Post.  (As the red ink piled up, Freddie Mac’s former CFO committed suicide in his basement.  Freddie Mac’s current management is all too happy to go along with the money-wasting policies of the Obama administration, which has rewarded their complicity by showering their executives with millions of dollars in pay.  The current Freddie Mac CFO received $5.5 million, while managers of Freddie and its sister company, Fannie Mae, got $42 million.)  The bailouts Freddie Mac received were on top of the billions in hidden taxpayer subsidies it received over the years thanks to its status as a quasi-governmental enterprise.

Government-Sponsored Mortgage Giant Seeks $1.8 Billion More in Bailouts

by Hans Bader on August 9, 2010 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Mortgage giant Freddie Mac is seeking $1.8 billion more in bailouts from the federal government.  This mortgage giant, and its sister company, Fannie Mae, are expected to ultimately receive over $400 billion in bailouts.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky sub-prime mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk.

Meanwhile, they paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

Even administration officials admit they were a “core part of what went wrong” in our financial system.

But the recent financial “reform” law signed by Obama does nothing to reform these mortgage giants.  Instead, it’s 2,315 pages of payoffs for special interests.  (Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives.)

Civil rights commissioners and economists say it contains provisions that are racially discriminatory.  The so-called financial “reform” law “imposes race and gender employment quotas on the financial industry — at a time the job market is stalling and economic growth is slowing,” writes economist Diana Furchtgott-Roth in The Washington Examiner. Its ”Section 342 states that race and gender employment ratios must be observed by all government agencies that regulate the financial sector, as well as private financial institutions that do business with the government.”   This unconstitutional requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice.  Waters once told a CEO in a public Congressional hearing, “This liberal will be all about socializing . . . .uh, uh . . . would be about, basically, taking over and the government running all of your companies.”   Waters is currently facing ethics charges for her role in obtaining corporate welfare and a bailout for a bank that later defaulted on dividend payments to the Treasury Department.

President Obama Signs Dodd-Frank Financial “Reform” Bill: 2315 Pages of Special-Interest Payoffs

by Hans Bader on July 21, 2010 · 1 comment

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

President Obama today signed into law the Dodd-Frank financial “reform” bill, the “most sweeping overhaul of U.S. financial market regulations since the Great Depression.”

Ironically, the job-killing 2,315-page law contains little real reform, and instead contains a vast array of payoffs and favors for special interest groups like trial lawyers.

Civil rights commissioners and economists say it contains provisions that are racially discriminatory.

The bill does nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials admit they were at the “core“ of “what went wrong.”  Fannie and Freddie helped spawn the mortgage crisis by buying up risky sub-prime mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk.  Now they are getting a $400 billion bailout.

I previously analyzed the bill here. Financial-regulation expert John Berlau examined the bill here.

Senate Passes Financial “Reform” That Leaves Corrupt Bailout Recipients Unreformed, While Harming the Public

by Hans Bader on July 16, 2010 · 1 comment

in Bailout Watch, Economy, Environment, International, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Yesterday, the Senate passed a so-called financial reform bill by a vote of 60-to-38, making it all but certain to become law.  The bill will do nothing to prevent another financial crisis or end bailouts, but it will cause all sorts of new problems.

The bill does nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials admit they were at the “core“ of “what went wrong.”  But it will impact farmers and others who had nothing to do with the financial crisis, by imposing restrictions on derivatives they use to hedge against risk, restrictions that could cost U.S. companies as much as $1 trillion in lost capital and liquidity.

Fannie Mae and Freddie Mac have been incredibly costly to taxpayers.  The Obama administration earlier lifted a $400 billion limit on bailing them out.  At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public, reported The Washington Post.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk: “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”  The situation was recently found to be even worse than feared by the federal Financial Crisis Inquiry Commission.

