Billy Paul
Let the Dollar Circulate
The federal government is set to take over Fannie Mae and Freddy Mac.Paulson to Take Over and Restructure Fannie, Freddie
As I have written several times before, a large part of the credit crisis is due to the fact that banks have long found it safer and more economical to give loans to risky applicants and then sell off the loans than deny the applicants to then get sued for some form of discrimination. The applicants constituted a kind of law suit bomb. That system worked well as long as money was easy and property values were going up. But when property values started dropping, the house of cards caved in and the cost of risk has skyrocketed in the marketSept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson will use his authority to rescue Fannie Mae and Freddie Mac, likely placing the beleaguered mortgage-finance companies under government control as early as this weekend.
The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview after being briefed by Paulson. The government would make periodic injections of funds by buying convertible preferred shares or warrants in the companies as needed, avoiding large up- front taxpayer costs, according to a person briefed on the plan.
``This is no bailout, particularly for the shareholders,'' Frank said. The federal government ``will be senior to all shareholders, preferred and common.''
Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Federal Housing Finance Agency Director James Lockhart, Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron this weekend on a plan to take control of the government-sponsored enterprises, which have operated as private shareholder-owned corporations for almost 40 years. Paulson is seeking to halt the crisis of confidence in Fannie and Freddie following $14.9 billion in losses in the past year that boosted their borrowing costs and hampered the mortgage market.
Paulson was prompted to step in after Morgan Stanley, which had been hired to analyze the companies' financials, concluded that Freddie, and to a lesser extent Fannie, relied on accounting maneuvers to meet their capital requirements, according to people with knowledge of the findings. The accounting overstated the value of their actual reserves, the people said.
Mark Lake, a spokesman at Morgan Stanley in New York, declined to comment.
I know some folks will suggest that the government should stop bailing out these bad mortgages and let the chips fall where they may and there is some merit to that.
The downside of that approach though is you end up with lots of empty houses that the receiver has to deal with and possibly have no market for, people out of their their homes, and all confidence in the financial system gone. I don't think we really want to go in that direction.
I believe this move will start to put a floor on the real estate values and housing market. It will remove some of the volatility from the financial markets, stop the damage from getting worse and buy time for various financial institutions out there to figure out their situation.
I also believe that you sill see a significant rise in the stock market early next week due to this move.
Then we need to work on tightening the lending rules so people who do not really qualify for a loan do not get one.
~ 3 WOOD
OK 3 Wood. I have questions, I do not see a "bailing out", I see a "taking over": 1) WHY were the rules so relaxed that people who didn't qualify would get loans in the first place?
Didn't they KNOW that collapse is where that would lead? Shit... I am an economic moron and I could have told them that - anyone knows that if you lend money to broke people they can't pay it back.
SO... it stands to reason......
IF in fact they did know this, (I mean C'MON! they HAD to know) and relaxed the laws anyway, it stands to reason that this was the end game all along, this nationalization of millions of mortgages.
2006 Left wing publication THE NATION On Paulson when he was made Secretary of Treasury
Enter Hank Paulson, who has spent the past eight years as Goldman Sachs chairman and CEO. He joined the firm in 1974 after serving as a member of the White House Domestic Council in the Nixon Administration.Under Paulson's leadership, Goldman Sachs has become one of Washington's most generous patrons. Paulson is a top donor--mostly to the GOP. (To the chagrin of critics on the right, Paulson is also an ardent environmentalist and is chairman of The Nature Conservancy.) As Treasury Secretary, Paulson may have to dump some stock (he is the single largest shareholder in Goldman Sachs according to its 2006 proxy statement, with 4.6 million shares) to decrease his overwhelming conflict of interest, but even if he sells his unrestricted stock, he'll still have several hundred million bucks in RSU (restricted stock unit) awards, which are not immediately sellable. This could place him in a position where maintaining his financial well-being could necessitate supporting policies positive to Goldman's short-term stock price over long-term needs of the general economy, like dividend tax cuts.
2) Exactly WHEN were these rules relaxed? Could it have been during ZOELLICK'S Watch?
3) Consider this:From 1993 to 1997, Mr. Zoellick served as an Executive Vice President of Fannie Mae, the large housing finance corporation. He supervised the affordable housing business, as well as offices dealing with legal, regulatory, government and industry relations, and international services. The international services staff worked with governments in Latin America, Asia, and Russia seeking to build mortgage markets.
Zoellick's affordable housing work at Fannie Mae involved establishing business ties with Governors, Mayors, other state and local officials, low income housing groups, Native American organizations, non-profits, as well as with multifamily housing developers, realtors, homebuilders, and a wide range of financial providers. He managed affordable housing staffs in regional and state or city partnership offices across the country. His corporate activities also involved dealing with investors, complex asset-liability and credit risk management, and the global capital markets. (During an earlier period at Fannie Mae, from 1983-1985, Zoellick served as Vice President and Assistant to the Chairman and CEO while the company executed a business turnaround strategy after the surge of high interest rates exposed its asset-liability mismatch).
