Graphic image of the day

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The pitchfork-wielding mobs, rightly or wrongly, always seem to be out for the heads of Wall Street execs for their roles in the financial meltdown a few years back which led to the Great Recession and, in particular, the salaries and bonuses they receive.

With respect to the two institutions that were at the epicenter of aforementioned meltdown however, how is it that the salaries of the executives at Government-Sponsored Entities, Fannie Mae and Freddie Mac, have escaped attention and scrutiny?



(click to enlarge)

We suppose that malfeasance as practiced by a quasi-government entity with tax-payer money isn't viewed in the same manner as a private entity's malfeasance with private capital. Just ask Kenneth Lay. And if it is malfeasance with private capital, you sure as hell better be politically-connected. Just ask John Corzine.

Two worlds... two sets of rules

A thought or two regarding local, state and federal book-keeping:

The Congress that passed Sarbanes-Oxley concluded that the only way to ensure transparency in corporate numbers was to require corporate officers to certify that their numbers were correct. The penalties for falsely certifying are substantial -- fines of as much as $5 million, and up to 20 years in prison -- on the theory that the fear of personal liability will reduce the incentive to exaggerate future revenue or conceal future liabilities.

By contrast, congressional appropriators and federal agency heads, are under no similar constraints. True, the government does have its own accounting principles. But nobody faces liability if the numbers are off. Nobody has skin in the game.

Consequently, if we need Sarbanes-Oxley (as its supporters still insist) to give us reassurance that we can believe corporate America’s numbers, ought we not to have something similar (as Peterson among others has argued) to reassure us that we can believe the numbers coming out of Washington?

Well, there's skin in the game, alright, but only in the sense of not being allowed back into the Puzzle Palaces of D.C., Sacramento, San Diego, etc. where you get to make up the rules as opposed to not having to worry about serving hard time as a result of any misbehaving in the private sector.

To wit: How is it that GSEs (Government Sponsored Entities) "Fannie Mae" and/or "Freddie Mac" have not replaced "Enron" in our cultural lexicon for criminal financial malfeasance?

Guess Fannie Mae and Freddie Mac won't fit on a bumper sticker.

Quickies

A round-up of news items, columns, articles and blog posts that caught our eye this past week.




George Will reviews "Burning Down the House".

So, why isn't anyone from Fannie or Freddie behind bars yet? And why, despite being far, far worse, hasn't "Fannie/Freddie" supplanted "Enron" in the cultural lexicon as the term for criminally corrupt mismanagement?



Here's some more of that "new civility" we've been hearing about.




Naturally. Liberals start invoking religion when it comes to raising the debt ceiling.

Veteran Democratic Rep. Charlie Rangel made an impassioned plea to religious leaders Friday, calling on them to lobby members of Congress and the Obama administration to remember the "lesser of my brothers and sisters" during this weekend's debt negotiations.

"What would Jesus do this weekend? Or Moses. Or Allah. Or anyone else," the New York congressman said at a press conference on Capitol Hill. "I don't want this book (debt negotiations) closed without the clergy having an opportunity to forcefully express themselves as well as I know they can do."

Nice of you to work Allah into the mix, Chuck. Equal opportunity religious/social justice pandering.





Out: double dip

In: muddling

The L.A. Times does its best to put on a sort-of-smiley face.

America is getting good at muddling through.

That was the economy's disheartening growth story in the first half of 2011. Things may not look much different in the second half.

So let's all just get used to it and muddle together.





Observation: It's nearly accepted as an article of faith in conservative circles that this country is a center-right country. Why is that faith tested, however, when we start talking about the brass tacks of reforming our entitlement programs like Social Security, Medicare and Medicaid which looks to be on particularly precarious ground?

We're gonna have to do it, gang. Math wins. Math always wins.





From JTA:

Israel was included erroneously on a U.S. Department of Homeland Security terrorist watch list, a U.S. official said.

John Morton, the director of the U.S. Immigration and Customs Enforcement division of the department, said Israel's recent appearance on a list compiled by the department's office of the inspector general was a mistake.

"The addition of Israel in the OIG’s list of ICE's 'Third-Agency Checks' (TAC) was based on inaccurate information provided to the OIG during the course of its audit," Morton said in a statement sent by e-mail to JTA. "The U.S. does not and never has considered Israel to have links to terrorism, but rather they are a partner in our efforts to combat global terrorism. The United States maintains close intelligence-sharing relationships with Israel in order to address security issues within its own borders and in our mutual pursuit of safety and security around the globe."

