ON FNMA & FHLMC: REPUBLICANS ADVOCATE SOCIALISM FOR THE RICH
NOT TO WORRY, WE'RE SAVING CAPITALISM FOR THE POOR: THAT'S YOU
HERE'S YOUR NEW WORLD ORDER. THAT'LL BE FIVE TRILLION DOLLARS, PLEASE
McCain & Bush Take The Next Step Towards Corporate Feudalism
Congratulations! You're the proud new owners of Fannie Mae and Freddie Mac. What's that? Why, they guaranteed your mortgage (or your Mom's or your landlord's). We think. There's some discussion about that, now that certain financial chickens have come home to roost. It may be that you have guaranteed your own mortgage. And now you have to pay up, because somebody else defaulted.
A lot of somebody elses. Untold, and I do mean untold, millions of dollars have gone, shall we say, missing? Not to worry, there's still another $5,000,000,000 that hasn't gone bad. Yet. Oh, and you'll be on the hook for all that, too, most likely. Don't you feel rich, now? I'll bet you've never owed one thousand billion dollars before, much less FIVE!
You'd think they'd be mailing you boxes of credit cards, if your credit limit was that high. Instead, they're jacking up your rates, and canceling your low-interest cards if you so much as sneeze on the wrong day of the month. Who are they? Well, they're your friends and neighbors in Dubai, Zurich, Tokyo, and lots of other international financial markets and foreign government money-sumps. They're the people who actually loaned you the money. Well, they're the people who loaned the money to the people who loaned you the money. Well, they're the people who bought the securities from the people who loaned the money to the people who loaned you the money. Confused? Well, it's simple, really: They own your ass. And now they're asking you to pay for it, your own ass, that is.
See, somebody else gambled your ass, and they lost. So now you have to pay up. Now. Or maybe they take your house. Or your ass.
So, how much is your own ass worth, these days? Depends upon how you look at it. Thanks to John McCain advisor Phil Gramm's deregulation of the financial industry under the Bushies, the Republicans have removed the firewalls between the various sectors of our financial system. Now it seems there's been a fire. Bankers and brokers, fund managers and corporate financial officers, realtors and investors have been playing with matches in the gasoline-soaked mortgage market, gambling on over-priced real estate and under-qualified buyers, and pretty much throwing out all the old, liberal, Democratic rules put in place after the last Great Republican Depression in 1929.
Ah, rules! We don't need no stinking rules! YEAH BABY! Those rules for the rich have been swept away by, well, the rich. And now you're going to pay for their crimes and business failures. Thank the conservative Republicans for this complete collapse of legality, morality and financial responsibility: The "law & order" Party that wants to regulate every aspect of your personal life, from partying to pregnancy, entertainment to self-expression, has just sentenced you to a lifetime of paying for their crimes. L-I-T-E-R-A-L-L-Y. A lifetime. Maybe more. A lot more.
The best part: The crooks get to keep the money they stole. In fact, they'll be receiving dividends and interest checks for their crimes, paid for by you. Hunh? Well, you voted Republican, didn't you? What did you think you were voting for? Pork rinds & country music? Law & Order and National Security? BWAAAAAA-HAHA-HAH-HAH-HA-HA-HA-HAAAAAAAAW!!! Can't believe you fall for that every time!
Hey, see you in November, chump. The kewl kids'll be voting for hockey Mom's and POW's, not uppity Negroes and wishitty-washitty LIBERALS that wanna reg'late away all our FREEDOMS! [snicker] Our Gawd-given right to grab YOUR money with both hands! Are you KEWL enough to vote against yourself, again?
Or, wait, wait, wait! We COULD do it the other way: You know, capitalism for the rich, socialism for the rest of us: Let them go to Hell with their gambling addiction: We nationalize everything, and turn the government, our government, and the economy, our economy, into a public service, a public trust owned by all of us, and managed by us for us, you know, like Lincoln said: "Government of the people, by the people, and for the people." We work for ourselves alone, and we all work together to make the system work for our interests for a change, not against our interests, the way it is now. Government becomes a tool we use to make all of our lives better, instead of a weapon the rich use to enrich themselves and make the rest of our lives worse. Economic democracy, anyone?
Nah. That'll never work. They'd kill us all first, and take our money to China. Oh, wait. The money's already in China. And they can't kill us. They need us to shine their shoes, do their work, buy their crap, pay their taxes and fight their wars. Whew! Close one.
(MORE ON MORTGAGE FRAUD.)