Meanwhile, they paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

Bank Failures Rise; Banks Shuttered at a Faster Rate in 2010 Than in 2008 and 2009; Financial “Reform” Adds to Banks’ Woes

by Hans Bader on July 13, 2010 · 3 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Legal, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

“This past Friday, the Federal Deposit Insurance Corporation (FDIC) shuttered another four US banks,” notes Neil Hrab in the Washington Examiner. ”That makes 90 bank failures so far in 2010.  If bank failures continue at the same rate for the rest of 2010, you can expect perhaps 200 in total to fail this year. That would represent a jump over 2009, when the FDIC closed 140 failed banks.  In 2008, just 25 US banks were closed by the FDIC. (To keep the number of failures in perspective, we need to remember that the US has about 8,000 banks in total.)

The so-called financial “reform” bill that now looks certain to pass Congress will make matters worse.  It will impose useless, burdensome regulations on banks, while doing nothing to prevent another financial crisis.  The bill ”imposes race and gender employment quotas on the financial industry–at a time the job market is stalling and economic growth is slowing,” writes economist Diana Furchtgott-Roth in the Washington Examiner. Its ”Section 342 states that race and gender employment ratios must be observed by all government agencies that regulate the financial sector, as well as private financial institutions that do business with the government.”   This unconstitutional requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising“ against injustice.  Waters once told a CEO in a public congressional hearing, “This liberal will be all about socializing . . . .uh, uh . . . would be about, basically, taking over and the government running all of your companies.”

That bill contains little “reform,” reinforcing the very features of the status quo that spawned the financial crisis.  Earlier, congressional Democrats blocked reform of the corrupt government-sponsored mortgage giants, Fannie Mae and Freddie Mac, and the Obama administration lifted a $400 billion limit on bailing them out.  (Even though administration officials admitted that they were at the “core“ of “what went wrong“ in our financial system.)  At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes.  Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

Meanwhile, the administration has backed a new tax on productive private banks that did not receive bailouts at taxpayers’ expense.

Government pressure on banks to make loans in economically-depressed neighborhoods was one of the causes of the mortgage crisis.  That pressure will increase under the financial “reform” legislation.  Legislators approved Obama’s proposal to create a new consumer “protection” agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.” It would do so with little regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a contributor to the financial crisis.

Financial “Reform” Bill Engages in Racial Engineering, While Ignoring Corrupt Mortgage Giants

by Hans Bader on June 15, 2010

in Bailout Watch, Culture, Economy, Employment, Labor, Legal, Nanny State, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Congress and the Obama administration refused to do anything about the corrupt government-sponsored mortgage giants, Fannie Mae and Freddie Mac, even though administration officials admitted that they were at the “core” of “what went wrong” in our financial system.  Doing so was just “too hard,” they claimed, and too time-consuming.

But they did find time in their financial “reform” legislation to push racial quotas at the Federal Reserve, requiring each Federal Reserve Bank to establish an “Office of Minority and Women Inclusion” to “increase the participation of minority-owned and women-owned businesses in programs and contracts.”  This requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice.

Forget about those pesky Supreme Court decisions saying that racial preferences are presumptively unconstitutional and subject to strict scrutiny, and not permissible to promote “racial balance.”  Apparently, they are obsolete in the era of “hope and change.”  Plenty of other changes are afoot too.  Obama fired an inspector general for exposing corruption by one of his cronies.  And the Obama Justice Department illegally defied the Civil Rights Commission to cover up the fact that the administration let members of the racist, anti-Semitic New Black Panther Party get away with voter intimidation.

Obama Wants Taxpayers to Cough Up $50 Billion To Bail Out Public-Employee Unions

by Hans Bader on June 14, 2010 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, International, Labor, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere, Trade, Zeitgeist

President Obama now wants Congress to spend $50 billion to keep state governments from laying off government employees.  In essence, this is a bailout for the public-employee unions that bankroll liberal politicians.  Earlier, Obama’s allies in Congress proposed spending billions to bail out mismanaged and underfunded union pension funds.