Uh, right. Of all the countries on this planet they could've mistakenly put on this terrorist watch list from, say, Guatamala to the Czech Republic to Nigera, it just happened to be good ol' Israel. Weird, huh?





And speaking of Israel...

...awww... Islamo-leftist Gaza blockade runners shut down.

Organizers behind the US 'Audacity of Hope' Gaza flotilla ship announced Wednesday they were throwing in the towel and would not be going to Gaza.

"The Greek government’s willingness to serve as the enforcer of Israeli’s naval blockade of Gaza made it impossible for this journey to happen," organizers complained on their website.

"Now our folks are beginning the journey home – some will arrive today, some tomorrow and others in the days ahead," the organizers wrote of the ship's 37 passengers and 4 crew.

The 'Audacity of Hope' was stopped by the Hellenic Coast Guard when it tried to leave port without permission on Friday.

We're missing something. They knew going in that Greece wasn't going to let them sail to Gaza. Why didn't they start out their "humanitarian aid mission" from Egypt?

Further proof of the completetly unserious and grandstanding nature of the world-wide pro-Palestinian useful idiot set. Flo-tards.




From IBD:

The engine of most of our job growth is still suffering two years after the recession supposedly ended. When will the White House and Congress start listening to the problems of small business?

Small businesses were once rightly seen as the entrepreneurial backbone of our nation's economy and way of life. But today they're demonized by the White House as "millionaires and billionaires," and the medicine that's been forced down their throats — $830 billion of stimulus, $1.7 trillion of Fed mad-money, $700 billion of TARP bailouts and $1.75 trillion in yearly regulation costs — has only made them sicker.

Small businesses bear the brunt of this failed experiment in Keynesianism. U.S. Bancorp's 2011 small business survey, just released last month, shows the vast majority of small businesses — 78% to be exact — "think the U.S. economy is currently in recession," despite Obama's whopping stimulus.

Worse, 85% believe things won't get any better next year.

(italics, ours)

This is what is meant by businesses "sitting it out".





Quite possibly the saddest thing we've read in a while.





Bad news: No more drunk puppy buying in New York's Greenwich Village. The potential buyers being drunk, that is, silly.





Congrats to Leslie of Temple of Mut who won Blog of the Day honors over at Legal Insurrection.

Hey, Leslie, you ought to go on vacation more often, huh?

More nanny state insanity.

Plant a garden in your front yard - go to jail.

Shane Atwell has the details, here. Video included.




And finally...

"That's racist" and NPR's complete inability to grasp a pop culture tag line.



That's probably it for now folks. Thanks for hanging our. We'll see you all tomorrow.

Time to do away with Fannie and Freddie?

We think maybe it's time. Here's B-Daddy on the matter:

Here is what I do know. Fannie and Freddie are political creatures of the federal government. Their lending standards are therefore set by politics, not market conditions. Surely there will be pressure for them to loosen their standards by those politicians for whom this will be expedient. This is why Fannie and Freddie need to be broken up into smaller entities and divorced from their status as Government Sponsored Entities. (I can't find that term in the constitution.) The new companies, by competing on how well they assess the riskiness of loans, will find the correct equilibrium for the housing market. Further, these companies could seek out innovative ways to hold banks and other loan originators liable for bad loans that were due to lack of due diligence. This seems like a great way to inject true free market principles to re-vitalize the housing market.

And what did we hear with respect to bailing out General Motors, the Wall St. financial institutions and Fannie and Freddie among others? Too big to fail, right? These smaller entities that will take the place of Fannie and Freddie take the starch out of that argument that was central to the justification behind Bailout Nation. Let's put the housing market back in the hands of the market instead of that of politicians.

Yep, time for them to go.

New York Times: Won't get fooled again

Michael Barone notes just how unexpected more bad economic news always seems to economists and Big Media as a whole.

Unexpectedly!

As megablogger Glenn Reynolds, aka Instapundit, has noted with amusement, the word “unexpectedly,” or variants thereof, keeps cropping up in mainstream-media stories about the economy.

“New U.S. claims for unemployment benefits unexpectedly climbed,” reported cnbc.com May 25.

“Personal consumption fell,” Business Insider reported the same day, “when it was expected to rise.”

