I'm aware of the problem. I was merely commenting on the politics of moving forward to get a deal done.
Let Risk-Taking Financial Institutions Fail
- Thread starter LadyT
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I'm aware of the problem. I was merely commenting on the politics of moving forward to get a deal done.
uscitizen
Villified User
So credit is going to completely go away ?
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The Almighty
Yeah, because stopping regulation in 2003 when it was proposed by Bush was fantastic, and then later again when it was proposed by McCain.
How's that working for ya? Are you embarrassed that "conservatives" as "smart" as Bush were able to foresee something that you totally were clueless about?
Oh, please. Explain this one to me and how changing the credit to debt ratios of Fannie Mae and Freddie Mac would have avoided this calamity.
This should be good.
Now you are being deliberately obtuse. In 2003 Bush proposed a committee of oversight for FM & FM, it was rejected in Committee on a party line vote, the D leadership even praised the strength of FM & FM and told us all how awesome they were. In 2005 it was again proposed to regulate these two and to ensure they were not overly risky in their investments. Again rejected, again by the same party line.
Explain to me how Bush could see the stuff ready to hit the fan, and why you couldn't. At the same time tell me how attempting to cover it in the sandbox with inanities like this makes you any better than any other Bush lover out there.
If somebody in your party makes retarded decisions, speak up.
cawacko
Well-known member
This is a good article by Paul Gigot of the WSJ on Fannie and Freddie and his experiences reporting on them.
The Fannie Mae Gang
By Paul A. Gigot
The Wall Street Journal
July 23, 2008
Angelo Mozilo was in one of his Napoleonic moods. It was October 2003, and the CEO of Countrywide Financial was berating me for The Wall Street Journal's editorials raising doubts about the accounting of Fannie Mae. I had just been introduced to him by Franklin Raines, then the CEO of Fannie, whom I had run into by chance at a reception hosted by the Business Council, the CEO group that had invited me to moderate a couple of panels.
Mr. Mozilo loudly declared that I didn't know what I was talking about, that I didn't understand accounting or the mortgage markets, and that I was in the pocket of Fannie's competitors, among other insults. Mr. Raines, always smoother than Mr. Mozilo, politely intervened to avoid an extended argument, and Countrywide's bantam rooster strutted off.
I've thought about that episode more than once recently amid the meltdown and government rescue of Fannie and its sibling, Freddie Mac. Trying to defend the mortgage giants, Paul Krugman of the New York Times recently wrote, "What you need to know here is that the right -- the WSJ editorial page, Heritage, etc. -- hates, hates, hates Fannie and Freddie. Why? Because they don't want quasi-public entities competing with Angelo Mozilo."
That's a howler even by Mr. Krugman's standards. Fannie Mae and Mr. Mozilo weren't competitors; they were partners. Fannie helped to make Countrywide as profitable as it once was by buying its mortgages in bulk. Mr. Raines -- following predecessor Jim Johnson -- and Mr. Mozilo made each other rich. Which explains why Mr. Johnson could feel so comfortable asking Sen. Kent Conrad (D., N.D.) to discuss a sweetheart mortgage with Mr. Mozilo, and also explains the Mozilo-Raines tag team in 2003.
I recount all this now because it illustrates the perverse nature of Fannie and Freddie that has made them such a relentless and untouchable political force. Their unique clout derives from a combination of liberal ideology and private profit. Fannie has been able to purchase political immunity for decades by disguising its vast profit-making machine in the cloak of "affordable housing." To be more precise, Fan and Fred have been protected by an alliance of Capitol Hill and Wall Street, of Barney Frank and Angelo Mozilo.
I know this because for more than six years I've been one of their antagonists. Any editor worth his expense account makes enemies, and complaints from CEOs, politicians and World Bank presidents are common. But Fannie Mae and Freddie Mac are unique in their thuggery, and their response to critics may help readers appreciate why taxpayers are now explicitly on the hook to rescue companies that some of us have spent years warning about.
