Fannie and Freddie: Deadbeats of the Decade

I beg to differ on one point, Rod.

The very last thing the Fannie and Freddie fiasco represents for Barack Obama is an opportunity.

That is because on the long list of Democratic party politicians and liberal and leftist institutions that have been beneficiaries of Fannie's and Freddie's (ahem) "largesse" is *Acorn* -- the Association of Community Organizers for Reform Now -- the leftist, Alinskyite outfit in which Obama served his much-trumpeted (by him) stint of time as a "community organizer," i.e. as a run-of-the-mill mau-mau man.

Others on the list include Nancy Pelosi, Steny Hoyer, Rahm Emanuel, Barney Frank, Paul Krugman, Harvard University, the Brookings Institution, the Rainbow Coalition, PUSH, the Congressional Black Caucus, and the Congressional Hispanic Caucus -- and that's hardly an inclusive roll.

There are Republicans there as well, to be sure, but one commentator hits the nail on the head when he writes that Fannie and Freddie derive their "unique clout" -- especially on the left and among Democrats -- from "a combination of liberal ideology and private profit" -- a combination that we will see to see many, many iterations of in coming years, if Obama wins.

You heard it here first, folks.

Rod: Still, it's outrageous that it got to this point, and voters should look kindly upon whichever of the candidates vows to clean this mess up and keep it from happening again.

Suggestion that--we judge candidates--by issues--(clutches chest)--must fight off--heart attack from shock.....

;)

Rod says: The NYT story says that McCain has long been critical of Fannie and Freddie, so it looks like it might be hard to pin this failure on him.

McCain has a history of saying one thing and voting for another.

Regardless of what people say on TV (and they say that the real estate decline is almost over), it is only the beginning. I was saying for a long time that a financial tsunami is coming and I came across a website where an analyst is using exactly the same words. If this guy is right, the picture is very scary. And the worsest thing is that per my observations I agree with many things he is saying.

http://market-ticker.denninger.net/

Rod says: The NYT story says that McCain has long been critical of Fannie and Freddie, so it looks like it might be hard to pin this failure on him.

McCain has a history of saying one thing and voting for another.

Regardless of what people say on TV (and they say that the real estate decline is almost over), it is only the beginning. I was saying for a long time that a financial tsunami is coming and I came across a website where an analyst is using exactly the same words. If this guy is right, the picture is very scary. And the worsest thing is that per my observations I agree with many things he is saying.

http://market-ticker.denninger.net/

That should have read "Quite a few state pension funds are in the RED."
Late-night color confusion strikes again; I think someone switched me to decaf without telling me.

Your servant,

Lord Karth

The real problem is this: the Fannie Mae and Freddie Mac bailouts are as nothing compared to the size of the unfunded liability for Medicare. The Medicare problem is, if my memory serves, some $ 40 TRILLION and growing fast. According to the actuaries, Medicare is already technically insolvent. Social Security and Medicaid ? Let's not even go there, people.

Dude, that's not the same thing at all. With social services, that means the government has made promises of spending and than failed to collect the taxes to actually met those promises. There are, obviously, two simple ways to solve that problem: Less promises, or more taxes.

With Fannie Mae and Freddie Mac, we are actually bailing out private corporations. Now, yes, there's an argument that they aren't 'really' private, but if so, that just moves the bailout one step out, because the FMs weren't running around making loans to people, they were buying mortgages from banks.

Frankly, the thing to do at this point is to, indeed, bail out the FMs...and to open several million investigations on whether or not the FMs were fraudulently sold loans, and not only go after corporations that sold them such loans, but realize that's criminal wrongdoing and lets us break the corporate immunity and go after the company executives personally.

Then, ultimately, I'd like to see it made illegal to make a mortgage loan with the intent to sell it to someone else, or by 'agents' who do not actually work for the company they are making the loans for. (They could be sold, but couldn't be intended to be sold at the time they were written. And maybe for two years they couldn't be sold at all.)

Selling loans, and having a system set up where banks are either immediately selling the loans, or simply making them on behalf of another company and getting paid a commission per-loan, or both (Where the banks make the loan on behalf of another company, who immediately sells it.) is just an incredibly stupid system.

It incentivises everyone sitting at the mortgage table (Except the person getting the loan, and sometimes even then.) to lie about the ability of the homebuyer to pay off the loan, because none of them suffer in the slightest if they can't.

Yes, yes, we can argue that the companies buying the loans screwed up and should have done more work insuring that they only bought legit ones...but mortgage-issuing companies were often operating illegally, which makes loan-buying companies who bought crap loans from them about as morally culpable as people who buy toys that, unknown to them, had lead in them. We have laws for a reason, because all people, and companies, can't always check that people who are selling to them are actually telling the truth.

