Archive for Fannie & Freddie

Blame Congress, Not Banks

Yesterday, I said of global warning panic that it takes only one denier, one informed skeptic, to burst the bubble. Often, that’s more a matter of courage than knowledge. Many may share the doubts, but only few, or even one, have the nerve to speak.

That analysis is true of many bubbles, I believe:

Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters.

“I hear your complaints,” Bloomberg said. “Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t have gotten them without that.

“But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it’s one target, it’s easy to blame them and congress certainly isn’t going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for.”

Rush thinks that Bloomberg has finally had it with the OWS, but it took weeks of Dadaist doo-doo to get him to offer an alternate point of view. I think that’s more a matter of knowledge than courage, however. Say it on TV, say it a month ago, and I’ll give you a medal. As it is, I’ll give you a pass.


Bringing Truth to Light

Sir Francis Bacon once wrote “Truth is the daughter of time, not of authority.”

But what if that daughter has been aborted, abandoned, orphaned, married under age, or honor-killed? What if authority enslaves that daughter and subjects her to all manner of depravity and dehumanization?

In today’s media, that’s routine:

There is no doubt that reductions in mortgage-underwriting standards were at the heart of the subprime crisis, and Fannie and Freddie’s losses reflect those declining standards. Yet the decline in underwriting standards was largely a response to mandates, beginning in the Clinton administration, that required Fannie Mae and Freddie Mac to steadily increase their mortgages or mortgage-backed securities that targeted low-income or minority borrowers and “underserved” locations.

The turning point was the spring and summer of 2004. Fannie and Freddie had kept their exposures low to loans made with little or no documentation (no-doc and low-doc loans), owing to their internal risk-management guidelines that limited such lending. In early 2004, however, senior management realized that the only way to meet the political mandates was to massively cut underwriting standards.

The risk managers complained, especially at Freddie Mac, as their emails to senior management show. They refused to endorse the move to no-docs and battled unsuccessfully against the reduced underwriting standards from April to September 2004.

Many examples follow. And if you haven’t seen my lips utter the name “Obama”, it’s only because you can’t see my lips at all:

Taxpayer losses at Fannie and Freddie alone may exceed $300 billion. The costs of the financial collapse and recession brought on by the mortgage bust are immeasurably higher. Unfortunately, the Obama administration has perpetuated the low underwriting standards that gave us the crisis and encouraged the postponement of foreclosures by lending support to various states’ efforts to sue originators for robo-signing violations.

Now they are trying to deflect blame from Fannie and Freddie by suing the originators who fulfilled the politically motivated demands of the government-sponsored agencies that drove the mortgage crisis. If successful, all of those efforts will further postpone the ability of banks to grow the supply of credit, and they will sow the seeds of the next mortgage bust.

These truths have been known for some time, and repeated often. The daughter in question is out of pigtails, old enough to look at us with that pre-teen scowl of contempt. Yet she remains anonymous, elusive, and homeless, like a runaway down by the river.

PS: And we reelected that moral reprobate, Barney Frank, Fannie’s guardian (no jokes, please), in a landslide over a clean, articulate ex-Marine.

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Your Tax Dollars at Work

What, us worry?

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.

It is typical for corporations to cover such fees unless an executive is found to be at fault. In this case, if the former executives are found liable, the government can try to recoup the costs, but that could prove challenging.

Since Fannie Mae and Freddie Mac were taken over by the government in September 2008, their losses stemming from bad loans have mounted, totaling about $150 billion in a recent reckoning.

Freddie’s problems arose in 2003 when it disclosed that it had understated its income from 2000 to 2002; the company revised its results by an additional $5 billion. In 2004, Fannie was found to have overstated its results for the preceding six years; conceding that its accounting was improper, it reduced its past earnings by $6.3 billion.

Mr. Raines retired in December 2004 and Mr. Howard resigned at the same time. Ms. Spencer left her position as controller in early 2005. The following year, the Office of Federal Housing Enterprise Oversight, then the company’s regulator, published an in-depth report on the company’s accounting practices, accusing Fannie’s top executives of taking actions to manipulate profits and generate $115 million in improper bonuses.

