mortgage giants

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.

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.

Corrupt Mortgage Giants Escape Reform: “Obama Administration Says Fannie, Freddie Reform ‘Too Hard’”

by Hans Bader on May 24, 2010 · 1 comment

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

There won’t be 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.

The “Obama Administration says Fannie, Freddie reform” is “‘too hard,’” reports the Washington Examiner.

Last week, the Senate passed a 1,500 page financial “reform” bill.  But it contained no meaningful reform, and won’t do anything to prevent the next financial crisis, as even liberals like Clinton’s Labor Secretary Reich have admitted.

In a party-line vote, Senate Democrats earlier blocked any reform of Fannie Mae and Freddie Mac.

(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 so-called financial “reform” bill would 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 way the drug manufacturers are currently running ads for Senate Democratic Leader Harry Reid in order to curry favor with him and the Obama administration.)

The financial “reform” 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).

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).   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.

Bailout Supporters Lose Elections in Germany and Utah; Obama Administration Presses Ahead With More Bailouts

by Hans Bader on May 13, 2010

in Bailout Watch, Economy, International, Legal, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Senator Robert Bennett lost reelection in Utah’s Republican primary amidst anger over his vote for the $700 billion bank bailout known as TARP.

German voters punished Chancellor Angela Merkel for supporting the international bailout of Greece by removing her party from office in Germany’s “most populous state” and stripping her party of control of Germany’s upper house of Parliament. European countries like Germany will pay for most of “the unpopular multi-billion dollar bailout of Greece,” but American taxpayers will also pay $6.8 billion, thanks to the Obama administration.

The Obama administration is ignoring these losses and pressing ahead with more bailouts for the corrupt mortgage giants Fannie Mae and Freddie Mac.

In a party-line, 56-to-43 vote on May 11, Senate Democrats blocked any reform of Fannie Mae and Freddie Mac, the corrupt, government-backed mortgage giants that even Administration officials admit were at the “core” of “what went wrong” in the financial crisis.

Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year over financial improprieties (such as his real estate gift from a lobbyist and “sweetheart mortgage from Countrywide Financial“), yet is the chief drafter of the financial “reform” legislation expected to pass the Senate by next week.

The financial “reform” bill would devastate the venture capital markets needed to create jobs and small businesses, by imposing onerous restrictions on so-called “angel financing.”  It 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 Fannie and Freddie).

Mortgage giant Fannie Mae is seeking 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).   Last week, the other GSE, Freddie Mac, asked for $10.6 billion more in bailouts. The Obama administration is certain to approve the new bailout request: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports the New York Times.

Obama’s so-called financial “reform” proposal does nothing to reform Fannie Mae and Freddie Mac, admits Obama’s Treasury secretary, Timothy Geithner, who concedes they were “a core part of what went wrong in our system.” (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.)  By contrast, the Republican alternative “aims to wind down, and break up” Freddie Mac and “limit taxpayer exposure” to its losses.

“American taxpayers are paying for $6.8 billion of the Greek bailout” through contributions to an international bailout fund backed by the Obama administration.   Greece is being bailed out by Europe and the international community because it is running up huge budget deficits due to a bloated bureaucracy and government pensions that let many Greeks retire in their 50s. “The Obama administration wants to use U.S. tax dollars to bail out a nation that is in a financial death spiral brought on by years of amazingly irresponsible deficit spending and similar behaviors often found in socialist states.”

Rioters in Greece killed three bank employees last week in their rage over possible budget cuts.  “The protesting civil servant workers trapped the bank employees in a burning building.”

The Obama administration earlier lifted the $400 billion limit on bailouts for Fannie Mae and Freddie Mac, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their 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, says Obama’s proposals will lead to “bailouts forever.”  Obama claims that it will not lead to more bailouts.  But as Congressman Brad Sherman (D-Calif.) admitted, the “bill has unlimited executive bailout authority. . .The bill contains permanent, unlimited bailout authority.”

Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis.  If Obama has his way, that pressure will increase.  The House earlier approved Obama’s 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.”  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.

Democrats Block Reform of Corrupt Mortgage Giants; Fannie Mae and Freddie Mac Will Receive Billions More in Bailouts for Government-Sponsored Enterprises

by Hans Bader on May 12, 2010 · 1 comment

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

In a party-line, 56-to-43 vote yesterday, Senate Democrats blocked any reform of Fannie Mae and Freddie Mac, the corrupt, government-backed mortgage giants that even administration officials admit were at the “core” of “what went wrong” in the financial crisis.

President Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives as a senator, second only to the corrupt Senator Chris Dodd, who is retiring this year over financial improprieties (such as his real estate gift from a lobbyist and “sweetheart mortgage from Countrywide Financial“), yet is the chief drafter of the financial “reform” legislation expected to pass the Senate by next week.

The financial “reform” bill would devastate the venture capital markets needed to create jobs and small businesses, by imposing onerous restrictions on so-called “angel financing.”  It 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 Fannie and Freddie).

