mortgage bailouts

More Bailouts, Urge Left-Leaning Journalists

by Hans Bader on August 23, 2011

in Bailout Watch, Deregulate to Stimulate, Economy, Legal, Regulation

Left-leaning journalists are urging more mortgage bailouts to try to increase consumer spending, since they erroneously think that inadequate consumer spending is the principal cause of the current bad economy. This is a fallacy: As economist Mark Calabria has noted, consumer spending is currently high as a percentage of the economy compared to most periods in American history, and is low only compared to the unsustainably high levels reached during the housing bubble, when people borrowed rather than saved. It is corporate investment, not consumption, that is too low and needs to rise. Companies, and even Democratic businessmen, are afraid to invest and create new jobs now, because they fear costly, unpredictable new federal regulations and mandates from the Obama administration (such as the 2010 Dodd-Frank financial law, and the health care reform law, whose estimated cost just went up by another $50 billion annually and which will reduce the size of America’s work force by hundreds of thousands of people).

Apparently thinking that the government can create money out of thin air through mortgage bailouts, The New York Times‘s editorial board yesterday urged the Obama administration to pressure banks to cut the principal balances of people who imprudently borrowed too much money, even as it admits that such “principal reductions are seen as rewarding reckless borrowers,” since doing so will “free up money for borrowers to use for paying down principal or consumer spending.” But doing that doesn’t create any new wealth, or free up new money, all it does is transfer money from savers to borrowers. Enriching borrowers at investors’ expense results in investors feeling poorer and spending less money, reducing economic activity related to their purchases. The Times just ignores the fact that forcing banks to write off loans will harm bank shareholders, resulting in them spending less money. Thanks to my recent losses in the declining stock market, which will make it harder for me to ever retire, I have already reduced consumer spending, and to save money, I no longer eat out in restaurants.

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Obama Administration Tries to Rip-Off Retirees in New Mortgage Bailout

by Hans Bader on March 10, 2011

in Bailout Watch, Economy, Politics as Usual, Zeitgeist

The Obama administration is now working with state attorney generals to rip off pension funds to bail out mortgage borrowers who don’t even need help. Pension funds that millions of Americans rely on for their retirement will suffer. Bank shareholders will also suffer. I  explain how and why in a commentary at The Washington Examiner website. The government is trying to get mortgage servicers to write off portions of loans that are owned by other people or institutions — like the pension funds that millions depend on. That undermines property rights. Last fall, intellectuals with ties to the Obama administration proposed a much larger, but conceptually similar, bailout that could cost taxpayers a trillion dollars, the idea being to temporarily increase consumer spending through the next election.

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.”

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.

Senate Passes Financial “Reform” Bill, 59-39; Will Wipe Out Jobs and Increase Credit Card Costs

by Hans Bader on May 21, 2010 · 2 comments

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

The Senate has just passed a 1,500 page financial “reform” bill that deliberately leaves unreformed the corrupt mortgage giants that spawned the financial crisis–while wiping out jobs and potentially driving up fees for many credit cardholders.

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.)

Business groups warn that the new rules will wipe out jobs and slow the economic recovery. “If you want to drive capital out of the United States, this is your bill,” said Thomas Donohue, president and CEO of the US Chamber of Commerce.

The bill also increases banks’ costs by restricting the ability of banks to enter into contracts charging retailers for the convenience of using credit or debit cards to collect payment from customers.  When Australia did this credit card holders suffered, as banks passed on the increased costs to them by hiking annual fees and getting rid of cash-back, rebate, and rewards programs.  (Ironically, recent interest rate hikes are partly the product of a law recently passed by Congress, the CARD Act, which forces responsible people to bear the costs of irresponsible borrowers.)

In the Wall Street Journal, Professor Todd Zywicki notes that such provisions harm consumers: “This is exactly what happened when Australian regulators imposed price controls on interchange fees in 2003: Annual fees increased an average of 22% on standard credit cards and annual fees for rewards cards increased by 47%-77%. Card issuers also reduced the generosity of their reward programs.”

The so-called financial “reform” bill would also give government officials the ability to nationalize businesses that they claim are at risk of failing — and block meaningful judicial review of such seizures by shareholders alleging violations of their constitutional rights.  (That will increase the ability of presidents to shake down businesses for donations to their political allies, since a business in danger of being seized by the government will try to curry favor with government officials.)  The bill’s House architect, Barney Frank, boasts that it will create “death panels” for American companies (this is the same Barney Frank who for years blocked any reform of the corrupt mortgage giants Fannie Mae and Freddie Mac).

Mortgage giant Fannie Mae is getting another $8.4 billion in federal bailout money, after 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).  The other GSE, Freddie Mac, is getting $10.6 billion more in bailouts.  Soon, they will be receiving much more: “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.)  By contrast, the Republican alternative, rejected by the Senate, aimed “to wind down, and break up” the mortgage giants and “limit taxpayer exposure” to their losses.

