Will Rogers once said, “I don't make jokes, I just watch the government and report the facts.” Spoken in the 1920s, his words are still true today. Indications out of Washington this week are that Uncle Sam is about to do something that if it weren’t so serious would be an absolutely hilarious joke. Of course, I am referring to the planned taxpayer bailout of Fannie Mae and Freddie Mac.
First of all, in a related story, Federal Reserve Chairman Ben Bernanke should be investigated for perjuring himself before Congress. In testimony given before the House Financial Services Committee on July 16 Bernanke confidently told members of Congress that the beleaguered mortgage giants Fannie Mae and Freddie Mac were in “no danger of failing”. His testimony was instrumental in getting Congress to approve Treasury Department and Federal Reserve proposals to make sweeping changes to the relationship between the two institutions and the government. The changes included making funds available to the firms to ease the credit crunch and allowing the government to purchase shares of stock in both firms. Just seven weeks later, news breaks that the government is moving in to take control of both institutions to save them from collapse. With the data available to Bernanke, he either lied to Congress to get his way or he doesn’t know what he is doing.
In any event, the point is that now the American taxpayer is going to be left holding the tab for these federal boondoggles. The problem is that no one knows how big the tab is going to be? Combined, the two institutions own or have guaranteed $5.1 trillion in mortgage debt. Perhaps Treasury Secretary Henry Paulson’s request to Congress in July for essentially a blank check to help Fannie and Freddie was prophetic? Only time will tell.
Article comments
— go to most recent comments1 - Dave Nalle
I agree that this is troubling news, but the bad part is that these two mortgage monsters were so poorly managed that they now need a bailout, not so much that they are being bailed out.
One rabid commentator on todays morning shows claimed that this was going to increase our national debt by a third overnight. But the truth is that this is $5.1 trillion of secured debt, not actual borrowed money like the rest of the debt. There are real assets out there which back up this debt, so if the economy and the loaning banks can be stabilized the debt will be neutral as far as the impact on our overall indebtedness.
As for harming our credit standing, it would be harmed a lot more if we let these quasi public institutions go under.
Dave
2 - Silas Kain
Maybe you can help me on this one, Dave. If these two agencies were "private" but remained quasi-public how are they allowed to have political action committees? Granted the amount of soft money coming out of both agencies isn't all that great but somehow the whole thing seems to border on illegal. And, finally, how many mortgage companies or banks caught up in this disaster come from Delaware?
3 - Dave Nalle
Lots of businesses are incorporated in Delaware, but very few actually come from there. I imagine a number of the banks in question do.
As I understand Freddie Mac and Fannie Mae, they started out as government agencies and then got set free and made private during the Johnson administration but with some passive government backing and loan guarantees. As I understand it they were privatized going into the election of 1968 as a way to reduce the massive deficit that Johnson's administration was running.
As for how they can have PACs, I guess that's not an issue now that they are more or less private. Maybe the PACs will go away now that the government is taking them back over.
Dave
4 - Lisa Solod Warren
I just love how Dave manages to get both Johnson and Delaware in there as "persons" to blame. Silas, please do your own research. Counting on Dave for this is really not a good idea.
No, we can't let these institutions go under because they would then cause huge horrible financial disaster waves for us and, perhaps, the world. We have no choice. But the key is not to let the taxpayes hold more of the bag than the investors. It's very complicated and essentially the government's fault for deregulating. Remember Phil Gramm? Mr. Deregulation? This is the kind of thing that happens when there is non.
5 - bliffle
They demonstrated the big peril of a combined public/private enterprise: privatizing the profit and socializing the risk.
6 - Arch Conservative
But the key is not to let the taxpayes hold more of the bag than the investors.
By taxpayers do you mean the taxpayers that didn't foolishly get into mortgages that they couldn't handle Lisa? Or did you mean the ones that did because you feel sorry for them.
Both sides are to blame. The shady mortgage lenders that preyed upon idiots and the idiots that allowed themselves to be preyed upon.
Now what we are faced with is the rest of us who weren't in either of these camps having to pick up the bill.
I don't know about you guys but there's nothing I enjoy more than having my own personal income taken away to subsidize stupidity and greed.
7 - Cannonshop
#2:
Silas, Government Agencies conduct Lobbying. So do Government Unions. This bailout is an atrocity on more than one level-thanks to shady loan practices in the mortgage biz, people like me who've been saving for years, are still unable to afford to even LOOK at housing beyond rentals. (well, we could've, but zero-down-interest-only is just renting with the headaches of ownership.)
The old, pre-deregulation standard of three times a family's annual income kept house-payments and down payments reasonable, and kept prices in check, since you didn't have people playing the "Flip That House!!" gamble. Thirty percent profit after paying off the buy and the work (when work even happened) is fucking insane. Half a million dollars for two bedrooms and a garage in a place where the average income is between thirty two and fifty grand a year? this bailout rewards that kind of irresponsibility, props up artificially inflated property taxes, and just guarantees nobody, but nobody, will learn anything from it.
