David Bahnsen, December 27, 2009
Editor's note: Fannie Mae and Freddie Mac are US Government sponsored enterprises. They have been set up to underwrite housing finance. Their reason for existence is paternalistic and ideological: the State's arrogating to itself the duty to ensure that citizens live in owner-operated houses. Fannie and Freddie have been blamed for, if not causing the housing crisis in the US, exacerbating it and making it far worse. The US Government decided to "underwrite" Fannie and Freddie in the early days of the credit crisis up to the tune of $100bn; later Obama decided to expand the underwrite. Then, when the attention of the US public was diverted to other things--that is, on Christmas Eve, "when not a creature was stirring, not even a mouse" the Government quietly and surreptitiously moved to expand the underwriting of these bloated monstrosities without limit. David Bahnsen takes a carving knife to these stuffed turkeys.
When it comes to a discussion of the various monstrosities the government is responsible for before, during, and after the economic meltdown of 2008, I can tell how serious someone is (perhaps “informed” is a better word) by whether or not they lead with the Fannie Mae/Freddie Mac plot. If they say something like, “the Federal Reserve is the most evil institution in all of government”, I know they probably voted for Ron Paul (if he was on the ballot in their state), but I also know that they are not taking this thing very seriously.
The same thing goes for TARP and the “bailouts of Wall Street”. If I hear more than two sentences of rhetoric about the “fat cats on Wall Street” who got bailed out, I know that they probably do not know the difference between a bond and a stock.
The truly serious students of this mess know now, and will know in generations, that all of the talk about bailouts and money supply and stimulus and executive compensation and credit default swaps and regulation and whatever the other terms are that happen to be within CNN’s vocabulary limits do not come close to telling the real story of this mess the way that the story of Fannie Mae and Freddie Mac do. And I am actually, at least not in this writing, even referring to Fannie’s role in causing this whole mess.
For now, I am just talking about the extraordinary job that Washington D.C. is doing in pummeling the citizens of America via its deplorable, unconstitutional, and evil coddling of the bloated pig failures that are Fannie Mae and Freddie Mac.
This weekend, just as you were putting your kids’ sweater vest on for Christmas Eve service, and just as the entire nation was tuning out its access to the news for at least a few days, the Treasury department decided to press release a little itsy bitsy story that I think some of us would like to talk about further.
At the end of 2009, the Treasury department would be required to get permission from Congress to modify their support for Fannie and Freddie. But that will not be necessary, for what Treasury has now done is remove the dollar limit it previously set for what it would provide these insolvent shams of companies. Yes, the $200 billion figure previously agreed to is now obsolete.
For those keeping score, the initial commitment was a mere $100 billion. Then Obama came around and said $200 billion sounded more like it. And now, the commitment has been raised to “whatever the the firms net loss is over the next three years”. So, if $200 billion can not get them back to even, $250 billion it is. What’s a little “bridge loan” among friends (you know, just till they get back on their feet)?
In what is perhaps the most offensive insult to the taxpayers since this string of insults began, a senior treasury official said that he does not expect either company to need the additional support the Treasury is making available. For those students of history I alluded to earlier, TARP was signed into law in October of 2008 several weeks after the Lehman Brothers bankruptcy. It was a week before Lehman ever went bankrupt that the Treasury department placed Fannie and Freddie into conservatorship, and injected tens of billions of dollars into the companies. Huh? How could they do that? TARP was not yet law. The financial crisis had not started on September 8????
Well, acting on the same hunch that the “entities would not need to tap the funds available to it from Treasury”, Congress gave Secretary Paulson a blank check for Fannie and Freddie in July. The argument then was, “as long as we have the bazooka in our pocket, we will not need to use it”. That didn’t last too long, now did it. I actually am exaggerating, because technically the check given to treasury was not blank until now. Before it had caps and things like that. But what good are caps when you are defrauding the entire investment community, not to mention the American citizenry? And what good are caps when they can be removed by Treasury right when you are pouring your third glass of egg nog?
Fannie and Freddie were sham companies from their very inception that were allowed to operate off of the most eggregious violation of “honest weights and measures” in human history through something called “the implicit guarantee”. Investors believed that the government would back the bonds issues by these companies because the government implied that they would. At the same time, the bonds stayed off of the balance sheet of the government because they were not backed by our “full faith and credit”.
This multi-centi-billion dollar sham has cost the taxpayers more and more money since the day the conservatorship began. All they had to do was wipe out the equity (which they essentially did), wipe out the preferred equity (which they essentially did), make a clear and decisive action about the Fannie/Freddie bonds (are they sovereign debt commitments or not?), and then begin selling off what remained of the company as a series of nimble, debt-free, profit-driven, companies.
Instead, the government’s unforgivable addiction to controlling social policy through the U.S. housing and mortgage market has caused irreparable harm to the U.S. taxpayers. The executives the Feds have brought in to run this trillion dollar loser are receiving millions of dollars of bonuses, but not a peep is uttered in the media (these guys, after all, do not dine in Manhattan). There is no clarity to the government’s relationship with Fannie and Freddie; rather, citizens are forced to read in the middle of the night on Christmas Eve that we are upping the ante in our bet on these money losers.
The truth is this, my friends: Unlike the TARP funds, which are being paid back at a huge profit to the Treasury in droves, Fannie and Freddie are never, ever, ever going to return any capital to the United States taxpayer. And unlike profit-driven banks and brokerage firms, there will be no earning their way back into independence. Fannie and Freddie are permanent fixtures of the United States federal government.
The stakes are now far too high for the politicians to ever admit what a trillion dollar disaster this has been. These entities give Congress far more ability to control the housing and mortgage market in this country than you could ever imagine (and believe me, I do not mean that as a good thing).
You didn’t ask for it. They are not legally authorized to do it. But you got it. Merry Christmas.
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