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.

Trojan Horse Financial “Reform” Bill Enriches Goldman Sachs, Rips Off Taxpayers

by Hans Bader on April 19, 2010

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

The Obama administration and Congressional leaders are pushing a trojan-horse financial “reform” bill that would enrich the wealthy and powerful investment bank Goldman Sachs, which was recently cited for massive fraud by the Securities and Exchange Commission (SEC).  That’s the discovery of John Berlau, who won the National Press Club’s Sandy Hume Memorial Award for exposing the conflicts of interest of a former IRS Commissioner.

Earlier, the administration used the AIG bailout to give billions in legally unnecessary payments to 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.

Moreover, Obama’s legislation would do nothing to rein in the worst offenders behind the mortgage crisis, the government-subsidized mortgage giants Fannie Mae and Freddie Mac, even as it would give the government the permanent ability to bail out Wall Street firms.

Obama’s proposed financial rules overhaul does absolutely nothing about 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.” Worse, the Obama administration lifted the $400-billion limit on bailouts for Fannie and Freddie, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.

The administration is now expanding the bailouts of these mortgage giants, which are now giving lavish pay to their CEOs and reducing the payments of deadbeat mortgage borrowers.  (At the direction of the Obama administration, Freddie Mac is now running up $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 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.”

Why did they buy these risky loans?  They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As GSEs, 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 J. Wallison, who prophetically warned against the risky practices of Fannie Mae and Freddie Mac for years, says that Obama’s proposals will lead to “bailouts forever” and give big, politically connected banks that are “too big to fail” the ability to drive smaller rivals out of business at the expense of consumers and taxpayers.  His colleague Alex Pollock notes that Obama has not lived up his administration’s claims that it would back reform of Fannie Mae and Freddie Mac.

Government pressure on banks to make loans in economically-depressed neighborhoods was another key reason for the mortgage meltdown and the financial crisis.  If Obama has his way, that pressure will increase.  The House earlier approved Obama’s proposal to create a Consumer Financial 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 without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.

Obama Administration Rewards Corrupt Mortgage Giants, Punishes Productive Private Banks, Fleeces Taxpayers and Responsible Credit Cardholders

by Hans Bader on March 10, 2010 · 3 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Energy, Environment, Labor, Mobility, Natural Resources, Politics as Usual, Precaution & Risk, Regulation, Sanctimony

The Obama administration wants to increase taxes on productive banks that are self-supporting, while exempting the mortgage giants and other companies that got massive taxpayer bailouts.  For more details, click on this graph, “Bank-robbing tax lets ‘bad guys’ go free,” courtesy of a Washington think-tank, the Heritage Foundation.  It shows that the mortgage giants Fannie Mae and Freddie Mac are exempt and will never have to pay a dime, despite being bailed out by taxpayers at a cost of more than $200 billion, while Bank of America and Wells Fargo, which are solvent and returned all their TARP money, would be forced to pay billions under the administration’s proposed tax.

General Motors and Chrysler won’t have to pay a dime, either, even though the government claimed they were “financial institutions” just like banks in order to use bank bailout money to bail them out at a cost of at least $70 billion (a bailout that would not even have been needed to save the companies if they had simply been reformed to make them competitive, and received relief from burdensome red tape, like poorly-drafted CAFE and global-warming regulations that may backfire.  Instead, the Obama administration effectively gave the companies, at taxpayer expense, to the UAW, a powerful union opposed to much-needed reforms).

In other news, economists and real estate experts say that a mortgage bailout program the Obama administration spent $75 billion on has backfired and harmed the real estate market.

Obama recently expanded the bailout of mortgage giants Fannie Mae and Freddie Mac and lavished money ($42 million) on their CEOs.

Under the Bush administration, federal regulators took over Fannie and Freddie in the name of stopping their risky practices. But the Obama administration has increased their purchases of risky mortgages in a vain attempt to inflate the economy. Worse, it forced them to run up to tens of billions in losses to bail out deadbeat and at-risk mortgage borrowers, and then tried to conceal those losses, in conduct reminiscent of Enron.  But their management hasn’t objected, because the costly requirements are accompanied by massive taxpayer bailouts and lavish pay for the mortgage giants’ CEOs.

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.”

Why did they buy these risky loans?  They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As GSEs, 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.

At the direction of the Obama administration, Freddie Mac is now running up $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.

Under Obama’s proposed financial “reforms,” banks will be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically correct entity called the Consumer Financial Protection Agency, tasked with enforcing the Community Reinvestment Act. Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s proposals would empower the new agency to enforce the Community Reinvestment Act, which was a key contributor to the financial crisis, without regard for banks’ financial safety and soundness.