“Durable goods declined 3.6 percent last month,” Reuters reported May 25, “worse than economists’ expectations.”

“Previously owned home sales unexpectedly fall,” headlined Bloomberg News May 19.

“U.S. home construction fell unexpectedly in April,” wrote the Wall Street Journal May 18.

Those examples are all from the last two weeks. Reynolds has been linking to similar items since October 2009.

So, what gives? Are the economists and econ beat writers a) hopeless cheerleaders for the President who will go to any lengths to give him cover or b) do they really believe the Keynesian gimmickry employed by Team O will work this time around or c) are they just abjectly terrible at what they do?

Since the 3 are definetely not exclusive to one another, we'd go with a combination of all 3 by varying degrees depending upon the individual or media outlet.



And right on cue, here's the New York Time's lead editorial from Tuesday's paper:

A month ago, when an initial gauge of first-quarter economic growth came in surprisingly weak, many policy makers and economists expected the bad news to prove fleeting. But when revised data were released last week, the growth estimate remained stuck at an annual rate of 1.8 percent, compared with 3.1 percent at the end of last year.

More troubling in the latest figures, consumer spending — the largest component of the economy — was especially slow. Stagnant wages and higher prices for gas and food are squeezing family budgets, while falling home equity hurts consumer confidence. That suggests more bad news to come.

OK, then - they've gone on record as stating that when more bad news rolls down the pike, it certainly won't be unexpected.

And America's paper of record should know well enough because they are advocating for much of the same statist Keynesian hocus pocus that has been tried already. After bashing the Republicans, here are the big ideas championed by the Old Gray Lady:

The White House has offered sounder ideas, including job retraining, plans to boost educational achievement and tax increases to help cover needed spending.

(ed. note: Can someone please give us a precise operational definition of "retraining"?)

The sinkholes in the economy should be obvious. Most prominently, the housing market is still awful, and state and local government budgets are still a mess. Conditions apparently have to get worse before deficit-obsessed policy makers will be ready to address them, including with bolstered foreclosure relief and more fiscal aid to states. More delay would only imperil the recovery, such as it is. And without a strong recovery, it will be even harder to repair the budget. Continued hard times means low tax revenues and high safety-net spending.

The administration could work to ease the rules for refinancing mortgages owned by Fannie Mae and Freddie Mac, the government-run mortgage giants. Easier refinancings would lower monthly payments for potentially hundreds of thousands of borrowers in good standing, and in that way, free up spending money to boost the economy.

(italics, ours)


Unreal...


It's like the Times editorial board had just awoken from a near 2-1/2 year slumber and thought that the crap that either landed us in this mess in the first place or had been prolonging the agony represented bold and fresh thinking. Do they not read what they print before going to the presses?


So, yeah... not forcing states to deal with their own self-made fiscal messes, taking your hard-earned scratch to string along poor-risk home-owners so that Fannie and Freddie represent a giant national mortgage methadone clinic, soaking the rich who will merely alter their behavior to avoid these taxes (happens every time, folks) and, you know, retraining, are all the big ideas put forth from the economically illiterate Rip Van Winkles at the Times.

At least they won't be caught off guard when their terrible ideas produce the very results they themselves are expecting.

H/T: Roger Hedgecock

Quickies

A round up of news items, columns and blog posts that caught our eye this past week.


Thank you, Mr. President:

The Obama administration wants to shrink the government's role in the mortgage system — a proposal that would remake decades of federal policy aimed at getting Americans to buy homes and would probably make home loans more expensive across the board.

The Treasury Department rolled out a plan Friday to slowly dissolve Fannie Mae and Freddie Mac, the government-sponsored programs that bought up mortgages to encourage more lending and required bailouts during the 2008 financial crisis.

Exactly how far the government's role in mortgages would be reduced was left to Congress to decide, but all three options the administration presented would create a housing finance system that relies far more on private money.

What a wonderful opportunity to drive a stake through one of the players in the housing collapse. Seize the opportunity, Speaker Boehner!





Inevitable cultural evolution development:

Tattooing outgrows its renegade image to thrive in the mainstream

... or "You just aren't as cool as you once were".


Exit question: does this mean going "inkless" is the new radical chic?












Terrific... federally-funded (i.e. 'you'-funded) Keynesian gimmickry hits the Golden State.

More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.

The Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system, has the potential to make a sizable dent in California's foreclosure crisis and help the general housing market. State officials hope to fend off foreclosure for about 95,000 borrowers and provide moving assistance to about 6,500 people who do lose their homes.

... band-aids and stop-gaps merely prolonging the crisis rather than unwinding it.




Huffington Post readers not real excited about that AOL buy-out.

Sell Out!, they cried.

ObamaCare RomneyCare waiver-mania update:

Even as Republicans and many states wage a bitter battle in Congress and the courts to block the mandatory insurance requirement in the national health care law, the provision appears to retain broad acceptance in Massachusetts.

Regulators’ flexibility may be part of the reason.

“We aren’t going to make someone pay just to make them pay,’’ said Celia Wcislo, a director of 1199SEIU United Healthcare Workers East and a member of the Connector Authority, which oversees Massachusetts’ health care law and grants the exemptions.

"Flexibility".... we suppose that's one way of defining it. "Picking winners and losers" may be another and "patronage" yet another still as you may recall 1199SEIU were themselves the beneficiary of an ObamaCare waiver.
If you care to follow the links, ask yourself, "Are there two 1199 SEIUs?" Frankly, we're confused.



I didn't leave the Democratic Party, the Democratic Party left me Pt. II...

For Democrats, Ashley Bell was the kind of comer that a party builds a future on: A young African American lawyer, he served as president of the College Democrats of America, advised presidential candidate John Edwards and spoke at the 2004 Democratic National Convention in Boston.

But after his party's midterm beat-down in November, Bell, a commissioner in northern Georgia's Hall County, jumped ship. He joined the Republicans.

Bell, 30, said he had serious issues with the healthcare law and believed that conservative "blue dog" Democrats in Congress who shared his values had been bullied into voting for it.

Bell's defection is one of dozens by state and local Democratic officials in the Deep South in recent months that underscore Republicans' continued consolidation of power in the region — a process that started with presidential politics but increasingly affects government down to the level of dogcatcher.

Some 40 years after the New Left started driving working class whites, So-Cons and Catholics from the ranks of the Democratic Party it's happening again but with, hopefully, another demographic.




ESPN March Madness Bracketology update here.

Local flavor: Head coach Steve Fisher's steady, methodical approach to building a "program" is bearing fruit. The San Diego St. Aztecs are ranked #6 in the nation and are currently slotted as a #2 seed in the Southeast region playing their opening round game(s) (a hopeful paranthetical if there ever was one) in 5-hour-desert-dash-away Tucson.

Huge game later on today at Las Vegas taking on the Runnin' Rebels.

Oprah Winfrey on the "new civility": "Shut up!" , she explained.





Stuck inside of Coshocton with the East Village blues again...

“Whenever I see that kind of story, where everybody agrees, I know there’s something wrong,”

Atheist, left-wing, jazz fan, award-winning journalist, chronicler of the civil rights movement and pro-life. Take a wild-ass guess as to which of the aforementioned is Nate Hentoff's unforgiveable sin?



And finally, B-Daddy tackles the thorny issue of a new city hall here in America's Finest City.

Fannie and Freddie have some really good news for you...

... but first, the bad news.

According to a government study based upon 3 predicted models of the economy, the cost of the bailouts for Fannie Mae and Freddie Mac may grow to $363 billion over the next three years. This figure was based upon the worst case scenario of the 3 models which comprised of a stalled economy and sluggish home sales.

And now, the good news.

If housing prices recover quicker than expected, the two companies would need a combined $73 billion on top of the $148 billion they already have received in bailout funding, according to new projections from the Federal Housing Finance Agency.

If prices stay on their current course, the bailouts would total $238 billion.

See. Don't you feel better?

And recall how last Christmas Eve, two-time tax cheat, Tim Geithner, lifted the cap on how much tax-payer money could be poured into Fannie and Freddie and to put a cherry on top of all this, we mused the following at the time:

Just how toxic the assets that Fannie holds may be difficult to figure out since Fannie effectively wacked their own Inspector General. And to keep form, don’t expect the Justice Department run by that miserable hack to look into it. This also begs the question, with no IG oversight and no effective spending limit, what’s to keep Fannie from continuing to encourage and back subprime lending?

After all this, it does not appear there is much in the way of checks or incentives to prevent another housing bubble.