The state governments will never have to pay back any of this bailout money, which rewards them for irresponsibly increasing government-employee pay much faster than inflation, to levels much higher than in the private sector.

By contrast, the private banks that were bailed out have repaid most of the money they received, while their shareholders lost most of their money–92.6 percent at Citibank.

While millions of private sector employees have been laid off in the current recession, few government employees have been.  The few government layoffs that have occurred would not even have been necessary if government employees were willing to accept pay cuts.  For example, in Montgomery County, Maryland, where a handful of teachers may end up being laid off due to a huge budget deficit, the average teacher makes $76,483 in base pay, not counting $30,000 in benefits, and other county employees are paid much better than teachers.  (Even if teacher layoffs occurred across the country–which they won’t–class sizes would still be smaller than they were a decade ago, since there are more teachers with higher pay teaching fewer students in the typical American classroom.)

Obama has not hidden his bias towards these unions.  As he noted in a 2006 book, “I owe those unions. . .When their leaders call, I do my best to call them back right away.  I don’t mind feeling obligated.”

Obama’s $800 billion stimulus package was deliberately crafted to focus on propping up pink-collar government employment at the expense of private-sector blue-collar jobs, where unemployment is concentrated.  The stimulus package is using taxpayer subsidies to replace U.S. jobs with foreign green jobs. It also destroyed jobs in America’s export sector.

The private sector bailouts have been bad enough.  An oversight panel found that the bailout of insurance giant AIG had “poisonous” consequences.

But bailouts of governmental and quasi-governmental entities will end up being far more costly.  The Obama administration lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, the corrupt, government-sponsored mortgage giants that even Obama administration officials admit were at the “core” of “what went wrong” in the financial crisis.

Senate Democrats recently blocked any reform of Fannie Mae and Freddie Mac.  (Obama received $125,000 in contributions from these mortgage giants as a senator.)

At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes.  Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.  The Obama administration showered the mortgage giants’ executives with $42 million in compensation.

Fannie and Freddie helped spawn the mortgage crisis by creating an artificial market for risky mortgages.  ”From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”  They paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses.  As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

AIG Bailout Had “Poisonous” Effect, Bailout Oversight Panel Says

by Hans Bader on June 10, 2010 · 1 comment

in Bailout Watch, Deregulate to Stimulate, Economy, Insurance, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

“American International Group Inc.’s bailout had a ‘poisonous’ effect on the U.S. financial system because it demonstrated the government would protect Wall Street firms from their own risk-taking, said a Congressional” bailout oversight panel.

Earlier, the Obama administration used the $170 billion AIG bailout to give billions in legally unnecessary payments to the Wall Street firm of Goldman Sachs, which is so rich that it has admitted it didn’t even need the money.  Goldman Sachs, one of the Democratic Party’s biggest donors, is using its political connections to reap record profits.

Obama and Congressional leaders later pushed through a Trojan-horse financial “reform” bill backed by Goldman Sachs that would further enrich Goldman Sachs, which was recently accused of fraud by the Securities and Exchange Commission (SEC).

In a party-line vote, Senate Democrats earlier blocked any reform of Fannie Mae and Freddie Mac, the corrupt, government-sponsored mortgage giants that even Obama administration officials admit were at the “core” of “what went wrong” in the financial crisis.

(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals, yet is the chief drafter of the financial “reform” bill.)

At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes.  Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.)  The Obama administration showered the mortgage giants’ executives with $42 million in compensation.

Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk.  “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”  They paid their CEOs millions, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

Banking expert Peter Wallison, who warned for years about the risky practices of Fannie and Freddie, said the financial “reform” bill would lead to “bailouts forever,” contrary to Obama’s claims.

Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis.  That pressure will increase under the financial “reform” legislation.  Legislators approved Obama’s proposal to create a new consumer “protection” agency.  But it may harm rather than help consumers.  Why?  “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”  It would do so without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.

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