Moreover, Obama’s proposed financial rules do absolutely nothing to reform Fannie Mae and Freddie Mac, admits Treasury Secretary Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Meanwhile, a new law backed by the Obama administration, the CARD Act of 2009, has effectively forced responsible credit-cardholders to subsidize irresponsible people, leading to the return of annual fees on many credit cards, and the elimination of many cash-back and rewards programs.  My wife, who has an excellent credit rating, was recently informed that one of her cards will now have an annual fee — of $60!  (She promptly canceled the card.)

New Federal Program Kills Jobs, While Costing Taxpayers Half a Billion Dollars

by Hans Bader on January 11, 2010

in Agriculture, Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Ethanol, Global Warming, International, Natural Resources, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere

A federal biofuels program enacted in the name of fighting global warming and reducing dependence on foreign oil is instead killing jobs while perhaps doing more harm than good and costing taxpayers half a billion dollars, reports the Washington Post.

“It sounded like a good idea: Provide…government money to convert wood shavings and plant waste into renewable energy.” But it is now killing jobs by “driving up the price of raw timber, undermining an industry that…used sawdust and wood shavings to make affordable cabinetry.”  Meanwhile, “the Biomass Crop Assistance Program…has mushroomed into a half-a-billion dollar subsidy.” It’s a “Biomass Blunder,” says environmental law professor Jonathan Adler.

At least this program isn’t resulting in malnutrition and death, unlike ethanol mandates and subsidies, which cause starvation and unrest in the Third World.  Ron Bailey writes about the “global food crisis” that has resulted in food riots across the world, including countries like Mexico, Pakistan, Indonesia, Yemen, Haiti, and Egypt.  The crisis, he noted, is caused by “stupid energy policies” in the form of ethanol “mandates” and subsidies, which result in the world’s farmers producing less food and more ethanol.

Food rioting spread throughout Haiti in 2008, endangering the government of its “U.S.-backed president”:  “A desperate appeal from the president Wednesday failed to restore order to Haiti’s shattered capital, and bans of looters sacked stores, warehouses, and government offices.”   The government responded with tear gas and bullets, as this video shows. Food riots also occurred in Ivory Coast and El Salvador.

As the Washington Post earlier noted, “the increasing use of land to produce ethanol” “has led demand for food to outstrip supply.”

In the U.S., “The federal government’s love affair with ethanol subsidies drove up food prices, depleted plains-state aquifers, and subsidized the destruction of water fowl habitat.”

For all this cost, ethanol subsidies do not even reduce net greenhouse gas emissions.  Indeed, ethanol subsidies threaten to cause an enormous amount of environmental damage, deforestation, and soil erosion. For this and other reasons, the New York Times advocates getting rid of ethanol subsidies.

Wheat production is down in the world’s breadbaskets, like the United States, as farmland shifts away from wheat to ethanol production.  In Egypt, a major wheat importer, the fall in worldwide wheat production has triggered bread shortages and unrest as poor people find it difficult to get enough to eat.  The unrest is strengthening support for Islamic extremists opposed to Egypt’s relatively pro-American government.

Many Afghans, facing higher food prices, now have little choice but to grow opium to pay for food: the Soviet invasion and occupation destroyed their irrigation works (and roads), making large-scale food production and transport extremely difficult. And when food prices went up in 2006 and 2007 as a result of ethanol mandates and rising demand for food in India and China, thousands of Afghan children starved to death.

Harmful ethanol subsidies and mandates are likely to expand, thanks to Obama and congressional leaders.  In 2008, Obama repeatedly attacked John McCain for opposing ethanol subsidies, which McCain opposed as a form of corporate welfare for powerful corporations like ADM.

Obama backs expanded ethanol subsidies contained in a huge cap-and-trade carbon tax bill that would do little to protect the environment, while costing the economy trillions. The cap-and-trade bill was pushed through the House before its text even became available. The bill was over 1090 pages long and contained special interest giveaways to a legion of big corporations and their lobbyists. At the last minute, 300 more pages were added to the bill that few in Congress had even read, and had to be manually inserted into the existing 1000 pages after the bill was passed, based on guesses about where those pages would fit in. Thus, the bill did not even really exist at the time it was passed.

In 2008, Obama privately admitted to a San Francisco Chronicle reporter that his cap-and-trade carbon tax would cause people’s electric bills to “skyrocket.” The cap-and-trade bill supported by Obama would lead to big tax increases, administration officials privately have conceded, even though they publicly claim otherwise. “Officials at the Treasury Department think cap-and-trade legislation would cost taxpayers hundreds of billion in taxes, according to internal documents circulated within the agency and provided to the Washington Times” by CEI. It could raise household taxes by $1761 per year, equivalent to a 15 percent tax increase. It would also result in “loss of steel, paper, aluminum, chemical, and cement manufacturing jobs.”

