Fannie Mae and Freddie Mac get de-listed!

You must understand that as taxpayers we are liable for nearly $5.5 trillion. BTW, all of Fan and Fred debt is "off the books." So, we don't see their liability reported in the yearly federal budget.

The Toxic Twins keep on sucking taxpayer funds

Two of the main causes of the housing boom and bust, Fannie Mae and Freddie Mac, continue to weigh heavily on taxpayers. Here is an abstract from the Boston Globe:

Fannie Mae has again asked taxpayers for more money — this time $8.4 billion — after reporting another steep loss for the first quarter. The taxpayer bill for rescuing Fannie and its sibling Freddie Mac has grown to $145 billion — and the final tally could be much higher.

The rescue of Fannie and Freddie is turning out to be one of the most expensive aftereffects of the financial meltdown, and Fannie Mae’s first-quarter financial report yesterday made it clear there is no end in sight.

“The losses are not going to stop soon,’’ said Anthony Sanders, a finance professor at George Mason University, who warns the housing market is likely to drop sharply again this year.

Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Fannie and Freddie, lifting an earlier cap of $400 billion. And with the housing market still on shaky ground, Obama administration officials say it is still too early to draft any proposals to reform the two companies or the broader housing finance system.

Republicans, on the other hand, argue that the sweeping financial overhaul before Congress is incomplete without a plan for Fannie and Freddie. They propose amending the legislation to transform Fannie and Freddie into private companies with no government subsidies or shut them down completely.

The legislation “touches nearly every corner of the economy,’’ Alabama Senator Richard Shelby said in the GOP weekly radio and Internet address over the weekend. “But these major contributors to the crisis are left unscathed,’’ he said, singling out Fannie Mae and Freddie Mac.

Democrats call such arguments a diversion. They say Congress already gave the government far more power over Fannie and Freddie nearly two years ago when lawmakers passed a bill that set the stage for a government takeover over of the companies in September 2008.

Fannie and Freddie operate “in a manner entirely different than they had been during the crisis period, precisely because Democrats acted — in collaboration with the Bush administration,’’ Representative Barney Frank, Democrat from Newton, Mass., wrote last week in a memo to White House chief of staff Rahm Emanuel. Their losses “occurred before we took the first step towards reforming them . . . nothing we could do today will diminish those losses.’’

Comment: I find it extraordinary that Democrats still want to run interference for these two entities. When Fannie and Freddie were nationalized, I knew that they would continue to be used as a political tool for the current administration. BTW, all of their debt is "off the books." So, most Americans are not aware of the $5.5 trillion liability looming in the shadows. Can anybody say--Greece?

Here is another news link on Fannie Mae and it's massive debt.

Don't try to cover your tracks, Barney

Barney Frank is one of those politicians that always makes my head shake in disbelief when I hear him speak on T.V. This guy spent years pimping government subsidized home loans and protecting Fannie Mae and Freddie Mac. Now Frank has the audacity to tell us "the Poor Should Rent, Not Own." ARRRGGGHHHH!

Barney Frank: "What housing bubble?"

Before the financial crisis, many members of Congress cheered subprime mortgages simply because they aptly served affordable housing goals. In this video, we see Barney Frank running interference for mortgage giants Freddie Mac and Fannie Mae several years before the feds had to step in to save them.

HT: SBVOR

Funny but true...so true

HT: Liberty Pen

With friends like these...

The difference between Liberals and Libertarians (like myself) is that Liberals really believe that government can be a vehicle for progress in that it can, by the dint of its scope and power, help people achieve economic prosperity, equality, and fairness. Conservatives and libertarians, on the other hand, are suspicious of concentrated power and view government as prologue to abuse of power. The latest escapade regarding the "bailout" bill is a prime example. Our government has written up a bill, now law, that would drive any fiscal conservative batty. There are so many bells and whistles in the "bailout" that temerity itself could not explain the boldness that it took to write it and then vote to pass it. Yet another example of how anything that is dealt by our government amounts to largesse, bureaucracy, and fickle solutions.

