Something called the Financial Crisis Inquiry Commission has convened a dog and pony show to beat up on Wall St. while giving public forum for a plan to enact a 10 yr. tax on banks which we blogged about here on Friday. Incredibly, this tax would apply both to banks that have repaid TARP money (with interest) and even to those banks that never received a single dollar of TARP money.
The Financial Crisis Inquiry Commission has started its work with a highly publicized two-day hearing in Washington, D.C. The Commission is supposed to find out what caused the financial crisis, but it seems like they are trying to enact Hamlet without the Prince of Denmark. Among all the bankers and regulators on stage during the hearings, there was not a single representative of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which were major causes of the housing bubble.
The reason for the omission is disturbingly obvious. When Congress created the Commission they wanted a crisis narrative of greedy bankers and passive regulators. In other words, they wanted to put the blame somewhere else. Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ) are creatures of Congress and it was Congress that pushed them to undermine underwriting standards and increase lending to low-income households while stalling reform.
Fannie and Freddie have completely run amok and continue to do so as we speak. After having been effectively nationalized back in September of ’08, there was a $200 billion cap on government aid to each company put in place. Right before New Year’s, however, beyond which time it would need Congressional approval, the Treasury Department lifted those caps indefinitely. (We blogged about that particular Friday evening dump, here asking the question that with no spending cap, no effective Congressional oversight and in Fannie's case, no Inspector General, what's to keep the two from their continued misbehaving?)
What is truly disturbing about the caps being lifted is not necessarily that more tax dollars will be poured into a financial blackhole but rather this merely re-enforces the mentality within both Fannie, Freddie and Wall St. as a whole that there will still be no real consequences for risky behavior or bad business practices in the future. Amid overwhelming justifications to the contrary, there is not a single shred of evidence that would suggest the government will not bailout the financial/mortgage lending sector if this all turns south again.
And with the myriad of home-owner assistance programs that are keeping people in their houses who have no business doing so (which results in simultaneously pouring more of their own and tax-payer dollars into a black hole and depriving other sectors of the economy capital/spending if the homeowner was in a cheaper rental), the housing sector is being denied an opportunity to unwind, allowing the bad actors to exit, gracefully or otherwise, so we can truly locate where the baselines are in the housing market.
As it stands currently and because of all these life-support programs, we still do not have a solid estimate for the amount of toxic assets that are still on the books and we will continue to have a “shadow inventory” of millions of zombie homes that are teetering on the brink of foreclosure inviting the near-inevitability of a second bubble.
The relationship between the federal government and Wall St. is reminiscent of that between the feds and Big Tobacco. The government will demonize the two entities, fining and taxing them along the way but never doing it to a degree that will ruin them as the federal government, in the case of Big Tobacco and soon Wall St., like a strung-out junkie depends on these evil entities for its habitual fix.