BLOOMBERG NEWS SERVICE
"U.S. Considers Bringing Fannie Mae, Freddie Mac on to Budget "
' The Bush administration is considering how to fold Fannie Mae and Freddie Mac's $5.2 trillion in debt into the federal budget, the White House budget office and the U.S. Treasury Department said. The federal takeover of the government-sponsored enterprises, or GSEs, on Sept. 7 failed to address whether the debt of Fannie and Freddie should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week, Treasury Secretary Henry Paulson cited the ``incongruities'' in the law and said ``we should be clear, is there a government guarantee or isn't there?'' Any decision to add Fannie and Freddie to the budget wouldn't automatically translate into an explicit government backing for the companies' combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees. Granting the full faith and credit of the U.S. would require an act of Congress to change the companies' legal status. '
"The For-Idiots, By-Idiots Guide to the Fannie Mae/Freddie Mac Bailout"
' The only thing you read this weekend was the Styles section. The only television you watched: the VMAs. Hey, that's what weekends are for. Unless you're Treasury Secretary Hank Paulson. He had a crap weekend: "I've never been through any situation which was as difficult, as stressful, as complex," he told Bloomberg TV today. No idea what he's talking about? Yeah. That's what happens when news breaks on the weekends, and dealing with the avalanche of reports that follow a weekend announcement such as "The government is basically taking over the mortgage industry in a desperate attempt to save America" in addition to your usual Monday duties is a headache. Which is why, to get you caught up, Intel has compiled a short summary about what went down with mortgage giants Fannie Mae and Freddie Mac while you were brunching. Wait, So What Happened? Treasury Secretary Henry Paulson announced plans yesterday to take over Fannie Mae and Freddie Mac. As we once told you, FNMA and FRE are not troubled farm children, but are in fact two giant mortgage lenders that were started by the government, went public, and then over the past year spun into total chaos and disarray as the mortgage market seized up over the subprime crisis. Back in July, the Fed offered them some money to solve their problems, but that didn't work out, and so now they've just decided to go whole-hog and bail them out. From now until, well, whenever, the federal government will ensure Fannie and Freddie have the capital to continue doing what they do (funding mortgages) and will guarantee repayment of the bonds and other forms of debt issued by them. Isn't that nice? It is … sort of. Why This Is Good: Combined, Fannie and Freddie own more than $5 trillion of debt (including about 75 percent of mortgages) and have issued mortgage-backed securities to central banks and other investors worldwide, so the failure of either of them, as Paulson said yesterday, "would cause great turmoil in our financial markets here at home and around the globe." So it's good for the stock market, basically, because it's not horribly bad. The deal is also good for the consumer because mortgage rates will go down a little, or at least stabilize. And Paulson said yesterday that one of the things the new Fannie and Freddie will do is examine the fees they charge banks for loan securitization services “with an eye toward mortgage affordability,” and a reduction in those fees would be passed onto the consumer. If you already have a fixed-income mortgage, this doesn't help you much. However, if you're about to be foreclosed upon, the New Guard may make it easier for you to renegotiate for a cheaper loan. Why It's Bad: Well, where is the Fed getting all this money? Us. We mean, not us personally, but also, yes, us personally. We are paying with the taxes eked from our pathetic miserable paychecks for this because a bunch of dickbag lenders encouraged a bunch of irresponsible borrowers to borrow money they couldn't pay back. Plus, if you are a shareholder or invest at all in mutual funds, you probably lost a bunch of money on Fannie and Freddie, which were formerly seen as "safe" investments. Boo. But then, it's better than total world poverty, so we guess we're for it. We're saintly like that. As long as it, you know, works. '
"Fannie Mae to pay previously declared dividend"
' Mortgage giant Fannie Mae said Wednesday night it received permission from its regulator to pay previously declared, but unpaid dividends on all its preferred stock. The payments will be made on Sept. 30 as scheduled. '
THE WALL STREET JOURNAL
"Bailout for Billionaires"
' Although Congress created the moral hazard that has become the taxpayer rescue of Fannie Mae and Freddie Mac, the Members plan to hold hearings to opine about it anyway. They should put themselves at the witness table. But since they won't, the least they can do is ask Treasury to explain its bailout for billionaire subordinated debt holders. We're referring to the holders of some $11 billion in Fannie and $4 billion in Freddie subordinated debentures. In structuring his rescue, Treasury Secretary Henry Paulson gave a haircut to holders of both common and preferred stock. In the process, he socked it to many small banks that had much of their capital in Fan or Fred shares. He was right to do so, and he should have wiped them out given how much those holders had profited over the years from a government guarantee. But, strangely, Mr. Paulson also decided to give Fan and Fred's subordinated debt holders an entirely free pass. Why? And who are these guys? Treasury's