8 - Joanne Huspek
AC: Both sides are to blame. The shady mortgage lenders that preyed upon idiots and the idiots that allowed themselves to be preyed upon.
That's the truth.
Everyone was looking for a pot of gold at the end of the rainbow, instead of thinking clearly and rationally. Great. For that, everyone suffers.
9 - Cannonshop
Damn, Joanne, you said it in five sentences without all the wandering around that I did trying to say it...
10 - Cannonshop
erm...lemme back up.
AC and Joanne... (crap,gotta learn not to blow through comments that fast...)
11 - Arch Conservative
OOOHHH, it looks like Cannonshop has found a new guilty pleasure.
Agreeing with me.
12 - Cannonshop
Well... when you're right, you're right. I've agreed with Bliffle and Jet on occasion, too, not to mention Lisa, and as Pablo has pointed out (and I sarcastically reinforced) I'm actually a bit to the right of most folks, just not on the religious thing. On this thread...(besides my props to both You, Arch Conservative, and Joanne), Bliffle in comment #5 is dead on-but probably not the way he'd like to be. MOST conservatives that are serious, would agree that socializing risk is just plain stupid, and privatizing profit while doing so is the very essence of political corruption...and often a trait of the Left when they are in power. (what Congress was in session when FNMA and Freddy Mac were created?? Phil Gramm didn't do it all by his lonesome, after all.)
This crisis, this bailout, and the taxes we're all going to have to pay, are proof that Government reaches too deeply into ALL of our lives, and doesn't do a good job when it does this sort of thing.
13 - Silas Kain
I just love how Dave manages to get both Johnson and Delaware in there as "persons" to blame. Silas, please do your own research. Counting on Dave for this is really not a good idea
Well, Lisa, there's a method to my madness. I purposely asked the question knowing some of the answers in advance. I thought that by asking it might spark somebody to actually do some research on their own. Dave responded. Bliffle, Arch, Cannon and Joanne also provided their take. While you may have provided your perspective, you began with an assault on Dave. So which is more important: slamming Dave or getting to the truth?
Delaware and its practices with regard to incorporations is a subject that deserves very close scrutiny as Delaware is no friend to small business. Insofar as mentioning LBJ, Dave was also on point. I'd love to see you and Dave go toe to toe on his show.
14 - Jordan Richardson
So which is more important: slamming Dave or getting to the truth?
That's a tougher question than you think, Silas. Sometimes A can lead to B. Plus A is more fun and tends to be better for you. Kids love it.
15 - Silas Kain
Nothing like common sense Canadian humor to brighten my otherwise cloudy day.
16 - Jordan Richardson
*humour
;)
17 - Cheryl
Well well ol'Paulie thought he could continue to deceive instead having some Integrety but it just doesn't work that way...Paulie thought he could fool China into continuing to invest in US but he was wrong...per the following interview ""The seizure of the two firms, prompted by worries over their shrinking capital, was the latest in a series of emergency steps taken by U.S. authorities to quell a year-long credit crisis that has helped push many economies toward recession. [ID:nN07479172]
"China has bought a lot of asset-backed securities, and there might be short-term improvement in price," said He Fan, an economist with the Chinese Academy of Social Sciences.
But, taking a longer view, he said the bailout posed a problem: if the Treasury issues new debt to fund the rescue, should China be a buyer or not?
"For China, whether or not you buy the new treasuries, there will be losses: if you buy them, you're getting deeper in the hole; if you don't buy, your existing holdings will lose value," He said.
The Treasury's equity stake could reach $100 billion in each of the lenders, which own or guarantee almost half of America's $12 trillion in home loans, but it said the ultimate cost of the rescue plan depends on how well the companies perform.
He said the takeover was the last resort for the U.S. government, underlining that the credit crunch was far from over.
"This shows that the risks involved are greater than we thought. As such, Chinese banks should be cautious and prudent," the researcher added"".
18 - bliffle
Bernanke should be fired for misleading people about the financial condition of FNA in July.
House prices have been way too high for 10 or 20 years. But it just kept getting more outlandish.
The house buyers, perhaps foolish, simply have little choice. If they have moved from another house they are ill-advised to not buy and take a capital gains tax. And the price escalator has been running crazy for so long that you couldn't afford to stand aside and not be on it.
It's the lenders who destroyed things by trying to pump up the system with subprimes as the prices got way too high and they faced cutbacks. So they created this 'securitizing' thing to move loans into secondary markets. And they hired creepy loan salesmen to scam everyone, collect quick commissions, and get out.
The sales side of house sales exercises de facto monopoly power, all the way from RE Agents with their fixed 6% commissions, to the massive RE industry systems.
The poor house buyer or seller faces a solid phalanx of monopoly when they try to deal.
They are on their own, and lacking organization they are victimized by the better organized.