Summer time reading

Continuing our series of excerpts from Walter Russell Mead's essay, "The Top Ten Lessons of the Global Economic Meltdown"

5. Nobody really understands the world economy.

6. That goes double for financial markets.

Financial markets are even more volatile than the real economy. Economists predict, with varying but rarely satisfying results, the behavior of the real economy. Few are so foolish as to predict the behavior of financial markets (and those who do often lose a lot of money). There are good reasons for this. Psychology of course plays a major role in short term fluctuations, and crowd psychology is so far at least largely beyond our power to predict. But there is more. Change in financial markets has been accelerating dramatically with the improvement of computers, communications and software. The avalanche of new securities products during the last twenty years transformed the way global financial markets work. The crash set this process back for a while, but it is sure to resume. Both borrowers and lenders are (and should be) always on the lookout for cheaper, more efficient ways to manage their portfolios and get the maximum results for the minimum cost. Financial firms are, and should be, ready to help make this happen. Over time, new securities products, larger trading volumes and complex hedging and trading programs change the nature of the financial marketplace. There are new risks and new interconnections that, increasingly, neither regulators nor market participants fully understand. As time passes after a crash, both regulators and market participants become more confident that the system is working, and there is a natural tendency for risk tolerance to increase even as risks are becoming harder to measure and price. Sooner or later this leads to a new crash as unexpected vulnerabilities emerge; at that point everyone from regulators to speculators recalibrates and the predictably unpredictable cyclical process restarts.

Starting with the Dutch Tulip Bubble we’ve had about 350 years of financial crashes and panics. They are unlikely to stop anytime soon — and each one that comes will take most people by surprise.

So, by our reading of the lay of the land as presented above, perhaps we can extend the cycles between "bust" periods by applying some common sense and some lessons learned. Eh, not so much...

GuardHill serves all kinds of borrowers, including a goodly number of self-employed folk, successful artists and financiers who tend to garner wealth in windfalls but don't have a sheaf of pay stubs to staple to a conventional loan application. Case in point: One of Dessner's people is toiling now on a loan application from a hedge fund manager wishing to borrow $800,000 against a $4 million home purchase. The hedge's fund did poorly last year, so as a sign of good faith for his investors he's drawing no salary. Good for his business, perhaps, but rotten for a conventional mortgage application.

"This guy made $5 million in 2007 and 2008. He's liquid for $10 million, and he's borrowing 20% LTV (loan-to-value)," says Dessner. A no-doc loan to that kind of borrower shouldn't be political dynamite, especially at a time when the Federal Housing Administration is making 95% LTV loans to low-income borrowers with poor credit and little savings, he argues.

(italics, ours)

Terrific. Making these no-doc or NINJA (No Income, No Job or Assets) loans to people that can obviously make that nut is one thing but apparently the federal government was not content with ruining Fannie and Freddie and is now using the FHA to further its agenda of affordable home ownership for all.

Remember, it's all about making a better America even if we can't afford it.

Tales from Bailout Nation Pt. XXV

The hits, they just keep on coming...

Freddie Mac, the second-largest US mortgage finance company, said on Wednesday it would need an additional $10.6bn from the US Treasury Department to staunch losses on bad loans.

The company said it had lost $8bn, or $2.45 per share, in the first three months of 2010. The amount includes a $1.3bn dividend payment to the Treasury Department on senior preferred stock issued as part of a 2008 government-led bail-out. Along with larger rival Fannie Mae, Freddie is propping up the housing market by purchasing mortgages in the secondary market.

Since September 2008, both Fannie and Freddie have been operating under a legal framework known as conservatorship. Together they have eaten up $136bn in taxpayer money. The final bill could be much higher. The government has pledged to provide unlimited support to the companies over the next three years. The Congressional Budget Office estimates that taxpayer aid could approach $400bn over the next decade, making the bail-out of Fannie Mae and Freddie Mac far more costly than the rescue of big Wall Street banks.

In spite of government-led efforts to modify mortgages, foreclosures continue to mount. As a result, Freddie Mac said writedowns on uncollectible loans on single-family residences had totalled $2.8bn in the period, compared with $2.4bn in the fourth quarter of 2009. Delinquencies on those residences rose slightly to 4.13 per cent as of March 31, compared with 3.98 per cent as of December 31.

(italics, ours)

Gee, do you think perhaps that it's precisely because of government-led efforts we're still in this mess? Precisely, how is enticing bad risks to stay in bad loans good for the housing market?