explanation is that it had to do this to reassure the world's holders of Fan and Fred senior debt. The argument seems to be that if subordinated debt holders took a loss, then senior debt holders might panic and run. And reassuring the Chinese and other holders of Fannie senior debt is the main point of this bailout. With the weekend bailout, however, those investors can buy another vacation home, or three. On Monday, yield spread premiums on Fannie Mae subordinated debt maturing in 2011 plunged by three full percentage points to a bid of 3.50 points. Investing rarely gets better than this: Buy paper you know carries a higher risk but also a higher return, and then have Uncle Sugar eliminate that risk so you also make a windfall profit. At the very least Mr. Paulson could have gone to these investors with a restructuring proposal, asked for some cash and given them a new piece of paper. Instead, the Treasury Secretary has set a terrible precedent, leaving subordinated debt holders at other large financial institutions to calculate that they too will receive a government bailout if they stumble. Both Treasury and the Federal Housing Finance Agency said they don't know who now holds Fan and Fred sub debt. But it's a fair guess it is mostly some of the world's richest people and largest financial institutions. Pimco's Bill Gross, who manages the world's biggest bond fund, had been agitating for weeks for a bailout. Asked about his Fannie and Freddie positions, a spokesman told us, "we don't discuss our holdings." Our guess is Mr. Gross is a lot richer after the bailout than he was last week. Ditto for Goldman Sachs, which also declined comment and where Mr. Paulson used to work. We hope someone on Capitol Hill asks Mr. Paulson for a list of these big winners, so taxpayers can understand who is getting richer on their dime. '
"What the Freddie-Fannie Bailout Means for Asia"
' American home buyers haven't been the only ones counting on the supposed reliability of Fannie Mae (FNM) and Freddie Mac (FRE). The two companies' bonds have become favorites of Asian governments looking for somewhere to put the dollars generated by big trade surpluses with the U.S. Until recently, it made sense. The market was booming, yields were slightly better than plain-vanilla Treasuries, and everyone assumed Washington backed the mortgage companies. As the U.S. housing crisis deepened and Fannie and Freddie started sinking, though, foreign bankers wanted assurances that their assumption was correct. "Treasury saw foreign governments getting the willies," says one Senate aide. Especially those in Asia: Four of the top five international holders of Fannie and Freddie paper are Asian. Deepening problems at the two enterprises spurred anxious phone calls to Washington. Chinese banks "were probably facing significant losses," says Logan Wright, an analyst at Stone & McCarthy Research. For now, though, Asia's central banks are emerging as winners. "They have nothing to complain about—they're made whole," says Edwin M. Truman, an economist who headed the Fed's international finance division from 1977 to 1998. "The fact of the matter is, if Fannie and Freddie can't pay, you and I will." '
"Big fund firms among top holders in sinking stocks"
' Some of America's biggest and best-known mutual fund companies likely suffered heavy losses multiple times this week because they had large holdings in the market's worst performing stocks. AllianceBernstein Holding LP, which invests $675 billion, may have been the biggest casualty. It ranked as the top shareholder in ailing investment bank Lehman Brothers Holdings Inc, where it owned 65.6 million shares, and crippled mortgage company Fannie Mae, where it owned 134.2 million shares, at the end of June. At Fannie's cousin Freddie Mac, AllianceBernstein was the third biggest holder with 41 million shares. On Tuesday, Lehman's stock tumbled 46 percent, while Fannie Mae cratered 90 percent, and Freddie Mac plunged 85 percent on Monday. While the companies' share prices have recovered somewhat, losses remain enormous overall, with Fannie having given up early all of its value in the last 52 weeks, for example. Fidelity Investments, the world's biggest mutual fund company with $1.5 trillion invested had also loaded up on this week's losers. The privately held company ranked as the third largest investor in Lehman and the fourth biggest owner at Fannie. At Freddie, Fidelity ranked in 10th position. Capital Group, which runs the popular American Funds, was the second biggest investor in Freddie Mac and the third biggest in Fannie Mae. And Legg Mason Inc, home to Bill Miller who was ranked as America's best stock picker for 15 years, held more Freddie shares than anyone else, while Legg's ClearBridge unit was the second biggest owner of Lehman stock. While the ownership lists read like a who's who among mutual fund firms, it did not win these firms new fans, industry sources said, noting that clients either shifted their money from stock funds to cash or quit the firms altogether. "Clients voted with their feet maybe because these guys weren't doing the research they should have been," said one hedge fund manager who asked not to be identified because he concentrates on betting that stock prices will fall. '
"Home Buying After Fannie and Freddie"