19 - Cannonshop
Um, no, Bliffle, Bernanke shouldn't just be fired-he should be imprisoned. for Fraud, in fact, there are a LOT of guys who should be going to room with Bubba, going back to the eighties and including Neil Bush (GW's little brother, cheif scumbag of Silverado Savings and Loan). Congress chose the coward's way out with a Bailout, probably because it's an election year, and their man is at least tied with, if not slightly ahead of, McCain. (much the same reason Christine Gregoire stepped in and tried to get a stay of execution on the Boeing Strike-she's up for re-election, and if the strike goes long enough to reach November, she could find herself running on a crashed statewide economy against a challenger who almost beat her in '04. As it is, a LOT of union members from the IAM have decided to remember her interference on behalf of Corporate in November, and not with a fondness.)
But, the fact remains-these are multimillionaires, and such folk are not treated by our incumbent scum as the rest of us are.
20 - Dave Nalle
The sales side of house sales exercises de facto monopoly power, all the way from RE Agents with their fixed 6% commissions, to the massive RE industry systems.
Bliffle, you're living in the 1970s or in some very different part of America from the rest of us. These are the times of cutrate and cutthroat brokers, of brokers acting for buyer and seller for 4%, of 1% high-volume brokers and of all sorts of other variations. The monopoly power of the slick white-glove Realtors is well and truly a thing of the past.
Dave
Dave
21 - Cannonshop
Dave, my parents were in RE back in the late seventies through the eighties (which is why I harbour a special hatred for Neil Bush and his ilk), and I think you're dead-on about Bliffle being a bit stuck in the past on this. Real-Estate has turned cut-throat some time ago.
22 - Andy Marsh
There seems to be a lot of people that deserve blame in this mess.
It seems to me that every time I've gone house hunting that some shady things were going on...
First thing I noticed was when I went to pre-qualify and the lender would tell me that I qualified for some outlandish amount of money. I usually use a very simple formula for what my house payment is gonna be...I say basically, it's gonna be 1% of the loan amount. So, a 200K house is gonna cost you $2 grand a month...it's a rough estimate, but it's close. So, I remember 12 years ago when I bought my first house lenders telling me that I qual'd for a $250K loan. I actually yelled at one guy. You really think I can afford a $2500 a month house payment? You on crack???
But then all of a sudden everybody could afford a house. Or would it be better to say that lenders started loaning money to anybody. Now we, the taxpayers, are gonna pay for it.
I think things like that are predatary! But I also think some people just don't think.
We've been bailing out banks for years now. And when we're not doing it the Saudis or the chinese are doing it.
But this isn't bailing out the people, this is bailing out the rich, again. But I guess, if we want to put more poor people in houses they can't afford, we have to bail out the people with the money so they can prey on the stupid.
What about the recent bankruptcy law changes. They changed everything for the banks and nothing for the people.
Here's a good one for you. Years ago I had a few credit cards. A few more than I have now anyway. I never missed a payment. I never paid just the minimum. I got laid off during the dot com bust and all of a sudden I was over extended. According to the banks anyway. They started raising my interest rates. I called and asked, why are you doing this? They told me, you're over extended Mr. Marsh. I said, you're the mother fuckers that over extended me!
So, instead of them getting all their money at a reasonable interest rate, they got squat after I paid a lawyer $750 for a bankruptcy. I warned them, hell, begged them, that they were forcing me to do something I didn't want to do and they blew me off. Paybacks are a bitch.
I would have kept paying those cards off if the banks hadn't tried to screw me. I was really against the idea of a bankruptcy, it seemed almost criminal! But honestly, I thought that what the CC companies were doing to me was even more criminal, so I did what I had to do for me and my family.
23 - bliffle
I don't know what Dave and Cannonslop have done for RE transactions lately, but I did several transactions in the past 5 years for myself. With a lot of hard work I got an RE agent to give me a 5% deal, but on two occasions she tried to jerk it back up to 6% at the last minute.
Are you guys actually doing deals or just reading the RE section of the sunday papers?
I'll put my creds up against yours.
24 - bliffle
Besides Bernanke, who was palpably lying in July about condition of FNMA, and should be jailed for perjury, another similar character is this Lockhart fellow, who said on June 30 that FNMA was adequately capitalized. But instead of being prosecuted he's put in charge of the bailout.
Now, when confronted with his own duplicity, he says that was true by conventional standards at the time although he had personal misgivings.
that was then, this is now.
But what can you expect from an administration that has set a precedent of convenient lying?
25 - Clavos
But what can you expect from an administration that has set a precedent of convenient lying?
The same as from all the administrations before it, ALL of whom lied about something to an equal (or greater) degree? "Has set a precedent?" NO. Has followed a precedent, set long before.
Americans are such naifs. You persist in this fantasy that your politicians and government are going to act honestly and for the good of the people, even in the face of more than 200 years of history to the contrary.