Mortgage giant Fannie Mae is seeking 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).   Last week, the other GSE, Freddie Mac, asked for $10.6 billion more in bailouts. The Obama administration is certain to approve the new bailout request: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports the New York Times.

Obama’s so-called financial “reform” proposal does nothing to reform Fannie Mae and Freddie Mac, admits Obama’s Treasury secretary, Timothy Geithner, who concedes they were “a core part of what went wrong in our system.” (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.)  By contrast, the Republican alternative “aims to wind down, and break up” Freddie Mac and “limit taxpayer exposure” to its losses.

“American taxpayers are paying for $6.8 billion of the Greek bailout” through contributions to an international bailout fund backed by the Obama administration.   Greece is being bailed out by Europe and the international community because it is running up huge budget deficits due to a bloated bureaucracy and government pensions that let many Greeks retire in their 50s. “The Obama administration wants to use U.S. tax dollars to bail out a nation that is in a financial death spiral brought on by years of amazingly irresponsible deficit spending and similar behaviors often found in socialist states.”

Rioters in Greece killed three bank employees last week in their rage over possible budget cuts.  “The protesting civil servant workers trapped the bank employees in a burning building.”

The Obama administration earlier lifted the $400 billion limit on bailouts for Fannie Mae and Freddie Mac, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their 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, says Obama’s proposals will lead to “bailouts forever.”  Obama claims that it will not lead to more bailouts.  But as Congressman Brad Sherman (D-Calif.) admitted, the “bill has unlimited executive bailout authority. . .The bill contains permanent, unlimited bailout authority.”

Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis.  If Obama has his way, that pressure will increase.  The House earlier approved Obama’s 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.”  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.

Bogus Financial “Reform” Bill Regulates Internet, Does Nothing About Corrupt Government-Sponsored Mortgage Giants Fannie Mae and Freddie Mac

by Hans Bader on May 3, 2010 · 1 comment

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

The so-called financial “reform” bill backed by President Obama gives federal bureaucrats new powers over the Internet, while doing nothing about the corrupt government-backed mortgage giants that spawned the financial crisis.

For example, “the bill contains provisions that would put the Federal Trade Commission in position to start issuing rules on Internet transactions that would not only slow down business growth but also have no relevance at all to the financial collapse that prompted the bill.”

Meanwhile, the bill does nothing to reform the government-sponsored mortgage giants 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, 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 Obama Administration is now expanding the bailouts of these mortgage giants so that they can reduce 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.)

The bill will also enrich the Wall Street firm of Goldman Sachs, recently accused of fraud, which bankrolls liberal lawmakers.

Government pressure on banks to make risky loans was a 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 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.”  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.

So, too, were the government-sponsored mortgage giants, Fannie Mae and Freddie Mac.  They 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.

Obama claims that it will not lead to more bailouts, but even congressional Democrats admit that it will.  As Congressman Brad Sherman (D-Calif.) admitted, the “bill has unlimited executive bailout authority…The bill contains permanent, unlimited bailout authority.”

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.)

Government Uses Takeover of Mortgage Giants to Deliberately Increase Their Massive Losses at Taxpayer Expense

by Hans Bader on January 5, 2010

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

The Wall Street Journal notes that the Obama administration has used the federal government’s bailout of mortgage giants Fannie Mae and Freddie Mac to do the exact opposite of what the federal government claimed it would do when it took them over a year ago.  It took them over in the name of winding down their risky loan portfolios, so they would stop running up losses at taxpayer expense.  But the Obama administration is deliberately making them run up huge losses to help out irresponsible borrowers who potentially might default on their mortgages.  “In today’s Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money.”

Over Christmas Eve, the Obama administration not only lifted the $400 billion limit on the bailout (and showered their CEOs with cash), but also ended “a key requirement of the 2008 bailout—that Fan and Fred begin shrinking the portfolios of mortgages they own on their own account, which total a combined $1.5 trillion.”

The Obama administration is now deliberately making them lose money:  “the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. . . Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses.”

“Much of this is being done off the government books,” to hide the costs of the Obama administration’s record deficit spending.  And their CEOs are being paid a fortune, the Journal notes, because “Fannie and Freddie are exempt from the rules” limiting compensation at private banks.

The mortgage crisis was caused partly by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and partly by the affordable-housing mandates imposed on them.

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.”

And banks will now be pressured to make even more risky loans.  The House has approved Obama’s 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.”  The Community Reinvestment Act was a key contributor to the financial crisis.  But the Administration’s proposal would direct the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.

Obama’s financial-regulation plan is “largely the product of extensive conversations” with two lawmakers responsible for the current financial mess, the corrupt Chris Dodd, and Barney Frank.

Another $75 billion in taxpayer money is already being wasted on mortgage bailouts that economists and real estate experts say is actually harming the economy and the real estate market.