Freddie Mac

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.

Media Give Disgraced Politician Eliot Spitzer a Soapbox to Lecture the Public

by Hans Bader on June 4, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Legal, Mobility, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Eliot Spitzer, who was forced out as Governor of New York after paying prostitutes tens of thousands of dollars and then violating federal finance laws in trying to cover it up, is now apparently going to replace respected journalist Campbell Brown in a prime slot on CNN.  Earlier, the leading liberal website Slate hired him as one of its financial commentators.

As attorney general of New York,  Spitzer was an overbearing, hypocritical bully who used the threat of prosecution and lawsuits to force profitable companies to dump their highly-competent CEOs, resulting in declining profits and losses to shareholders at companies like AIG, which the taxpayers later bailed out at a cost of $170 billion.

Spitzer is just the latest liberal crook given a soapbox by the liberal media.  The Washington Post just gave former auto czar Steve Rattner space to boast about the supposed success of the auto bailouts, even as the SEC was moving to ban him from Wall Street for three years because of his unethical conduct.  (Rattner whined about how critics of the bailout like Senator Charles Grassley, who exposed how General Motors was using taxpayer money to make a phony “repayment” of part of what taxpayers gave GM, were “elasticizing the facts,” even though the government’s own inspector general for the TARP bailout program confirmed what Senator Grassley was saying.)

And the Washington Post earlier gave former Fannie Mae head Franklin Raines a soapbox to lecture Fannie Mae’s critics, after he was fined for massive accounting fraud at Fannie Mae, which had to be bailed out by taxpayers shortly afterwards thanks to the risky practices he promoted.

As I noted at the time in a letter to the editor, “Mr. Raines stepped down as Fannie Mae’s CEO after a ‘$6.3 billion accounting scandal’ that rivaled Enron’s; in a settlement with the government, he and other Fannie Mae executives agreed to pay fines and forgo millions in stock, pension and other benefits. . .Yet The Post gave Mr. Raines a soapbox to make the same arguments against reforming Fannie Mae that he and Fannie’s lobbyists have made for years. Mr. Raines, a liberal power broker, derided “ideologues in the Bush administration” who, he said, tried to “undermine” Fannie Mae. Those officials were in truth warning about Fannie Mae’s risky practices.”

The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs).  “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.

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.” 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.

The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do. Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.

(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. Dodd is the chief drafter of the financial “reform” bill.)

At the direction of the Obama administration, Freddie Mac recently 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 federal government has sunk over $50 billion into General Motors itself, $17 billion more into its finance arm GMAC, $15 billion into Chrysler, and spent billions more on the wasteful cash-for-clunkers program and pension bailouts for GM spin-offs.  Even if GM manages to recover, taxpayers will never get most of this money back.   (Taxpayers may get back some of the money sunk directly into GM itself, in an IPO, if all goes according to plan; but the remaining money sunk into related entities, and indirectly used to prop up GM, will never be repaid, even if GM recovers.)

Even if GM recovers, it will not be because of its ability to fairly compete (the Obama administration used the bailout to protect excessive union wages), but rather because of good luck (Toyota’s recent safety issues have driven car-buyers away from it to GM and Ford) and special favors from the government (the Obama administration artificially reduced GM’s costs by ripping off bondholders who had loaned the company money, and dumping costly pension obligations of GM spin-offs onto taxpayers).

Obama Administration Pushes More Bailouts at Taxpayer Expense; America to Bail Out Corrupt Union Pension Funds

by Hans Bader on June 2, 2010 · 2 comments

in Bailout Watch, Economy, Employment, International, Personal Liberty, Regulation, Stimulus to Nowhere

The Obama administration and its congressional allies are now pushing for billions more in bailouts for mismanaged union pension  funds, and teachers unions.

The union pension bailout bill “would transfer tens of billions of dollars worth of retiree liabilities” from unions “to taxpayers.”  It would bail out the massively underfunded pension fund of the SEIU, a corrupt left-wing union that uses mobs to intimidate, and occasionally beat up, its critics and creditors. (The SEIU serves as a security force for Obama allies and liberal Congressmen seeking to keep Tea Party protesters away from their events.)  The union pension funds are estimated to be underfunded by $165 billion.

The Obama administration is also proposing a multi-billion dollar teacher bailout sought by the teachers’ unions.  Although education spending per student has quadrupled, after inflation, since 1960, and teacher class sizes have shrunk considerably, the Obama administration wants to increase spending even further to prevent states from laying off any teachers.  Even the The Washington Post, which endorsed Obama and has endorsed every Democratic presidential candidate since 1952, considers this unwise and financially reckless “wasteful spending.”  (The SAT has been “recentered” in recent years to hide the fact that SAT scores have effectively gone down even as education spending has skyrocketed.  My 1986 SAT score of 1520 out of 1600 would be a perfect 1600 on the relevant portions of today’s SAT, thanks to “recentering.”)  Ironically, no additional spending would be needed to prevent layoffs if teachers would simply accept small pay cuts.  (The average school teacher in Montgomery County, Maryland, makes $76,483 in base pay–which hasn’t stopped school officials from threatening to sue the County for supposedly inadequate school funding.)

While pushing an unnecessary teacher bailout, the administration has shown little interest in the plight of the unemployed.  It deliberately removed from the $800 billion stimulus package billions in transportation spending that would have stimulated the economy, after feminist leaders complained that such projects would employ blue-collar men, many of whom are now unemployed (80 percent of those who have lost their jobs in the recession are men).   The transportation spending was replaced with wasteful welfare spending, and other provisions of the stimulus package largely repealed the limits on welfare passed in the reforms of 1996.

The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs). It was just the beginning: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.

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.

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.” 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.

The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do. Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.

(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. Dodd is the chief drafter of the financial “reform” bill.)

The financial “reform” bills recently passed by the House and Senate do nothing to reform Fannie Mae and Freddie Mac. But they will increase pressure on banks to make risky loans in depressed neighborhoods, and increase credit card costs.

The Obama administration also recently provided billions for the international bailout of Greece, which came close to bankruptcy thanks to its socialist policies and pensions for people who retire as early as age 50 (in many ordinary occupations, like hairdressers).

More Bailouts for Corrupt Mortgage Giants: “More Aid Expected for Fannie, Freddie”

by Hans Bader on May 26, 2010

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

The bailouts are getting even bigger, for the most undeserving recipients.  “More Aid Expected for Fannie, Freddie,” reports The Washington Post.

The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs).   It was just the beginning: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.

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.)

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.”  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.

The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do.  Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.

The financial “reform” bills recently passed by the House and Senate do nothing to reform Fannie Mae and Freddie Mac.  But they would wipe out jobs, increase pressure on banks to make risky loans in depressed neighborhoods, and increase credit card costs.   Fuller coverage of the financial “reform” bills can be found here.  How CEI worked to make the bill less awful than it otherwise would have been is discussed here.

← Previous Entries

Next Entries →