If you want to know how Fannie Mae and Freddie Mac have survived scandal and crisis, consider this: Over the past decade, they have spent nearly $200 million on lobbying and campaign contributions.deep-pocketed lobbyists in Washington and scores of local Fannie and Freddie-sponsored homeowner groups ready to pressure lawmakers back home.
But the political tentacles of the mortgage giants extend far beyond their checkbooks.
The two government-chartered companies run a highly sophisticated lobbying operation, with deep-pocketed lobbyists in Washington and scores of local Fannie- and Freddie-sponsored homeowner groups ready to pressure lawmakers back home.
They’ve stacked their payrolls with top Washington power brokers of all political stripes, including Republican John McCain’s presidential campaign manager, Rick Davis; Democrat Barack Obama’s original vice presidential vetter, Jim Johnson; and scores of others now working for the two rivals for the White House.
Fannie and Freddie’s aggressive political maneuvering has helped stave off increased regulation and preserve special benefits such as exemption from state and local income taxes and the ability to borrow at low rates.
Protected by Washington, Fannie and Freddie grew:
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The dominant role Fannie and Freddie play today is no accident. The companies, Wall Street firms, mortgage bankers, real estate agents and Washington lawmakers have built up an unusual and mutually beneficial co-dependency, helped along by robust lobbying efforts and campaign contributions.
In Washington, Fannie and Freddie's sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years.
And as Fannie and Freddie grew, so did the fortunes of Wall Street, which reaped rich fees from issuing debt for the two companies, as well as the mortgage and housing industries, which banked billions of dollars as the housing market boomed.
Even after accounting scandals arose at the two companies a few years ago, attempts to push through stronger oversight were stymied because few politicians, particularly Democrats, wanted to be perceived as hindering the American dream of homeownership for the masses.
Lots of perks came with Fannie and Freddie's charters and government backing: exemptions from state and local taxes, relatively meager capital requirements, and an ability to borrow money at rock-bottom rates.
[SNIP]
2004:
WASHINGTON, Dec. 17 - The directors of Fannie Mae, the big mortgage finance company, will meet Sunday to consider the fate of two senior executives who signed off on financial statements that violated accounting rules, people close to the company said Friday.
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Among the names circulating in governmental circles on Friday to succeed Mr. Raines was Robert B. Zoellick, the United States trade representative. He has worked at Fannie Mae twice before, including one stint in the 1990's when he was a senior executive in charge of its affordable-housing business as well as its legal affairs and governmental relations offices.
Mr. Zoellick has also been said to be on the short list of contenders to be the next head of the World Bank.
2005: WOLFOWITZ got it. ZOELLICK had to wait till he was ousted to get it in 2007.
2005:Did Fannie And Freddie Outsmart Themselves?
One of Washington's cardinal rules is: Know when to hold 'em and know when to fold 'em. Banking and Capitol Hill sources say Fannie Mae (FNM ) and Freddie Mac (FRE ), which beat back legislation in 2004 that would have put them under tighter controls, have indicated that they're ready to fold and accept last last year's Senate bill. But it's too late. In the wake of Fannie's $9 billion accounting scandal and revelations of fat bonuses, Republicans will mount an even more ambitious assault on the two mortgage giants. "We are going to have all the wheels and spinners previously enumerated, plus a few new ones," promises Richard Baker (R-La.), chairman of the House capital markets subcommittee.
Last year, Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) pushed to establish a new independent regulator with the power to set capital standards, approve new products, and put government-sponsored enterprises (GSES) such as Fannie and Freddie into receivership in the case of severe financial difficulties. Now, he says, that's "a floor, not a ceiling. We're coming back in a different environment."
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Richard Craig Shelby (born May 6, 1934), sometimes known as Dick Shelby, is an American politician.
He currently is the senior U.S. Senator from Alabama. Originally elected to the Senate as a Democrat, Shelby switched to the Republican Party in 1994 when it gained the majority in Congress. From 2003 until 2007, he chaired the Senate Committee on Banking, Housing and Urban Affairs
Shelby, in his role as chairman of the Senate Committee on Banking, Housing, & Urban Affairs, opposed proposed bills that would have helped reform the title insurance industry and help reduce the costs homeowners pay, particularly when they refinance their mortgage.[6]
Funny how all of this crap reminded me of Spitzer:
March 4 2008: GOVERNOR SPITZER PROPOSES LEGISLATION TO ADDRESS SUBPRIME MORTGAGE CRISIS
March 10, 2008: SPITZER LINKED TO PROSTITUTION RING
Could the Lonesome Gov’s fall have had something to do with the Fed's $200 billion bailout of the subprime-mortgage industry, which Spitzer conspicuously opposed and which coincidentally occurred on the same day as his resignation?
The $200 billion bail-out for predator banks and Spitzer charges are intimately linked
This written by someonewho obviously has a big agenda and HATES Bush but glean the serious info in it nevertheless:
Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”
What that means is that they took a bunch of junk mortgages, like the Grinning's, loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).
[SNIP]
Now, I may not be an economist, and I may not be able to add without a calculator, but my sense of smell is impeccable... and this shit here stinks.
~ The Spleen
Frank Zappa ~ Stinkfoot 1974
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