Interesting Blog: Fannie Mae and Freddie Mac

[DoubleActionCHL]

It looks as though Freddie Mac and Fannie Mae were major contributors to organizations known to be less than friendly to conservative (or Republican) causes. Could it be that our own government (presumably Democrats, primarily), in blatant attempt to provide loans to less-than-credit-worthy individuals, created a deal so the lenders were protected because they KNEW there would be a bailout at the end of the tunnel? Hmmmm????




Fannie and Freddie: friends in low places

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The American taxpayers are, in essence, guaranteeing $5 trillion of Fannie Mae and Freddie Mac debt. The Federal Reserve stands by to subsidize Fannie's and Freddie's stock in the stock market. Fannie and Freddie continue to pay dividends to their shareholders. All the profit goes to the shareholders and management. The taxpayers get no compensation or payback for saving all of Fannie and Freddie’s equity and essentially guaranteeing their income. The management of Fannie and Freddie get to keep all their compensation and bonuses. They get to spend as much as they want on more lobbyists and law firms. They and their foundations can continue to hand out money to universities and not-for-profits. [Emphasis added]​

— "The Housing and Economic Recovery Act of 2008," an analysis by Catherine Austin Fitts (see Part VI)

Past recipients of money from Fannie Mae, whose bail you are posting if you are a U.S. taxpayer:

Harvard University, $5,031,000; Brookings Institution, $3,906,000; Acorn, $797,000; Citizenship Education Fund (Rainbow Coaliltion/PUSH), $660,000; Center for Policy Alternatives, $635,000; Congressional Black Caucus Foundation, $608,000; Manhattan Institute for Policy Research, $600,000; Center on Budget and Policy Priorities, $400,000; Congressional Hispanic Caucus Institute, $285,000. (Source: wwwfanniemaefoundation.org)

In helping to save Fannie, you can be proud of your charitable giving, voluntary or not. Well, not. Harvard certainly needs the money, and as for the Congressional Black Caucus Foundation, the Rainbow Coalition/PUSH, the Congressional Hispanic Caucus Institute, etc., your money is creating a more "vibrant" America.

Reflecting Light: Fannie and Freddie: friends in low places

 

[mac79912]

ridiculous.

 

[JKTex]

And you believe everything you read?

Do you understand how they are being "supported"? And can you tell me how "we" the taxpayers are "bailing them out" on the heals of common and preferred stock having been near wiped out in one day?

And for the record, anyone holding common or preferred that still had a significant position on Friday wasn't paying attention. It was expected weeks ago and the fact that at the very least, common stock would be wiped out was a given.

But this was overdue and anyone following it knew it. Anyone hanging on to it by Friday was just to lazy to sell everything and go to the store to buy lotto tickets that would have more value.

 

[DoubleActionCHL]

And you believe everything you read?

Do you understand how they are being "supported"? And can you tell me how "we" the taxpayers are "bailing them out" on the heals of common and preferred stock having been near wiped out in one day?

And for the record, anyone holding common or preferred that still had a significant position on Friday wasn't paying attention. It was expected weeks ago and the fact that at the very least, common stock would be wiped out was a given.

But this was overdue and anyone following it knew it. Anyone hanging on to it by Friday was just to lazy to sell everything and go to the store to buy lotto tickets that would have more value.

I certainly understand how they are supported. And 'we' are bailing them out by infusing money into a private banking system which backs the security of instruments issued by tiers of banks in the U.S. The failure of Fannie Mae and Freddie Mac would cause a cascade effect of failures throughout the banking industry. Effectively, we are paying for the loans that should have never been issued, and supporting the bank the ultimately guaranteed these loans. The executives of these banks have taken their profits, feathered their nests and gone about their merry ways.

You are correct, though. This was long overdue. This is a good ol' boy interlocking corporate/government arrangement that smacks of the worst kind of corruption and absolute theft from taxpayers. What we now have is a socialized banking system; the goal of many Democrats. What industry will be next?

 

[idleprocess]

The FM^2 (Fannie Mae / Freddie Mac) bailout has almost nothing to do with partisan politics and nearly everything to do with the business cycle and the usually-unspoken fiscal agenda that hides behind social issues and meaningless policy theater.

The "mortgage crisis" started more than a decade ago long before the .com fad came to an end through a financial instrument known as securitization. Lenders figured out that they could make money originating mortgages then packaging them up into massive pools that were sold to "servicers" that bought the debt (and revenue stream) based on numerous criteria. In the beginning, it was a sure way for people with deep pockets to make money at a much greater rate than T-Bills pay. With the .com crash, the packages were even more attractive because mortgages have traditionally been more of a sure and steady thing than the stock market. With enough money, you can buy increasing levels of return (and risk) in these packages all the way up to "servicing" said package (performing the administrative work and being the primary underwriter) with most responsibility and risk, but most payback if the package performs.

An immediate effect was that more capital became available for lending. Since the pool of qualified buyers wasn't growing, standards were gradually lowered since you can't make money on loans if you don't ... loan in out. Given that the traditional lenders were no longer so directly attached to the quality and performance of said loans (often selling them immediately after collecting closing fees and some premium from the organization that securtitized the loan), yet another pressure for reduced lending standards was applied - write that note then sell it!

With anyone and everyone able to qualify for a home loan, real estate inflation was inevitable. House prices went up as the number of buyers increased. Always fishing for more credit, Americans took out home equity loans based on inflation-generated appreciation in their house's appraised values to buy vacation houses or more consumer junk.