The cap-and-trade bill will do little to cut greenhouse gas emissions, since it contains so many special interest giveaways and environmentally-destructive provisions like subsidies for ethanol.  Instead, notes the Examiner, it will result in massive destruction of the Earth’s forests.  Although the bill’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them by driving industry overseas to places where there are fewer air pollution curbs, resulting in dirtier air.

Meanwhile, Obama has thwarted more use of nuclear energy, which reduces greenhouse gas emissions, by blocking use of the Yucca Mountain nuclear-waste disposal site after billions of dollars in taxpayer money had already been spent developing it.

In other news, a $75 billion Obama mortgage bailout program is actually harming the economy, the housing market, and the construction industry, economists and real estate experts say.  Nobel-Prize winning economist Gary Becker says that Obama’s policies in general are harming the economy.  The $800 billion stimulus package has failed to stem rising unemployment, while reducing the size of the economy over the long run.

Government Expands Fannie and Freddie Bailout and Lavishes Money on their CEOs

by Hans Bader on December 28, 2009 · 1 comment

in Bailout Watch, Economy, Features, Legal, Politics as Usual, Stimulus to Nowhere, Zeitgeist

On Christmas Eve, when it hoped no one would notice, the Obama administration lifted the $400-billion limit on bailouts for government-sponsored mortgage giants Fannie Mae and Freddie Mac, and showered their executives with $42 million at taxpayer expense. (Earlier, Freddie Mac’s CFO received $5.5 million).

Under the Bush administration, federal regulators took over Fannie and Freddie in the name of stopping their risky practices. But the Obama administration has increased their purchases of risky mortgages in a vain attempt to inflate the economy. Worse, it forced them to run up to tens of billions in losses to bail out deadbeat and at-risk mortgage borrowers, and then tried to conceal those losses, in conduct reminiscent of Enron.

Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages that were issued by banks and mortgage companies, and thus creating an artificial market for junk. They put up with Clinton-era affordable housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone –  to increase the size of their managers’ bonuses.  As GSEs, 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 federal government has a double standard when it comes to huge executive pay.   It has no problem paying exorbitant sums of money to people who head failed government agencies like Freddie Mac and Fannie Mae.   (At the direction of the Obama administration, Freddie Mac is now running up $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 does, however, have a problem with big compensation packages at private banks like Bank of America and Citibank, even for talented new executives.  Obama’s pay czar, Ken Feinberg, a major donor to liberal politicians like Senator Chris Dodd (who recommended Feinberg for the job after he gave Dodd more than $9000), is now chopping compensation more at basically self-supporting institutions like Bank of America than at completely-bailed out entities like Chrysler.  (Many expect Chrysler to go under despite a $70-billion bailout.   Chrysler is owned mostly by the United Auto Workers union, which received majority ownership from the Obama administration at taxpayer expense, through a politicized bankruptcy process).

Feinberg’s actions have already left taxpayers worse off by forcing Citigroup to get rid of a profitable subsidiary. As finance professor Roy C. Smith noted in The Washington Post:

Feinberg’s actions . . . are not going to improve either the government’s chances of getting its money back or the prospects of repairing these damaged companies. Because of his recommendations, Citigroup agreed to sell its profitable Phibro unit at an extremely low price of only one or two times earnings in order to avoid having to pay a talented trader a $100 million contractual share of the profits he had earned. The most successful of the remaining employees of Citigroup, AIG and Bank of America have been given an incentive to leave their posts, and the firms will be constrained in hiring replacements.

Many competent executives whose pay is threatened by the pay czar are now leaving for other firms.  (The pay czar’s political patron, Senator Dodd, received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and a massive gift from Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.)

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically correct entity called the Consumer Financial Protection Agency, tasked with enforcing the Community Reinvestment Act. Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s proposals would empower the new agency to enforce the Community Reinvestment Act, which was a key contributor to the financial crisis, without regard for banks’ financial safety and soundness.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates. But Obama’s proposed financial rules overhaul does absolutely nothing about 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.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort payoffs from banks.

Mortgage Meltdown Was Caused by Government Mandates

by Hans Bader on October 21, 2009 · 2 comments

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

The mortgage meltdown was caused partly by the government, which created an artificial market for bad mortgages.  The Washington Examiner cites a recent study by Peter Wallison, who had prophetically warned about risky financial practices for years, finding that two-thirds of all bad mortgages were either “bought by government agencies or required to be bought by private companies under government pressure.” Now, the Federal Housing Administration is ramping up its purchases of low-quality mortgage loans, threatening taxpayers with hundreds of billions of dollars in losses, and creating the risk of another housing bubble in the future.

As Michael Barone notes, Congress is now seeking to pass costly legislation that could reinflate the housing bubble, threatening future financial meltdowns.

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial 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.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

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