Of course, don't expect the Feds to change course because as they are spending your money, there is absolutely no incentive to step back and take a look at this in a rational manner and possibly come to the conclusion that their actions are simply exacerbating the situation.

As the article states (and as we covered the Christmas Eve Dump), the federal government is all in with respect to bailing out Fannie and Freddie and they will continue to dump money into both ad infinitum, ad nauseum.


Exit question: For two entities which will collectively cost us more than the eeeeevil Wall St. financial firms, where is the outrage from Congress or this administration?

Tales from Bailout Nation Pt. XXIV.5

When we blogged a few days ago about Fannie and Freddie regulator, Armando Falcon's, testimony before Congress with respect to the attacks unleashed upon him by those GSEs when he had the temerity to suggest that those two GSEs might be on some questionable financial footing because of loose lending practices and Enron-like accounting practices, we left out a minor detail, though, it's one that should not surprise you if you've been a regular reader: Fannie and Freddie are still going to require a wee more bit o' cash.

A pair of former regulators who oversaw Fannie Mae and Freddie Mac told a panel Friday that the two government sponsored enterprises - which taxpayers have already bailed out to the tune of $125 billion - will likely need even more aid.

Their testimony came on the third and final day of this week's Financial Crisis Inquiry Commission hearings on securitization and subprime lending. The panel tasked with determining the factors that contributed to the financial crisis.

Armando Falcon and James Lockhart, former directors of the Office of Federal Housing Enterprise Oversight, said the price tag for taxpayers would almost certainly climb, as Fannie Mae and Freddie Mac to draw on their credit lines.

And how much more tax-payer cash are Fannie and Freddie going to require? Does it matter? Let's hit the way-back button to this past Christmas Eve, yes, Christmas Eve when Treasury boss and two-time tax cheat, Timothy Geithner, effectively removed the cap on how much more money could be poured into Fannie and Freddie.

The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.

It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.

Fannie and Freddie are still holding these toxic assets and not only is there not any incentive for them to shed them so we can begin a true recovery in the housing market there is not any incentive for them to continue bad lending practices.

Why we are even bothering holding these hearings is a mystery to us.

Tales from Bailout Nation Pt. XXIV... and quote of the day

"we encountered more difficulty and delay. Fannie's lobbyists were on the Hill spreading misinformation about my motives and asserting that the special exam was unnecessary."

That from Armando Falcon, a former regulator at the Office of Federal Housing Enterprise Oversight (OFHEO), the GSE watchdog who was testifying before the Financial Crisis Inquiry Commission regarding Fannie Mae. Falcon further testified that whenever faced with a report with negative connotations about the company, Fannie's supporters would launch an assault on OFHEO -- from a full investigation of the group to demanding Falcon's resignation.

Now, they wouldn't have done such a thing now would they? And why does that name, Armando Falcon, ring a bell? Why, yes. Why, yes, indeed. Falcon was made an absolute whipping boy back in 2004 during congressional testimony when he testified to Fannie Mae's illegal accounting practices.

From the interweb archives, one of our favorite videos of all-time: for your viewing and keeping-the-record-straight pleasure, it's Lacy Clay (D-MO) throwing out racially-charged grenades and Maxine Waters extolling the virtues of zero down loans and the total awesomeness of Franklin Raines.



Exit question: How is it that Franklin Raines is walking around a free man, right now?

Whither Fannie and Freddie

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.

(italics, ours)

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.

The Christmas Eve dump

(a seasonal varietal to our Friday evening dump series which is intended to shine some light upon unsavory and/or unpopular news coming out of Capitol Hill or the White House right before the weekend)

The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.

It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.

Analysts don’t expect Freddie to tap the full $200 bil but Fannie, because of horrendously poor underwriting standards, left it with losses that many think will grow past $200 billion.

By law, Geithner had until the end of this year to increase the limit without asking Congress for approval. And to be on the safe side, he did it on Christmas Eve.

Just how toxic the assets that Fannie holds may be difficult to figure out since Fannie effectively wacked their own Inspector General. And to keep form, don’t expect the Treasury Department run by that miserable hack to look into it. This also begs the question, with no IG oversight and no effective spending limit, what’s to keep Fannie from continuing to encourage and back subprime lending?