The office sued Mr. Raines, Mr. Howard and Ms. Spencer in 2006, seeking $100 million in fines and $115 million in restitution. In 2008, the three former executives settled with the regulator, returning $31.4 million in compensation. Without admitting or denying the regulator’s allegations, Mr. Raines paid $24.7 million and Mr. Howard paid $6.4 million; Ms. Spencer returned $275,000.

Fannie Mae also settled a fraud suit brought by the Securities and Exchange Commission without admitting or denying the allegations; the company paid $400 million in penalties.

Richard S. Carnell, an associate professor at Fordham University Law School who was an assistant secretary of the Treasury for financial institutions during the 1990s, questions why Mr. Raines, Mr. Howard and others, given their conduct detailed in the Housing Enterprise Oversight report, are being held harmless by the government and receiving payment of legal bills as a result.

“Their duty of loyalty required them to put shareholders’ interests ahead of their own personal interests,” Mr. Carnell said. “Had they cared about the shareholders, they would not have staked Fannie’s reputation on dubious accounting. They defied their duty of loyalty and served themselves. At a moral level, they don’t deserve indemnification, much less payment of such princely sums.”

How did Barney Frank put it before one of his many reelections?

… I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis.

Some of the critics of Fannie Mae and Freddie Mac say that the problem is that the Federal Government is obligated to bail out people who might lose money in connection with them. I do not believe that we have any such obligation.

Foxes, hen houses, you know what I’m trying to say.

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Fat Cat

Can Barney Frank lose fast enough and big enough? Not weight, obviously, but the election? If he doesn’t lose to the perfect candidate that is Sean Bielat, he’ll never lose. Ever.

U.S. Rep. Barney Frank, in an intensifying clash with GOP upstart Sean Bielat, has pledged not to take campaign cash from lenders that got federal bailouts — yet has raked in more than $40,000 from bank execs and special interests connected to the staggering government loans, a Herald review found.

Just yesterday, Frank made new campaign finance disclosures showing he received $17,000 from top executives of Bank of America — including $2,000 from CEO Brian Moynihan. B of A received $45 billion in bailout money. In all, Frank has hauled in at least $27,000 since 2009 from bank execs — and $13,000 from PACs — connected to banks that received TARP funding….

In a related story:

U.S. taxpayers could be on the hook for up to another $215 billion in aid to housing finance giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) through 2013, their regulator said on Thursday.

The companies, which were seized by the federal government in September 2008 to save them from collapse, will likely have total capital needs of between $221 billion and $363 billion through 2013, the Federal Housing Finance Agency estimated.

The estimate includes the $148 billion that the two companies, the largest providers of U.S. home loan funding, have already received in the form of preferred stock purchases by the U.S. Treasury.

In other cultures in other times, he would be put in the stocks and pelted with rotten vegetables.

Good times, eh Barney?


Dude, Where’s My Pitchfork?

Don’t let this get out, lest the mob attack, but look who’s getting all AIG-y on us:

Fannie Mae and Freddie Mac, the two troubled companies at the heart of the nation’s mortgage market, are set to pay their employees “retention bonuses” totaling $210 million, despite calls from lawmakers to cancel the payments.

The bonuses, which were made public on Friday, were defended by the companies’ federal regulator, James B. Lockhart, who said he intended to let them proceed.

In a letter sent last week to Senator Charles E. Grassley, an Iowa Republican, Mr. Lockhart disclosed that 7,600 Fannie and Freddie workers were scheduled to receive payouts aimed at retaining those “employees most critical to keep and difficult to replace.” Under the plan, 213 employees will receive retention bonuses worth more than $100,000 this year, and one Freddie Mac executive will receive $1.3 million.