My battles with Fan and Fred began with no great expectations. In late 2001, I got a tip that Fannie's derivatives accounting might be suspect. I asked Susan Lee to investigate, and the editorial she wrote in February 2002, "Fannie Mae Enron?", sent Fannie's shares down nearly 4% in a day. In retrospect, my only regret is the question mark.
Mr. Raines reacted with immediate fury, denouncing us in a letter to the editor as "glib, disingenuous, contorted, even irresponsible," and that was the subtle part. He turned up on CNBC to say, in essence, that we had made it all up because we didn't want poor people to own houses, while Freddie issued its own denunciation.
The companies also mobilized their Wall Street allies, who benefited both from promoting their shares and from selling their mortgage-backed securities, or MBSs. The latter is a beautiful racket, thanks to the previously implicit and now explicit government guarantee that the companies are too big to fail. The Street can hawk Fan and Fred MBSs as nearly as safe as Treasurys but with a higher yield. They make a bundle in fees.
At the time, Wall Street's Fannie apologists outdid themselves with their counterattack. One of the most slavish was Jonathan Gray, of Sanford C. Bernstein, who wrote to clients that the editorial was "unfounded and unsubstantiated" and "discredits the paper." My favorite point in his Feb. 20, 2002, Bernstein Research Call was this rebuttal to our point that "Taxpayers Are on The Hook: This is incorrect. The agencies' debt is not guaranteed by the U.S. Treasury or any agency of the Federal Government." Oops.
Mr. Gray's memo made its way to Wall Street Journal management via Michael Ellmann, a research analyst who had covered Dow Jones and was then at Grantham, Mayo, Van Otterloo & Co. "I think Gray is far more accurate than your editorial writer. Your subscribers deserve better," he wrote to one senior executive.
I also received several interventions from friends and even Dow Jones colleagues on behalf of the companies. But I was especially startled one day to find in my mail a personal letter from George Gould, an acquaintance about whom I'd written a favorable column when he was Treasury undersecretary for finance in 1988.
Mr. Gould's letter assailed our editorials and me in nasty personal terms, and I quickly discovered the root of his vitriol: Though his letter didn't say so, he had become a director of Freddie Mac. He was still on the board when Freddie's accounting lapses finally exploded into a scandal some months later.
The companies eased their assaults when they concluded we weren't about to stop, and in any case they soon had bigger problems. Freddie's accounting fiasco became public in 2003, while Fannie's accounting blew up in 2004. Mr. Raines was forced to resign, and a report by regulator James Lockhart discovered that Fannie had rigged its earnings in a way that allowed it to pay huge bonuses to Mr. Raines and other executives.
Such a debacle after so much denial would have sunk any normal financial company, but once again Fan and Fred could fall back on their political protection. In the wake of Freddie's implosion, Republican Rep. Cliff Stearns of Florida held one hearing on its accounting practices and scheduled more in early 2004.
He was soon told that not only could he hold no more hearings, but House Speaker Dennis Hastert was stripping his subcommittee of jurisdiction over Fan and Fred's accounting and giving it to Mike Oxley's Financial Services Committee. "It was because of all their lobbying work," explains Mr. Stearns today, in epic understatement. Mr. Oxley proceeded to let Barney Frank (D., Mass.), then in the minority, roll all over him and protect the companies from stronger regulatory oversight. Mr. Oxley, who has since retired, was the featured guest at no fewer than 19 Fannie-sponsored fund-raisers.
Or consider the experience of Wisconsin Rep. Paul Ryan, one of the GOP's bright young lights who decided in the 1990s that Fan and Fred needed more supervision. As he held town hall meetings in his district, he soon noticed a man in a well-tailored suit hanging out amid the John Deere caps and street clothes. Mr. Ryan was being stalked by a Fannie lobbyist monitoring his every word.
On another occasion, he was invited to a meeting with the Democratic mayor of Racine, which is in his district, though he wasn't sure why. When he arrived, Mr. Ryan discovered that both he and the mayor had been invited separately -- not by each other, but by a Fannie lobbyist who proceeded to tell them about the great things Fannie did for home ownership in Racine.