' Officials at HUD, Treasury, the FDIC and the Federal Reserve are working feverishly to sort out the fine print of a program that will let the Federal Housing Administration (FHA) insure up to $300 billion of new, fixed-rate mortgages for homeowners who owe more than their house is worth and can't afford their current loan. There's a lot to sort out, considering that a key part of the program is convincing lenders to take a haircut — to accept less than what they're owed. The inducement is that the FHA is on the hook if a homeowner defaults on the refinanced mortgage. In return for taking that risk, the FHA, as guarantor, will share in any profits the homeowner collects from a sale. The FHA will pass some of those profits along to any other lenders who have a claim on the house — like a second mortgage or home-equity line of credit — to get them to agree to the deal. In July, when the bill passed, the Congressional Budget Office estimated that the FHA could realistically wind up insuring about $68 billion worth of loans, thereby keeping some 325,000 families in their homes. Will lenders play ball? That's a big question, especially since final regulations won't be published until Oct. 1. Reducing the principal amount of a loan is pretty much the last thing lenders want to do, but as property values continue to fall and the number of bank-owned houses grows, they might become more open to negotiation. '
"Politicians decry payouts for deposed chiefs of Fannie Mae and Freddie Mac"
' There's not much that Democrats and Republicans agree on these days, but there's one emerging issue on which they're in complete accord: The deposed chief executives who led mortgage giants Fannie Mae and Freddie Mac into a financial swamp don't deserve to collect multimillion-dollar bonuses on their way out the door. Members of Congress and both major presidential candidates have been fulminating all week against the idea that the two former executives were entitled to a combined $24 million in bonuses after being fired. '
HISTORY NEWS NETWORK
"What Are the Origins of Freddie Mac and Fannie Mae?"
' Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged private lenders from investing in home loans. Fannie Mae was established in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing. For the first thirty years following its inception, Fannie Mae held a veritable monopoly over the secondary mortgage market. In 1968, due to fiscal pressures created by the Vietnam War, Lyndon B. Johnson privatized Fannie Mae in order to remove it from the national budget. At this point, Fannie Mae began operating as a GSE, generating profits for stock holders while enjoying the benefits of exemption from taxation and oversight as well as implied government backing. In order to prevent any further monopolization of the market, a second GSE known as Freddie Mac was created in 1970. Currently, Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market. GSEs such as Fannie Mae and Freddie Mae, with their combination of private enterprise and public backing have experienced a period of unprecedented financial growth over the past few decades. The current assets of these two companies combine for a total that is 45 percent greater than that of the nation's largest bank. On the other hand, their combined debt is equal to 46 percent of the current national debt. It is this combination of rapid growth and over leveraging that has lead to the current concerns of Congress, the Justice Department and the SEC with regards to the financial practices of these GSEs. '
"The Secondary Mortgage Market – Power Behind the Scenes"
' This is the part that may confuse even the most astute readers of real estate and economic events. Primary lenders sell loans in the secondary market, and use the proceeds of the sale to make new loans to other homebuyers. Who buys loans in the secondary market? Organizations like Freddie Mac and Fannie Mae (created in 1938 by the federal government to establish the secondary market) are key in this area. But other private mortgage companies are also players. Once the loans are sold in the secondary market, the buyers package these loans into mortgage-backed securities. The securities are then sold to investors on Wall Street. When Freddie Mac and Fannie Mae do this, they guarantee timely payment of principal and interest to the investors who invest in these pools. When other players do this, packaged loans are often called collateralized mortgage obligations (CDOs). Mortgage backed securities are attractive to many investors, especially large-scale institutional investors such as pension funds or mutual funds. About half of all new single-family mortgages originated today are funded in the secondary mortgage market. The secondary mortgage market plays an important role in the housing and lending market: * Through this process, extra cash is available to lenders. This can drive down mortgage rates and make homeownership more affordable. * Mortgage originators, no matter where they are located, have access to pools of capital. Homebuyers then, no matter if they’re in big cities or small towns, can have greater access to reasonable mortgage financing. So what about today’s crisis? Problems began with the over issuance of subprime loans. This year, and in the past few months in particular, many homeowners with these loans felt the sting of reset rates and payments. Defaults and foreclosures spiked. Suddenly, these mortgage-backed securities were not the bastion of safety and steady returns they once were. With investors staying away, the whole process of the secondary mortgage market stalled, meaning less money available for loans. '
[Cross-posted on Democracy For California.]
Labels: Fannie Mae, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, FHLMC, FNMA, Freddie Mac, home ownership, mtg. guarantees, Secondary Mortgage Market, Taxpayer bailout
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