And this brings us to our first real bipartisan pushback against the Obama corporatism/fascism economic model as the liberal Fire Dog Lake’s Jane Hamsher and the small government, low tax Americans for Tax Reform’s Grover Norquist have teamed up to ask the Justice Department (sigh) to look into White House Chief of Staff, Rahm Emanuel’s dealings with Freddie Mac while he was on the board of directors (2000-2001) and during his time thus far in the White House where Hamsher and Norquist believe Emanuel has been directing stonewalling efforts to obtain information on the bankrupt Freddie Mac.

We don't expect much movement on this but we'll keep you posted.

Not so random thought of the day

Precisely what is it about Social Security, Medicare, Medicaid, Fannie Mae, Freddie Mac, all of which are broke or are about to go broke that would suggest to anyone that Obamacare will not be in the same condition eventually?

Seriously. What?

It's like deja vu all over again (UPDATED)

"You have to ask the question: Have we figured out what got us here in the first place and are we going to make sure we don't replicate that failed system?"

That from Scott Garrett (R-N.J.) on the high amount of delinquent and foreclosed mortgages on Fannie Mae’s books currently.

In the wake of the mortgage meltdown, the Federal Housing Administration has emerged as a pillar of the still wobbly housing market -- providing vital insurance that enables borrowers to qualify for loans with as little as 3.5% down.

This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.

Some lawmakers, however, worry that the FHA may be doing its job too well -- enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.

We don’t know what would lead people to that conclusion especially when the current number of FHA loans that are delinquent or in foreclosure climbed to nearly 8% at the end of June from about 5.5% in early 2006 and Fannie is permitting people to plunk down as little as 3.5% down, no questions asked.

According to some, the wet blanket party just needs to pipe down.

One proposed solution to the agency's troubles, backed by Garrett and others, is to raise the minimum down payment on FHA loans to 5%. Backers believe that will encourage borrowers to stay in their homes and not let them fall into foreclosure.

But new FHA Commissioner David H. Stevens said such a move could threaten the nascent housing recovery. A person looking to buy a $300,000 house, for instance, would have to raise an additional $4,500 for the down payment.

"All that's going to do is retard recovery," he said.

Raise an additional $4,500 for the down? That’s criminal.

Though were certain that while the term “retard” is useful here it was not used in its proper context.

We suppose the best thing that could be said about this program is that it appears to be only slightly less dreadful than say, Cash for Clunkers only in that we are not burning down existing homes to create a demand for new ones. The government is creating demand instead by pumping tax dollars into a scheme whereby homeowners and potential homeowners have very little skin in the game and thus little incentive to stay up with their mortgage payments.

The political class and perhaps much of America does not yet appear ready to face the prospects of a long slow recovery from the housing collapse that will wring-out the excesses and bad actors opting instead for serious flirtation with another housing crash.

What is it that we keep hearing about a double-dip recession?


(UPDATE #1): And the hits just keep coming…

The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because it has $54 billion more in losses than it can withstand, a former Fannie Mae executive said.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

Backing risky loans? At 5 percent down and no questions asked? We think you’re racist for thinking you just can't throw around tax payer money like free candy.

"It's good to be a G.S.E."

Fannie Mae and Freddie Mac are unlikely to repay the $85 billion in government assistance they received as part of the bailout program, the agencies' top regulator said Thursday.

"Their book is so large," James Lockhart, director of the Federal Housing Finance Agency, told the National Press Club. "It's hard for me to see that they will be able to repay all of that."

While other banks have been banging down Geithner’s door to repay the TARP money because of the onorous restrictions incumbent upon playing with TARP money… Fannie and Freddie are cool, thanks.

How cool? So cool, they will most likely require more tax payer assistance – that’s how cool.

Yet another example of how there is no profit motive for these government sponsored entities. Hell, there doesn’t appear to be much of a loss motive either.

When the government offered to bail out the agencies, some argued that the transactions - which paid 10 percent interest -- could be profitable for taxpayers. Lockhart's remarks, however, cast serious doubt on whether the agencies will be able to repay the initial capital investment at all.

Where anybody is getting 10% these days is anybody’s guess.

"Unfortunately, I guess we have to look at it as an investment by the taxpayer to stabilize the mortgage market," Lockhart later told Bloomberg Television.

Out: Bailout. In: Investment, the return on which will arrive, if at all, when you are six feet under.

P.S. Still no word on whether Franklin Raines and Jamie Gorelick will be paying back their bonuses.