Mike and Karth are both correct...this thread is the single MOST important thread in months, but people don't understand why. Billions you say? It might actually be a TRILLION before it's over. People should be rioting in the streets.
Partisanship pales when you look at these housing bailouts. For months I wrote letters and emails to our "leaders," imploring them not to allow bailouts of any kind. And the American people were entirely on my side, numerous polls showed that fully 70% of the populace was strongly against the housing bailouts. So what did our fearless leaders do? They went ahead with the bailouts of course. Look at campaign contributions on both sides(maybe even more for Dems) and it's a who's who of Wall St., banking and real estate concerns. The corruption is so thick on both sides that it makes me sick to my stomach. We're talking about sums of money that take your breath away. And our leaders are totally unaccountable to the people in this regard. They have allowed profits to remain private while socializing losses via crony capitalism. This arch stupidity encourages moral hazard; there is no earthly reason for big business to play by the rules when they know that the government will cover any losses, even losses that have been caused by stupid and risky decisions. I am LIVID about this issue.
As I said before, the partisan debates are meaningless once you delve into what the big boys are doing behind the scenes. Our deficit is gargantuan and exploding as I write this, and the entitlement tsunami is coming at us as well...and none of the contenders mention any of this.
We are talking about numbers that are more dire than The Depression. If they keep printing money, eventually the dollar will indeed be totally worthless and crash, taking the world economy down as well. There is no longer any accountability for the money men, the Congress, the Fed, the Treasury, etc., as they all greedily ream the American taxpayer for sums that the next twelve generations won't be able to pay back.
God help us.

I don't think we should bail-out Fannie and Freddie and I agree they are deadbeats. But I also understand the economic argument that we can't let the largest holders of mortgage loans to go belly-up and the cost to the country and the economy and homeowners--both in the U.S. and internationally--could be devestating.

The story, however, represents the failure of sound economic policy and the failure of the market. It also points out one of the most important flaws in unregulated capitalism. The mortgage loan crisis occurred because of the unregulated market. Instead of creating safe-guards, we listened to hedge fund managers instead of economists and supply-siders instead of rationalists or pragmatists.

I'd like to think that this would encourage voters to begin asking hard questions about the economic policies and regulatory plans of the candidates. I'm not convinced they will.

I understand what the intention of Fannie and Freddie are and were. That, once they came under the control of private shareholders and directors, they lost that vision is part of the problem. The collapse of Fannie and Freddie also represent the depth of the mortgage crisis, which was caused by the unregulated market.

Take an aspirin, get some sleep, and most of all *hush* when you clearly have no clue what you are talking about.

Such a pitiful little man you are.

Well there's still the rest of 2008 and all of 2009 for someone to top Fannie and Freddie until they can claim the title Rod's offered them. Should their management get an IgNobel prize for economics?

missing Don Rich citation:
http://mises.org/story/3062

Daniel,

So a pox on everyone's house, but just much less of a pox on the Democrats' house, despite the fact that they deserve much more of the blame in this particular case.

Makes good (non)sense to me ... considering the source.

If you had even one tenth of the integrity that you pretend to on this point you could never spend one tenth as much time as you do on this blog repeating left-liberal and Democratic party chattering points.

I and others here would give you an easier time than we usually do if you would just once in a while break with your flock or whatever group it is in which parrots fly.

Jim Rogers: US 'More Communist Than China' at Lew Rockwell blog

The Fannie-Freddie bailout is "socialism for the rich," says Jim Rogers. Not for "homeowners in trouble" - not that that's a good idea - but for "Wall Street and the big banks." Actually, Jim, this is just more fascist corporatism: an FDR-style big government-big business partnership against the rest of us. BTW, Ron Paul warned against all of this, years ago. And wait a minute, Jim, you're right. This is socialism: national socialism.

Chapter V in Thomas L. Friedman's latest is subtitled "China for one day"

GOD FORBID!

I seriously think our elites have lost their marbles!!!

I'm going to do all in my power to help Ron Paul get my hubbies vote (I'm a British citizen, so no franchise for me, and no pity either - my pounds just got more valuable as your dollars dipped)

David, sorry but the wee banks weren't fraudulent -- they were coerced into competing to make more crazy risky deals than their brethren in the consumer credit industry by the massive market manipulation of the GSEs (bigger than the top 10 US private banks combined). If we believe you, pray Anatole Kaletsy at the Times of London is right...

"All this really does add up to the biggest government intervention in any market economy since the Second World War. If this programme is not sufficient to put the US economy and financial system back on its feet, it is hard to imagine anything else that could. ( |_Clare_Krishan_ adds: if you're a logical positivist, of the German historical school maybe, but as a Catholic Christian convinced of human concupiscence ... NOT |(*) )

Anyone betting against this package is, therefore, betting that the US economy is doomed to irreversible and inevitable decline. Such a bet has always been wrong in the past and is likely to be wrong again this time. So Sunday's probably was the Big One - and a US economic recovery is now assured."

business.timesonline.co.uk/tol/business/columnists/article4699475.ece (add http://)

and hope no more "black swans" crop up like that that occured at the LSE Monday:
www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/09/08/bcnlse508.xml (add same)

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* progress is not inevitable, the Roman Empire ceased to exist when it failed to assert moral rectitude of the simple pagan kind, with their own version of fiat currency bank failure and subsequent lack of fortitude of public fiduciary trust. Their culture imploded under the pressure of the invading hoardes... civilization as they knew retreated to Christian centers of community - Rod's much vaunted "Benedict Option." I'm no chicken little, but betting none of the big 4 (POTUS/V-potus) candidates has experience of the "since the Second World war" kind, not even he of the Hanoi Hilton...