Rewarding Failure
The Bear on Jul 25 2008 at 8:30 am | Filed under: Economy
The Wall Street Journal reported on Monday that “the same folks who put taxpayers on the hook for Fannie Mae and Freddie Mac are now demanding ransom to let taxpayers bail them out.”
Arrogange behind belief
“I don’t know how in good conscience you come up here and ask me to give unlimited lines of credit” to Treasury for Fannie and Freddie without giving Democrats something in return, Senate Banking Chairman Christopher Dodd (D., Conn.) told the Journal last week. Come again? This is the same Chris Dodd who long resisted tougher regulation while more recently handing Fan and Fred even more room to expand their risk-taking.
In any other business, Mr. Dodd would be begging forgiveness. But in Washington he now wants the Bush Administration to bow to his political wishes in return for protecting the financial system from the risks that Mr. Dodd long claimed Fan and Fred didn’t pose. His demands include nearly $4 billion in Community Development Block Grants that are a payoff to liberal interest groups. He also wants an “affordable housing trust fund” for more such largesse that could take as much as a $1 billion a year out of Fan and Fred even as they struggle to stay solvent.
Meanwhile, another leading cause of this fiasco, House Financial Services Chairman Barney Frank, has his own demands. He wants to increase the size of the loans Fannie and Freddie can purchase and package as mortgage-backed securities (MBSs), which would allow them to grow market share. Earlier this year he pushed for, and got, a temporary increase in the so-called conforming loan limit to $729,250, allowing Fan and Fred to buy and securitize jumbo loans. Now he wants to make that increase permanent.
Behind the scenes, Mr. Frank is also demanding that the new, more powerful regulator for Fan and Fred not get up and running until next year, though the companies are in trouble right now. Like the management of Fan and Fred, he’s assuming an Obama Administration will go easier on the mortgage giants than will the Bush Treasury.
If Treasury Sec. Paulson can’t get a regulator who can rein in these two — and put them into receivership if they require taxpayer money — he should put the political blame squarely on Fannie and Freddie’s enablers in Congress.
They made this mess by creating these beasts that combine private profit with public risk. And they made the mess worse by fighting, over many years and despite accounting fraud, any limits on the ability of the companies to grow with taxpayer subsidies. Mr. Dodd and Congress owe Americans an apology, not more ransom demands.
Fannie Mayhem: A History here…
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NLPC Blasts Fannie Mae and Freddie Mac for Lavishing Contributions
on Jesse Jackson as Companies Near Collapse
FALLS CHURCH, Va., July 14, 2008 /PRNewswire-USNewswire via COMTEX/ — The National Legal and Policy Center (NLPC) today criticized the managements of Fannie Mae (FNM) and Freddie Mac (FRE) for their recent sponsorship of the Rainbow/PUSH Coalition and Citizenship Education Fund Annual Conference. The event took place June 28 through July 2 in Chicago. It is Jesse Jackson’s main fundraising event of the year.
According to the conference program, Freddie Mac was a “Platinum Sponsor,” a designation costing $150,000, and Fannie Mae was a “Diamond Sponsor,” a designation costing $100,000.
Fannie and Freddie are so-called Government Sponsored Enterprises (GSE) that own and guarantee mortgage securities. Shares of each are down approximately 85% in the last year. On Saturday, the Treasury announced it would offer a line of credit to help ensure the survival of each company.
(More Arrogance)
NLPC President Peter Flaherty said, “It is outrageous that rapidly evaporating shareholder equity is still being dished out to Jesse Jackson. The CEOs of these companies have repeatedly shown poor judgment, and this is just more evidence.”
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