Fannie and Freddie again
Freddie Mac released its Q1 report last week and it was dog-ugly, prompting the GSE to request more taxpayer money–this time to the tune of another $11 billion. This is the bailout that never ends.
Gretchen Morgensen wonders why the mainstream punditocracy ignores the money pit:
The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.
But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.
That picture isn’t pretty. Serious delinquencies in Freddie’s single-family conventional loan portfolio — those more than 90 days late — came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company’s Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of option-adjustable rate loans totaled 19.8 percent.
You have to assume that the GSEs own anywhere from about 50% to 70% of the country’s mortgage market, with taxpayers continually on the hook for mounting losses. Surely, they are a target for the recent calls for financial industry reform right?
Don’t count on it:
[…]Freddie and Fannie are nowhere to be seen in the various financial reform efforts under discussion on Capitol Hill. Timothy F. Geithner, the Treasury secretary, offered a vague comment to Congress last March, that after some unspecified reform effort someday in the future, the companies “will not exist in the same form as they did in the past.”
To some, the current silence on what to do about Freddie and Fannie is deafening — as is the lack of chatter about Freddie’s disastrous report last week.
“I don’t understand why people are not talking about it,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, referring to Freddie’s losses. “It seems to me the most fundamental question is, have they on an ongoing basis been paying too much for loans even since they went into conservatorship?”
Morgensen brings up a great point. Why the silence? How come we don’t hear about the excessive executive bonuses at Fannie and Freddie, especially after those executives were caught cooking the books? Where’s the demonization from the White House or the Democrats in Washington? For that matter, where’s the liberal blogosphere?
If you’re asking these questions, go no further:
Renewed scrutiny of the two institutions would remind the public that senior Democrats were in bed, sometimes literally, with Fannie and Freddie.
House Financial Services Chairman Barney Frank of Massachusetts spent a number of years blocking various attempts to regulate government-sponsored enterprises, famously saying that that he did not see any “safety and soundness” problems worthy of note.
Many other top Democrats were friends with financial benefits from Fannie and Freddie. Franklin Raines, a former Carter- and Clinton-administration official, pocketed $90 million as Fannie Mae’s CEO – a figure bolstered by the agency’s overstated earnings.
Former Clinton appointee Jamie Gorelick was paid $26 million as Fannie’s vice chairman. Veteran Democratic honcho Jim Johnson, who led Sen. John Kerry’s vice presidential search committee and temporarily led Mr. Obama’s veep search, enjoyed $21 million.
Mr. Johnson later resigned from the Obama team when he was identified as a “friend of Angelo” – one of those who were given below-market loans directly by Countrywide Financial CEO Angelo Mozilo.
Among other “friends of Angelo” were Mr. Raines, Senate Budget Committee Chairman Kent Conrad of North Dakota and Senate Banking Chairman Christopher Dodd of Connecticut. Fannie Mae was the biggest buyer of the outrageously risky mortgages that proved to be Countrywide’s undoing.
Fannie and Freddie’s campaign donations almost always have gone heavily to Democrats.
According to the nonpartisan Center for Responsive Politics, Barack Obama was the second-largest recipient of contributions from Fannie and Freddie sources during his brief Senate tenure
Shocker. Fannie and Freddie are the Democrats instrument of choice when it comes to social engineering over the past few decades. They are implicit in the implosion of the mortgage market in 2007-2008, which led to the financial crisis. In complete control of the government now, they can lash out against Goldman Sachs, Wall Street executives, etc., and the media will just lap it up and gladly push it on the nightly news shows.
Keep in mind that what the Feds are doing with the GSEs is essentially similar to what Enron was doing in the late 90s. The government uses the GSEs as off-balance sheet items, they’re not on the government’s books. But the taxpayer takes all the risk in the event of default. This is a massive shell game and when the house of cards fall, and it will fall, taxpayers will get smoked—big time.
And we will have nobody to blame but the Democrats.
UPDATE. Reforming Fannie and Freddie is too complicated for our elected overlords. It all makes sense now.