Mortgage brokers began engaging in shady practices to qualify woefully unqualified buyers for mortgages, collect those fees, and hustle the loans off on some finance company.

Small wonder that the dancing, blinking, bouncing dreamworld of a dream home for everyone on and ARM or interest-only loan (previously only granted to the best customers of banks with the swag to buy outright if necessary - and only for legitimate short-term holding purposes) came to a jarring halt in only a few short years - right about time the economy started to decelerate. Real estate markets that have were overpriced before the boom (ie, the coasts) saw enormous write-downs, foreclosures, and the most unhappiness on the part of those living beyond their means or simply hit by the economic downturn.

FM^2 got hit because they end up backing, servicing, and owning a huge slice of the market - which is their function in the first place. They are government-chartered corporations that are semi-implicitly backed by the US taxpayer with a mission to maintain market liquidity so that ordinary Americans have access to mortgages.

As far as any left/right politics go, certain Democrats have backed certain "community lending standards" reforms that conservatives like to blame for the problem. Everything I've read about tweaking said "community lending standards" leads me to believe that they enabled some tiny percentage of the bad loans out there - but inflation, the economic slump, and the associated nasty downslope in the real estate market seem to be much bigger movers.

What irks me is to hear economic pundits that are usually self-described "free trader" types that express endless confidence in the markets, capitalism, free enterprise (and all those other loaded buzzwords) quickly segue into how it's necessary to prop up financial institutions like Bear Sterns (and now FM^2) in order to "maintain confidence" in the markets. While FM^2 were semi-implicitly backed by the taxpayers, I'm not sure it's a great idea to - borrowing a phrase here - "socialize the risk while privatizing the profits". All of those deep pockets that should have known better, because like the .com crash the "mortgage crisis" was seen coming a long way off.

 

[DoubleActionCHL]

Except for the fact that it has everything to do with partisan politics. I'll agree that both parties are into this up to their necks. The partisan politics come into play because the Democrats and media are pushing the blame toward the evil Bush administration. This was one of those hot potatoes that the party in office was going to get stuck with the bill. Small wonder the media doesn't mention the Democrat involvement. They also conveniently neglect to mention that a fair parcel of these loans were made at the urging of a Democrat Congress, citing racism as the reason certain individuals failed to qualify for mortgages.

 

[idleprocess]

Everyone involved screwed the pooch, repeatedly. It seems to be more of a general failure of government in general - failure to regulate the market, no matter how much the "free traders" insist the market functions great on its own.

 

[DoubleActionCHL]

Everyone involved screwed the pooch, repeatedly. It seems to be more of a general failure of government in general - failure to regulate the market, no matter how much the "free traders" insist the market functions great on its own.

They created a 'fox watching the hen house' scenario by design. Many people are very, very rich as a result. No single private entity should ever hold the capacity to cripple the American economy should it fail; certainly not without appropriate regulation. Heads should roll.

 

[JKTex]

I did that kind of fast and realize I don't think it came out like I meant it.

It's the Government who pulled the evil twins into a conservatorship essentially so yes, tax $$$ are being used, but the Government won't be running it like a business so the money's invested will be there to shore them up while they do whatever they want or have to do to try and patch the housing issues. As a non-business, they can do whatever they want to do in order to help someone who otherwise would be headed for foreclosure. A business couldn't do that.

If they do it right, it won't happen fast, but they can maybe, get a handle on the and stop the vicious cycle.

Plus, mortgage rate should drop now that the evil twins aren't pushing them up trying to keep from drowning. If more mortgages can be written with lower rates, more homes can be sold. If more people can stay in their home and work something out, extended terms, new mortgage or whatever, foreclosers slow down.

It's complex and I won't even try to pass myself off as understanding it, hell, most of the experts can't make sense of it just yet. It's just a move in the right direction, hopefully. With $12 trillion or so out there between the 2, anything positive will impact the US housing market.

So for now......

 

[DoubleActionCHL]

Assuming the government is running the show AND interest rates are lower as a result, the rate is artificial. WE will be paying the difference at some point in higher taxes. Rate-fixing, price-fixing, etc. never works. It eventually comes crashing down and we, the people, are always the losers.

 

[idleprocess]

Plus, mortgage rate should drop now that the evil twins aren't pushing them up trying to keep from drowning. If more mortgages can be written with lower rates, more homes can be sold. If more people can stay in their home and work something out, extended terms, new mortgage or whatever, foreclosers slow down.

The last thing the market needs is the inflation caused by flooding the market with more buyers who would otherwise be unqualified with a smaller pool of money and tougher standards.

The deep pockets should pour their money into other things.

The "greater fool" theory will only last so long in any real estate market. I have relatives in Huntington Beach that saw a tract of land developed in the late 1990s at the peak on the boom into modest ~1500 square-foot homes retailing for approximately $1.4 million apiece. These were not fantastic homes in a hip or prestigious part of town - merely ordinary homes for professional-class families... whom were simply not making the >$200K a year needed to pay that kind of house off and live with some margin.

Like it or not, real estate prices in most of the country need to come down. Southern California was on the verge of pricing itself out of a working class shortly before the "correction" of a few years ago. Unless a homeowner wanted to live in the hood or the sticks, noone professional-class could afford a decent house on a 30-year note.

Texas, thankfully, has not seen the inflation that most of the rest of the country has experienced. Real estate prices seem to track roughly with inflation.

 

[Floyd_Droid]

....we, the people, are always the losers.

Yep, some more than others... in the end.