Those figures drew sharp rebukes from Mr. Grassley and other lawmakers, who noted that Fannie and Freddie had received pledges of $400 billion from taxpayers to offset huge losses since they were seized by the government in September. Similar bonuses paid by the American International Group, which was also bailed out by taxpayers, incited fiery attacks from the White House and legislators when they were revealed last month.

“It’s hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year,” Mr. Grassley said in a statement. “It’s an insult that the bonuses were made with an infusion of cash from taxpayers.”

President Obama was exercised enough by this outrage to make this statement:


And Barney Frank, who never met a bonus against which he could not fulminate, thundered:

Rep. Barney Frank (D-Mass.) expressed concerns that Fannie Mae and Freddie Mac, which received over $50 billion in taxpayer dollars, would be paying bonuses. Frank called for bonuses to be withheld.

Speak up, I say, speak up son! I can’t hear you!


The Fox of the (Hen) House

Let’s put Barney Frank in charge of the financial system—could he do any worse?

Even by the extraordinarily loose standards of Congress, it takes some chutzpah for someone such as Frank to suggest that he’ll seek prosecutions for those behind the housing and financial crunch and for what he called “a strongly empowered systemic risk regulator.”

For Frank, perhaps more than any single individual in private or public life, is responsible for both the housing market mess and subsequent bank disaster. And no, this isn’t partisan hyperbole or historical exaggeration.

But first, a little trip down memory lane.

It was Fannie Mae and Freddie Mac, the two so-called Government Sponsored Enterprises (GSEs), that lay behind the crisis. After regulatory changes made to the Community Reinvestment Act by President Clinton in 1995, Fannie and Freddie went into hyper-drive, channeling literally trillions of dollars into the housing markets, using leverage and implicit taxpayers’ guarantees.

In November 2000, President Clinton’s Housing and Urban Development Department would trumpet “new regulations to provide $2.4 trillion in mortgages for affordable housing for 28.1 million families.” The vehicles for this were Fannie and Freddie. It was the largest expansion in housing aid ever.

Still, from the early 1990s on, many people both inside and outside Washington were alarmed by what they saw at Fannie and Freddie.

Not Barney Frank: Starting in the early 1990s, he (and other Democrats) stood athwart efforts by regulators, Congress and the White House to get the runaway housing market under control.

He opposed reform as early as 1992. And, in response to another attempt bring Fannie-Freddie to heel in 2000, Frank responded it wasn’t needed because there was “no federal liability there whatsoever.”

In 2002, Frank nixed reforms again. See a pattern here?

Even after federal regulators discovered in 2003 that Fannie and Freddie executives had overstated earnings by as much as $10.6 billion in order to boost bonuses, Frank didn’t miss a beat.

President Bush pushed for what the New York Times then called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.”

If it had passed, the housing crisis likely would have never boiled over, at least not the extent it did, taking the economy with it. Instead, led by Frank, Democrats stood as a bloc against any changes.

“Fannie Mae and Freddie Mac are not facing any kind of financial crisis,” Frank, then the ranking Democrat on the Financial Services Committee, said. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

What affordable housing? The people who are being foreclosed on can’t afford to pay for it; I can’t afford to pay for it. What’s affordable about it?

And this is the guy who wants show trials of financial executives. We’ve become the Soviet Union.


One thing we could try is to reduce rates on homeowners so that they can stay in their houses, even if they can’t afford it..

Here we go again

Just, please, please, don’t package these mortgages and sell them to me as safe investments, ok? Please?

Time to take advantage of low rates again. Fannie Mae, the mortgage-finance company under U.S government control, will loosen rules for homeowners who see to reduce their loan payment by refinancing.

PRLog (Press Release) – Feb 05, 2009 – Time to take advantage of low rates again. Fannie Mae, the mortgage-finance company under U.S government control, will loosen rules for homeowners who see to reduce their loan payment by refinancing.

Some credit requirements will be dropped, reduction in income documents and in some cases waive the need for appraisal.

Rates Starting at 4.875%. Learn Your Loan Options Today!