Tales from Bailout Nation Pt. XV

From the files of “you just can't make up this stuff”...

Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

In March, Fannie Mae (FNM.N)(FNM.P) said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac (FRE.P)(FRE.N) is due to implement similar policies next month, the paper said.

In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

Cue feigned shock and indignation because the real thing left the station months ago. “It is what it is” as the saying goes because, as it is, from porkulus, to cap and trade, to health care reform and to the management of the housing/mortgage crisis, the 530 some-odd people currently acting as our elected national legislators resemble less an effective law-making body and more a flailing, shrieking, clawing group of individuals fully engaged in pro-creational activities that bear no coherent results.

Does it even really matter?

Well, doggone – it’s so you can’t swing a dead cat without hitting another one of these cases in the “most ethical Congress in history” anymore.

Maxine Waters, get ready for your close-up.

Ms. Waters and her husband have both held financial stakes in the bank. Until recently, her husband was a director. At the same time, Ms. Waters has publicly boosted OneUnited's executives and criticized its government regulators during congressional hearings. Last fall, she helped secure the bank a meeting with Treasury officials.

Her involvement isn't new. Ms. Waters has detailed her financial ties in a series of federal disclosure forms and has been vocal in public in support of the bank. Those ties, however, have received little public attention. Nor is it well known how the influential lawmaker has over the years acted to support the bank and its executives.

Such potential conflicts of interest are more serious as the banking system's crisis has led the government to take an increasingly active role in overseeing financial institutions, including OneUnited. The financial-services committee on which Ms. Waters sits oversees banking issues, and the lawmaker is a potential future chairman.

And here’s that video again. Yep. Whenever we hear people yammer for more regulation or less regulation we’re going to keep rolling this thing out to remind everybody that no matter which way you go, these are the people ultimately calling the shots.

Ladies and gentleman, in a taped encore performance from Capitol Hill…. Maxine Waters, Barney Frank and Franklin Raines!

Chutzpah

The whitewashing of Fannie and Freddie has begun in earnest as one of the chief foxes of the hen house, Henry Waxman and his House Committee on Oversight and Government Reform met Tuesday to examine “The Role of Fannie Mae and Freddie Mac in the Financial Crisis”. As one could imagine, though, from the testimony provided by ex-Fannie CEO Franklin Raines and documents held, though unreleased by Waxman but seen by the Wall Street Journal, it was a surreal exercise in suspension of belief.

If one were to believe Waxman and Raines then all they were really guilty of was getting blind-sided by the excesses of the run-away free market.

"But previously undisclosed internal documents that are now in Mr. Waxman's
possession and that we've seen tell a different story.

The
companies understood the risks they were running. But squeezed between the need
to meet affordable-housing goals set by HUD and the desire to sustain their
growth and profits, they took the leap anyway. As a result, by the middle of
this year, the two companies were responsible for some $1.6 trillion worth of
subprime credit of one form or another. "

Incredibly, both Waxman and Raines claimed they were just following the market rather than leading it. As if, casting aside the warnings of Fannie’s own head of risk management by adopting previously banned “dangerous” lending practices becomes a sin only as a matter of timing. At this point, do you hear your parents ringing in your sub-conscience, “If you’re friends all jumped off a cliff…..?).


And in another stupefying turn of events, Raines claims that Fan and Fred’s regulators did nothing to stop them while conveniently forgetting about that $11.7 million they spent in ’06 alone to keep regulators off their back and being conveniently forgetful of the hearings back late in ’04 where federal regulator, Armando Falcon was lambasted and told to get lost for wanting to upset the apple cart by the likes of Barney “Brothel” Frank, Chris “Countrywide” Dodd and Maxine “Housing Goals” Waters.



These interweb tubes really are fantastic for these archival “Oh, really?” moments. Its going to keep going like this… the lies, the whitewashing, and the CYAs so be prepared for more of this breathtakingly galling behavior from your elected officials.

Lost in Translation

As closet (and not so closet) socialists and Big Government liberals alike lined-up all this past week to shovel dirt on the concept of the “free market”, we’ve just gotta ask….

But by the time Mudd became Fannie's chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.
.
.
Capitol Hill bore down on Mudd, as well. The same year he took the top post, regulators sharply increased Fannie's affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority buyers.

…. what’s so “free” about that?

Article here.


We’ll have more on all this later.