When none of that deterred Mr. Ryan, Fannie played rougher. It called every mortgage holder in his district, claiming (falsely) that Mr. Ryan wanted to raise the cost of their mortgage and asking if Fannie could tell the congressman to stop on their behalf. He received some 6,000 telegrams. When Mr. Ryan finally left Financial Services for a seat on Ways and Means, which doesn't oversee Fannie, he received a personal note from Mr. Raines congratulating him. "He meant good riddance," says Mr. Ryan.
Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.
Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.
So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn't exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.
The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine "change," not that either presidential candidate seems interested.
Yup. The sign they are too large is when they become "too big to fail".
This is no "natural monopoly" it is a government created entity. AHZ would label it "fascism".
theMAJORITY
MAJORITYrules-sorry
Simple. F&F tired to under cut the interest rates the free market was using, to try to make more affordable housing. It was good to try to get more people in a home. I myself have one of those easier loans from fanny and freddy, cause I closed with one of those 80/20 deals with country wide with about $35.00 in my pocket. It helped me, but I started making more money, so it worked out. When I bought the little home, I was not sure if I would have to take in a roomate or not. I had excellent credit with a long track record, so I was not quite the risk of many other loans. The F&F is socialism, and it went to far in it's lending and became a piggy bank for a lot of extortionists pockets. It lended up to 3 dollars, to only one dollar that they actually had. Their credit to debt ratio was so bad, along with corruption, that only less than 2% home forclosures put them under. If it were a real private business---with management like that, it would have went under a long time ago, and not hurt the citizens worth ink on a news paper.
This is just one great example why socialism does not work. Corruption is the problem with any system, and socialism tends to take away needed checks and balances---like competition.
You have absolutely no clue what you are talking about whatsoever. Zero. You don't even know what the regulations were designed to do.
And you are just repeating inanities attempting again to cover it with sand. They didn't propose "better oversight", no... They told me how "strong" FM & FM were and how they needed no further regulation.
Twice oversight was proposed, oversight that included verifying they were not overextending themselves in risk, and twice it was refused by the people who were paid to refuse it. Geez, even Ross Perot can "follow the money".
This is just more evidence that Corporate Cash isn't "free speech".
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The Almighty
Actually, oversight was proposed more that twice, including once by Senator Corzine in 2003 and by Barney Frank in 2007. Further, the bills you are talking about were not brought up for a vote in the Senate and the one that was voted on in the House passed with bipartisan support. If it was so damned important you would think that the Republican President could get the Republican-controlled Senate to vote on a bill that was passed by the Republican-controlled House. It wasn't a priority to them.
The crux of the matter, though, is that the issues with Fannie Mae and Freddie Mac were internal accounting issues that led to the demise of Fannie Mae and Feddie Mac and which ended up costing the taxpayers significant money in a bailout, but the accounting problems with F&F had little to do with the financial crisis we find ourselves in.
One more time for the slow. The bills also included oversight on whether they were overextending themselves in risk. That is the part you ignore. Killing a bill by party line votes in the committees counts, and then having the Ds talk up how great FM&FM were doing while killing it in committee just added to it. Shoot, watch that video that tinfoil posted, it will give you great insight into how much the Ds were talking about how "strong" FM&FM were.
People saw this coming, I believe that even those Ds did but they were paid. Again, IMO, just more evidence of how money doesn't equal free speech.
1) The minority party cannot kill a bill in committee by a party line vote. They don't have the numbers to do that. That's why they are called the minority.
2) My problem with this nonsense is that you want to pretend that the debt exposure of Fannie Mae and Freddie Mac caused the current financial crisis. It didn't. These uber-important bills that were so important that no one bothered to bring them up for a vote, even if passed, would not have prevented the current crisis.
uscitizen
Villified User
Well he has to have something to blame it on. It can't be mostly the Republicans fault.
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The Almighty
Number two is not correct. Fannie and Freddie were the largest buyers of debt from lenders like Countrywide etc... Had that increased regulation been put in place to look into the riskiness of the loans they were buying.... that could have helped prevent this.
Granted, there are other areas of oversight that could ALSO have been implemented that could have done the same thing. But that does not excuse your denial of the positive benefits added regulation on Fannie and Freddie could have had.