Fannies Mae wants to allow all customers to refinance their loans and take advantage of low rates if they could not do it before.

Boy are we stupid.

- Aggie

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Flat Busted

Not me, us.

All of us:

About a year ago Stephen Moore, Peter Tanous and I set about writing a book about our vision for the future entitled “The End of Prosperity.” Little did we know then how appropriate its release would be earlier this month.

Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. This process is the topic of Nassim Nicholas Taleb’s book “Fooled by Randomness.”

When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn’t create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

If you don’t believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they’ll do with Wall Street.

I actually saw a Barney Frank campaign ad the other day. It was a joke (which is appropriate, because so is he). It showed scenes of circus acts with Barney appearing at the end promising to end the circus on Wall Street. Excuse me for preferring a circus to a Roman orgy.

We always assume that changes in society are gradual, and they may indeed be. But at a certain “tipping point”, the slope falls away and the gradual slide downwards turns into a precipitous plummet. Fasten your seatbelts, it’s going to be a bumpy ride.


A Good Old-Fashioned Beat-Down

Any journalist who, after reading this, does not feel shamed enough to burn his ACLU membership card, and plunge to his death by jumping from the height of his own ego… well, he should probably join the New York Times with other like-minded hoors. (H/T: HotAir)

An open letter to the local daily paper — almost every local daily paper in America:

I remember reading All the President’s Men and thinking: That’s journalism. You do what it takes to get the truth and you lay it before the public, because the public has a right to know.

This housing crisis didn’t come out of nowhere. It was not a vague emanation of the evil Bush administration.

It was a direct result of the political decision, back in the late 1990s, to loosen the rules of lending so that home loans would be more accessible to poor people. Fannie Mae and Freddie Mac were authorized to approve risky loans.

Furthermore, Freddie Mac and Fannie Mae were making political contributions to the very members of Congress who were allowing them to make irresponsible loans. (Though why quasi-federal agencies were allowed to do so baffles me. It’s as if the Pentagon were allowed to contribute to the political campaigns of Congressmen who support increasing their budget.)

Isn’t there a story here? Doesn’t journalism require that you who produce our daily paper tell the truth about who brought us to a position where the only way to keep confidence in our economy was a $700 billion bailout? Aren’t you supposed to follow the money and see which politicians were benefiting personally from the deregulation of mortgage lending?

I have no doubt that if these facts had pointed to the Republican Party or to John McCain as the guilty parties, you would be treating it as a vast scandal. “Housing-gate,” no doubt. Or “Fannie-gate.”

This financial crisis was completely preventable. The party that blocked any attempt to prevent it was … the Democratic Party. The party that tried to prevent it was … the Republican Party.

Yet when Nancy Pelosi accused the Bush administration and Republican deregulation of causing the crisis, you in the press did not hold her to account for her lie. Instead, you criticized Republicans who took offense at this lie and refused to vote for the bailout!

What? It’s not the liar, but the victims of the lie who are to blame?

You might think he had made his point—and most persuasively—but he was just getting started:

Now let’s follow the money … right to the presidential candidate who is the number-two recipient of campaign contributions from Fannie Mae.

And after Freddie Raines, the CEO of Fannie Mae who made $90 million while running it into the ground, was fired for his incompetence, one presidential candidate’s campaign actually consulted him for advice on housing.

If that presidential candidate had been John McCain, you would have called it a major scandal and we would be getting stories in your paper every day about how incompetent and corrupt he was.

But instead, that candidate was Barack Obama, and so you have buried this story, and when the McCain campaign dared to call Raines an “adviser” to the Obama campaign — because that campaign had sought his advice — you actually let Obama’s people get away with accusing McCain of lying, merely because Raines wasn’t listed as an official adviser to the Obama campaign.

You would never tolerate such weasely nit-picking from a Republican.

If you who produce our local daily paper actually had any principles, you would be pounding this story, because the prosperity of all Americans was put at risk by the foolish, short-sighted, politically selfish, and possibly corrupt actions of leading Democrats, including Obama.

