Un-American Freddie Fannie Fury
Fannie Mae is a nickname for the Federal National Mortgage Association. It was created in 1938 following the Great Depression. Its twin, Freddie Mac ─ Federal Home Mortgage Corporation ─ was created in 1970 to further boost home ownership. Both firms have lost over 80 percent of their value as a result of the subprime crisis and are asking U.S. taxpayers and the government to bail them out. Ironically, Freddie and Fannie were the inventors of the mortgage-backed security, the principal cause of the housing bubble and its collapse. The two were complimented for years for their great invention. Now they are scrambling to survive and contain the economic subprime mortgage train wreck they unleashed on an unsuspecting public.
The two “government sponsored enterprises” own or guarantee roughly half of America’s $12 trillion in outstanding mortgage debt. They have combined debts of $1.5 trillion, own or guarantee more than $5 trillion in mortgages and have contracts with other financial institutions worth $2 trillion more to hedge the risks behind those mortgages. Today they cannot raise a dime without government support because they are insolvent.
Both Freddie and Fannie were chartered by Congress to support the mortgage market, but they are owned by private shareholders. Investors have long believed that the government implicitly backs them. That allowed the two companies to borrow at favorable rates, benefiting shareholders and supporting the housing market, but putting taxpayer money at risk. They have used their unusual status and clout to create a regulation free zone around them.
They became highly leveraged behemoths on the implicit guarantee that the government would step in and rescue them if they ever got into trouble. This allowed them to borrow money more cheaply than their competitors, enabling them to make loans more cheaply. That secured more business and rewarded their shareholders, along with their handsomely compensated executives. It emboldened them to trade in highly risky investments. Freddie and Fannie have positioned and portrayed themselves as the political sacred cows of home ownership, thanks to an army of lobbyists, power brokers and political contributors who are shareholders. I agree with former Fed Chairman Alan Greenspan who recently criticized both Fs as fundamentally flawed institutions that privatize profits and socialize losses.
Both Fs made the list of Washington’s top 20 lobbying spenders the last decade. They spent a combined $170 million to cultivate political favors. At the same time, their executives have consistently led the mortgage-banking sector in campaign giving to members of Congress, contributing a combined $16.2 million since 1997. Their lobbyists have played or are playing roles in the presidential campaigns of both John McCain and Barack Obama.
To allow Congress to inject billions of U.S. taxpayer dollars to bail them out is a mistake. America has to get back to the Founding Fathers frontier nation cut throat laissez-faire capitalism that allows losers to die. They should be nationalized and owned by the taxpayers being asked to pay and bear the burden for both institutions greedy mistakes. Their fire sale to taxpayers is in order. The alternative, America becomes more indebted to foreign creditors at our grandchildren’s expense. It’s about time U.S taxpayers got a reward for their continued bailouts of incompetent self-serving bankers witnessed in the bailout of Chrysler in 1979, savings and loans in 1989 and more recently Bear Stearns.
The two “government sponsored enterprises” own or guarantee roughly half of America’s $12 trillion in outstanding mortgage debt. They have combined debts of $1.5 trillion, own or guarantee more than $5 trillion in mortgages and have contracts with other financial institutions worth $2 trillion more to hedge the risks behind those mortgages. Today they cannot raise a dime without government support because they are insolvent.
Both Freddie and Fannie were chartered by Congress to support the mortgage market, but they are owned by private shareholders. Investors have long believed that the government implicitly backs them. That allowed the two companies to borrow at favorable rates, benefiting shareholders and supporting the housing market, but putting taxpayer money at risk. They have used their unusual status and clout to create a regulation free zone around them.
They became highly leveraged behemoths on the implicit guarantee that the government would step in and rescue them if they ever got into trouble. This allowed them to borrow money more cheaply than their competitors, enabling them to make loans more cheaply. That secured more business and rewarded their shareholders, along with their handsomely compensated executives. It emboldened them to trade in highly risky investments. Freddie and Fannie have positioned and portrayed themselves as the political sacred cows of home ownership, thanks to an army of lobbyists, power brokers and political contributors who are shareholders. I agree with former Fed Chairman Alan Greenspan who recently criticized both Fs as fundamentally flawed institutions that privatize profits and socialize losses.
Both Fs made the list of Washington’s top 20 lobbying spenders the last decade. They spent a combined $170 million to cultivate political favors. At the same time, their executives have consistently led the mortgage-banking sector in campaign giving to members of Congress, contributing a combined $16.2 million since 1997. Their lobbyists have played or are playing roles in the presidential campaigns of both John McCain and Barack Obama.
To allow Congress to inject billions of U.S. taxpayer dollars to bail them out is a mistake. America has to get back to the Founding Fathers frontier nation cut throat laissez-faire capitalism that allows losers to die. They should be nationalized and owned by the taxpayers being asked to pay and bear the burden for both institutions greedy mistakes. Their fire sale to taxpayers is in order. The alternative, America becomes more indebted to foreign creditors at our grandchildren’s expense. It’s about time U.S taxpayers got a reward for their continued bailouts of incompetent self-serving bankers witnessed in the bailout of Chrysler in 1979, savings and loans in 1989 and more recently Bear Stearns.
posted by Peter de Krassel's Custom Maid Politics at 11:54 PM
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