From National Review Online:

It is no coincidence that the Senate passed its economic bailout bill in a package containing unrelated legislation and special-interest tax breaks. This is an important lesson about how Washington works that is seldom mentioned in the debate over “earmarks,” if these tax provisions can be called that. For in addition to the common objections to earmarks — the wasteful nature of many of them, and the climate of disrespect for taxpayers that they create — it is also important to remember that earmarks grease the skids for bad or unpopular legislation.

“They’re trying to buy off members,” says conservative Rep. Michelle Bachmann (R., Minn.), who spoke to me on Thursday afternoon, ahead of the House’s expected Friday vote. “I think this sort of thing leads to cynicism on the part of the public. It demonstrates the crassness of Washington, the out-and-out vote-buying that happens when leadership feels a bill has to pass. It’s a bit troubling to think that someone would throw out the concept of free markets for the sake of wooden arrows.”

How Democrats protected Fannie and Freddie

Rep. Barney Frank (D., Mass.): I worry, frankly, that there's a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. . . .

Rep. Maxine Waters (D., Calif.), speaking to Housing and Urban Development Secretary Mel Martinez:
Secretary Martinez, if it ain't broke, why do you want to fix it? Have the GSEs [government-sponsored enterprises] ever missed their housing goals?

House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Gregory Meeks, (D., N.Y.): . . . I am just pissed off at Ofheo [Office of Federal Housing Enterprise Oversight] because if it wasn't for you I don't think that we would be here in the first place. And Freddie Mac, who on its own, you know, came out front and indicated it is wrong, and now the problem that we have and that we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum so that we can talk about it and maybe change the direction and the mission of what the GSEs had, which they have done a tremendous job. . .

Read more wonderful quotes from those that brought us financial crisis

How government stoked the mania---more from Russell Roberts

Russell Roberts (professor of economics at George Mason University) has a great article on the housing collapse and the financial mess that has reared its ugly head in today’s Wall Street Journal . The simple-minded meme from the Left these days is that all of this has to do with deregulation and the voracity of the free market. It seems to be a popular, if not populist, argument. The issue is far more complex than we are being told.

Kling on Freddie and Fannie and the Recent History of the U.S. Housing Market

Quite possibly one of the most educational podcasts that I have listened to regarding the debacle of Fannie Mae and Freddie Mac is this one on Econ Talk with Russell Roberts and Arnold Kling. The discussion covers all the intricacies and mechanisms between government and these large congress-created behemoths. If you don’t believe that government had a hand in the collapse of these two GSE’s (government sponsored enterprises), take some time and listen in.

More on the financial crisis and the big government cronies that caused it

From Charles Krauthammer:

The mob is agitated, but hardly blameless. While the punch bowl -- Alan Greenspan's extremely low post-9/11 interest rates -- was being held out, few complained about cheap loans and doubling home values. Now all of the sudden everything is the fault of Wall Street malfeasance.

I have little doubt that some, if not many, cases of malfeasance will emerge. But what we conveniently neglect is the fact that much of this crisis was brought upon us by the good intentions of good people.

For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac -- who in turn pressured banks and other lenders -- to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity.
Read More

How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable

I found this great article on the housing crash and the root of its cause:

One of the most frequently asked questions about the subprime market meltdown and housing crisis is: How did the government get so deeply involved in the housing market?

The answer is: President Clinton wanted it that way. Fannie Mae and Freddie Mac, even into the early 1990s, weren't the juggernauts they'd later be. While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process.

After entering office in 1993, he extensively rewrote Fannie's and Freddie's rules.In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended. Addressing the National Association of Realtors that year, bluntly told the group that "more Americans should own their own homes." He meant it. He saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.

Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, he ordered Robert Rubin's Treasury Department to rewrite the rules in 1995. Read More

From Terry Jones at Investor Business Daily

Hank Paulson wants oversight.

It would have been nice if all the regulatory agencies (The Federal Reserve, SEC, the Comptroller of the Currency, FDIC) and the government approved rating agencies would have done their job before the current financial crisis. Of course, I think it’s ridiculous that the very people that helped drive Fannie Mae, Freddie Mac and all of the investment banks to ruin are sitting around grilling Paulson--for example, Chris Dodd.

More on Fannie and Freddie

Even so-called financial experts didn't know if "Frannie" were private companies or quasi-public. That's how much of a bureaucratic mess had grown around these behemoths. They're relationship with the Federal government should have been severed long ago.

HT: Liberty Pen

A lesson from Milton Friedman

The lessons of the Fannie and Freddie bailout are going to be very expensive for Americans. When a corporation is singled out by government for special favors and incentives in the name of the public good, in the case of Fannie and Freddie it was housing for the masses, the situation quickly becomes prey to crony-capitalism. Here is a clip from Milton Friedman on this very subject.

HT: Liberty Pen

Government Bailout

HT: Carpe Diem

Fannie and Freddie go KABOOM! And Taxpayers get screwed.

Well, it finally happened just as fiscal conservatives and small government advocates warned that it would; Fannie and Freddie Mac have been taken over by the federal government—the largest bailout EVER! That means, dear reader, that you and I are stuck with a massive tax bill. Ka-Ching! Congratulations to us…the suckers.

For decades, libertarian think tanks like the Cato Institute, have sounded the alarm on the potential hazard of having giant government sponsored enterprises (Fannie and Freddie) continue to operate too cozily to the federal government. Of course, calls to completely sever the two GSE’s from any Federal protection and advantage were always met with resistance from the left side of the political spectrum. No surprise there. Fannie and Freddie were therefore encouraged to reckless expansion as they took on more and more risky bundles of mortgages from lenders in order to swap them for mortgage-backed securities. But so what right? They’re doing it for the public good and people need housing even if they can barely afford them. Besides, the federal government has their back.

The hapless figure in all of this is Treasury Secretary Henry Paulson who a while back had offered the beleaguered GSEs and their patrons in Congress a blank check signed by the taxpayers promising potentially unlimited funds to backstop the lenders. House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd thought that this was a wonderful idea. Mr. Paulson has obviously acquiesced to the Democrats and the mindset that exists in Washington about “doing something.” Unfortunately, President Bush will go along will all of this.

All of this is the latest example of the waste, crony-capitalism, political trading, and bureaucracy that has gripped Washington for decades. Americans really need to come to understand that government is a poor substitute for free-markets. Until that happens, we will see more waste of taxpayer’s funds and more problems with government largesse.

The Fan/Fred bailout is a scandal

Dick Armey adroitly blasts congress and President Bush on this latest example of crony-capitalism:

Americans who work hard, pay taxes and play by the rules can't seem to get fair representation in Washington, D.C., these days. In the current debate over a government bailout of speculators, irresponsible banks, Fannie Mae and Freddie Mac, the responsible majority has once again been pushed aside in a legislative rush to "do something."

This should have been a perfect opportunity for Republicans, struggling to regain some standing with the American people, to rise united and demand real accountability and reform. (Read More)

When President Bush signs this bill, it will be another black mark on his legacy of big government conservatism. The federal government and its myriad programs have grown by leaps and bounds under his stewardship.

Fannie and Freddie: Ron Paul called it in 2003

The whole ugly mess that has slowly revealed itself over the last week regarding GSE’s Fannie Mae and Freddie Mac were carefully foretold by Ron Paul in 2003:

The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

While Dr. Paul wasn’t the first or the only one sounding the alarm on Fannie and Freddie, it sure is nice to know that there is someone in Congress that is sharp enough and honest enough to see a train wreck in the making.