If you who produce our local daily paper had any personal honor, you would find it unbearable to let the American people believe that somehow Republicans were to blame for this crisis.

Your job, as journalists, is to tell the truth. That’s what you claim you do, when you accept people’s money to buy or subscribe to your paper.

But right now, you are consenting to or actively promoting a big fat lie — that the housing crisis should somehow be blamed on Bush, McCain, and the Republicans. You have trained the American people to blame everything bad — even bad weather — on Bush, and they are responding as you have taught them to.

If you had any personal honor, each reporter and editor would be insisting on telling the truth — even if it hurts the election chances of your favorite candidate.

Because that’s what honorable people do. Honest people tell the truth even when they don’t like the probable consequences. That’s what honesty means . That’s how trust is earned.

So I ask you now: Do you have any standards at all? Do you even know what honesty means?

Is getting people to vote for Barack Obama so important that you will throw away everything that journalism is supposed to stand for?

If you want to redeem your honor, you will swallow hard and make a list of all the stories you would print if it were McCain who had been getting money from Fannie Mae, McCain whose campaign had consulted with its discredited former CEO, McCain who had voted against tightening its lending practices.

Then you will print them, even though every one of those true stories will point the finger of blame at the reckless Democratic Party, which put our nation’s prosperity at risk so they could feel good about helping the poor, and lay a fair share of the blame at Obama’s door.

You will also tell the truth about John McCain: that he tried, as a Senator, to do what it took to prevent this crisis. You will tell the truth about President Bush: that his administration tried more than once to get Congress to regulate lending in a responsible way.

Ready to hold your breath, people?

Oh, and if you think this is another Limbaugh-like screed… not so much:

Editor’s note: Orson Scott Card is a Democrat and a newspaper columnist, and in this opinion piece he takes on both while lamenting the current state of journalism.

We’ve covered this ourselves, needless to say, but I had to tip my cap to the honesty the writer employs in skewering his political and professional colleagues. You will be well rewarded by reading even those very few words I managed to excise.

No one will ever be able to say (not honestly anyway) we were not warned.

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Go Factor Yourself

You’ve probably all seen the video clip of Bill O’Reilly and Barney Frank shouting at each other about Fannie Mae and Freddie Mac. I haven’t seen that much spittle flying since the Bloodthirsty Puppy got into a heated game of grab-ass with the terrier up the hill.

I think O’Reilly got the better of it, but I wish he had let Frank make his point—and then skewered him.

I think he does even better here:

Recently, I interviewed Chairman of the House Finance Committee Barney Frank, and it was quite a shootout. According to The Wall Street Journal, Investors Business Daily and my own research, Frank presided over the collapse of Fannie Mae and Freddie Mac with a casual disdain for the American investor.

In fact, last July, Frank went on television and said this:

“Fannie and Freddie are fundamentally sound, they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.”

Fewer than three months later, Fannie Mae and Freddie Mac collapsed, and even though he was in charge, Frank says he is not at fault. Instead, he blames Republicans.

Hearing that, I let Frank have it, calling him a coward for not admitting any culpability. He then called me stupid. You get the picture.

Now, I remain furious with Barney Frank. To me, he epitomizes everything that is wrong with the federal government. He was incompetent in his oversight of the federal mortgage agencies, and when they folded, causing a chain reaction of financial disasters for honest investors, he blamed other people.

Unacceptable. And every elected official in Washington should feel the same way. This is not some political theory here — real people are getting hurt, lives are being dramatically affected. Those responsible should be held to account.

But in the land of conventional politics, anyone showing anger and passion is deemed to be “out of control.” You must appear calm and cool in the face of any storm. Therefore, Obama and McCain showed little emotion about the terrible economic situation.

Sometimes cool doesn’t cut it, fellas. There is a time for anger.

That time is now.

This is the “rage” CNN refers to (see below), and it’s high time we all expressed it, even if McCain won’t. God knows Barack Obama won’t.

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