mortgage meltdown

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.

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.

Taxpayers to Put Up Billions More for Bailouts of Greece and Corrupt Mortgage Giant

by Hans Bader on May 6, 2010 · 1 comment

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

Government-sponsored mortgage giant Freddie Mac is demanding another $10.6 billion in bailouts, which the Obama administration is expected to give it. Obama’s so-called financial “reform” proposal does absolutely nothing to reform Freddie Mac, admits Obama’s Treasury secretary, tax cheat Timothy Geithner, even though he admits that Freddie Mac was “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 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 yesterday in their rage over possible budget cuts.  “The protesting civil servant workers trapped the bank employees in a burning building.”

Government spending is out of control in America, too.  Earlier, the Obama administration lifted the $400 billion limit on bailouts for the government-sponsored mortgage giants Freddie Mac and Fannie Mae, 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 lavish pay on their CEOs and reduce the payments of deadbeat mortgage borrowers.

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 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.

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.”

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 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.

Porn More Interesting to Media Than Flaws of Financial ‘Reform’ Bill; Obama Is “Lying His Face Off”

by Hans Bader on April 26, 2010

in Bailout Watch, Economy, Insurance, Legal, Politics as Usual, Regulation, Sanctimony

There are plenty of problems with the financial “reform” bill, but the media aren’t interested in that.  They’re much more interested in revelations that senior enforcement staff at the federal Securities and Exchange Commission, which would gain new powers under the bill, spent many hours looking at porn on their office computers.

The porn issue certainly deserves some attention, given just how much time some SEC staff wasted looking at porn at taxpayers’ expense: “A senior attorney at the SEC’s Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office.”  You have to wonder if this kind of inattention to its duties led the SEC to ignore the $50 billion fraud by Bernard Madoff, which was repeatedly brought to its attention to no avail, and the multi-billion dollar Ponzi scheme committed by Robert Allen Stanford.  But it probably didn’t.

While the media, including the New York Times, has reported on the porn, it has largely ignored substantive criticism of the financial “reform” bill, which is a Trojan horse that would reinforce risky practices that led to the housing bubble, while ignoring needed reforms, harming insurance policyholders, and giving executive branch officials arbitrary power to bail out or take over banks and financial institutions.

As journalist Matt Welch notes, Obama “is lying his face off about financial reform.”

President Obama has collected millions from Wall Street special interests, his administration contains many Wall Street lobbyists, and he supported the unnecessary $700 billion bank bailout.  But now, he’s pushing a deceptive financial regulation bill with phony rhetoric about “reform,” claiming it is “not legitimate” to point out that the bill could lead to yet more bailouts and government takeovers (as economists and banking experts like Peter Wallison have demonstrated).

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 enrich the politically-connected liberal Wall Street firm Goldman Sachs (recently accused of fraud), enrich left-wing lobbying groups and community organizers, and give the government the permanent ability to bail out and take over Wall Street firms.

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, 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 lavish pay on their CEOs and reduce the payments of deadbeat mortgage borrowers.  (At the direction of the Obama administration, Freddie Mac is now running up $30 billion in lossesto 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.

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.”

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 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.

Obama’s proposed financial regulations would also harm retail banking operations used by middle-class people and small businesses.

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.

Congress Mulls More Credit Card Restrictions, in Legislation Likely to Backfire on Consumers

by Hans Bader on January 5, 2010 · 3 comments

in Deregulate to Stimulate, Economy, Legal, Politics as Usual, Precaution & Risk, Sanctimony

Some in Congress want to impose interest rate ceilings on credit cards and restrictions on interchange fees.  Australia tried the same thing, and it backfired, harming consumers by forcing credit card companies to increase annual fees on responsible credit cardholders and scale back 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.)

As law professor Todd Zywicki notes in the Wall Street Journal, the proposed legislation would harm both consumers and small businesses, since it would

reduce the quantity and quality of credit cards by restricting credit availability and cutting back on product innovation or ancillary card benefits. 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 by 23%. Innovation, especially in terms of improved security and identity-theft protection, was stalled. Card issuers also increased their efforts to attract higher-risk customers who generate interest and penalty fees to offset lower interchange revenues from lower-risk transactional users.  The most important pro-consumer innovation in payment systems of the past two decades has been the general disappearance of annual fees on most credit cards. Cardholders now carry and use multiple cards at little or no cost. The consequences for consumer choice and competition have been profound—card issuers compete for consumer business literally every time they open their wallet to make a purchase.  Annual fees are essentially a tax on card-holding. Policies that produced a return of annual fees would strangle this process of competition by making it more expensive for consumers to hold multiple cards and to switch cards easily. Small businesses, three-quarters of which rely on credit cards, would also have to pay more to maintain access to multiple credit lines, stifling the most potent engine of economic recovery.

Earlier, Congress and the President misguidedly attempted to reduce burdens on irresponsible credit card borrowers, through a new law, the CARD Act of 2009 (Credit Card Accountability Responsibility and Disclosure Act), that backfired and resulted in the return of annual fees, bizarre interest rate hikes for some responsible borrowers, and the elimination of many cash back and rewards programs.

All these bailouts are taking their toll on the economy.  Economists and real estate experts say a $75 billion mortgage bailout program devised by the Obama administration is actually harming the economy, the housing market, and the construction industry.

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.

← Previous Entries

Next Entries →