Feds Takeover Fannie Mae and Freddie Mac

[Balta1701]

This power should have never been held by one or two large groups. Banks should own their own loans, which would make them responsible for their legitimacy. By having a governmental agency to dump the bad loans on, we the people, have to pay for the people who have lived outside of their means.

But haven't more than a few banks already been caught completely with their pants down by having taken up so many of these crappy loans that they wrote?

 

Let's hypothetically imagine that the GSE's didn't exist. And that whole $5 trillion was held by the banking industry. The banking industry basically went crazy over the last decades, destroying regulation, using every accounting trick possible to force short term profits higher, etc. Wouldn't a lack of having these GSE's mean that we'd be facing the largest set of bank runs in history because no one would have the cash to pay for anything once the mortgage market turned?

[southsider2k5]

But haven't more than a few banks already been caught completely with their pants down by having taken up so many of these crappy loans that they wrote?

 

Let's hypothetically imagine that the GSE's didn't exist. And that whole $5 trillion was held by the banking industry. The banking industry basically went crazy over the last decades, destroying regulation, using every accounting trick possible to force short term profits higher, etc. Wouldn't a lack of having these GSE's mean that we'd be facing the largest set of bank runs in history because no one would have the cash to pay for anything once the mortgage market turned?

 

And why is that? Because they knew they had a rich uncle that would cover their mistakes. Having Uncle Sam there to sell this crap to, only perpetuated the cycle of doom. If these agencies weren't there, the banking industry as a whole wouldn't have endangered their entire existance the way they did knowing they had a golden parachute. Would there be individual banks that pushed the envelope, sure. But for comparisions sake, how many companies actually pulled an Enron when no one was there to rescue them? You can count them on one hand.

 

Finally, you aren't going to change my opinion with the "OMG, what if everyone did the worst possible thing they could do in a situation scenarios." You can't remove one piece of the puzzle and just assume everthing else would stay in a vaccum. The economy is dynamic. It doesn't work that way. I don't believe in the nationalization of much of anything because I believe 100% that the government is by far the least effecient form (in general) of commerce on the planet today. They have zero incentive to get anything right and every incentive to take more taxpayer money, since their entire existance depends on us thinking they serve some vital function. Nit pick out single examples and odd scenarios if you like, but my basic understanding of economics doesn't follow that idea that government is better. Heck our own founding fathers warned us about government.

[Balta1701]

And why is that? Because they knew they had a rich uncle that would cover their mistakes. Having Uncle Sam there to sell this crap to, only perpetuated the cycle of doom. If these agencies weren't there, the banking industry as a whole wouldn't have endangered their entire existance the way they did knowing they had a golden parachute. Would there be individual banks that pushed the envelope, sure. But for comparisions sake, how many companies actually pulled an Enron when no one was there to rescue them? You can count them on one hand.

 

Finally, you aren't going to change my opinion with the "OMG, what if everyone did the worst possible thing they could do in a situation scenarios." You can't remove one piece of the puzzle and just assume everthing else would stay in a vaccum. The economy is dynamic. It doesn't work that way. I don't believe in the nationalization of much of anything because I believe 100% that the government is by far the least effecient form (in general) of commerce on the planet today. They have zero incentive to get anything right and every incentive to take more taxpayer money, since their entire existance depends on us thinking they serve some vital function. Nit pick out single examples and odd scenarios if you like, but my basic understanding of economics doesn't follow that idea that government is better. Heck our own founding fathers warned us about government.

You know what, after a little bit of thinking, I'm starting to agree with you, partially at least. You might well be right that if the GSE's didn't exist at all, then the banks might not have pushed as much risk out there as they did, because they might not have had the government backing them up. I think that we'd probably have a bigger problem in terms of some of the banks that were that stupid going under, and we might well be bailing out the whole banking industry already instead of just parts of it, but well.

 

The interesting thing I think I noticed here is that it seems we might both agree that what happened with the GSE's was actually the worst option possible for everyone except a few shareholders, lobbyists, and Congressmen. If they'd stayed fully public entities like they started off, then they never would have begun taking on bigger and bigger piles of more and more questionable mortgages, because the government was setting the standards and never was getting in on the Alt-A mortgage game. If they'd never existed....then the banks out there would be a lot bigger, but they'd also be absorbing a lot more of the risk on their own and we wouldn't have to worry about such things as whether or not the Chinese would stop buying our dollars if we didn't bail them out.

 

The worst possible situation is the one that we let develop, where we partially privatized those GSE's and let the lobbyists turn themselves loose to write the rules governing them, such that the risks behind any mortgage they took out were taken public but all the profits were allowed to go private.

[lostfan]

[Balta1701]

This ought to make us all feel happy.

Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,” according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.

 

Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in November of last year as his company’s troubles deepened. He has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003.

[mr_genius]

This ought to make us all feel happy.

 

good thing those bribes to congress paid off.

 

oh yea, give that guy tens of millions for running a company into the ground. the best part is we all get to 'bailout' this bulls***.

[southsider2k5]

You know what, after a little bit of thinking, I'm starting to agree with you, partially at least. You might well be right that if the GSE's didn't exist at all, then the banks might not have pushed as much risk out there as they did, because they might not have had the government backing them up. I think that we'd probably have a bigger problem in terms of some of the banks that were that stupid going under, and we might well be bailing out the whole banking industry already instead of just parts of it, but well.

 

The interesting thing I think I noticed here is that it seems we might both agree that what happened with the GSE's was actually the worst option possible for everyone except a few shareholders, lobbyists, and Congressmen. If they'd stayed fully public entities like they started off, then they never would have begun taking on bigger and bigger piles of more and more questionable mortgages, because the government was setting the standards and never was getting in on the Alt-A mortgage game. If they'd never existed....then the banks out there would be a lot bigger, but they'd also be absorbing a lot more of the risk on their own and we wouldn't have to worry about such things as whether or not the Chinese would stop buying our dollars if we didn't bail them out.

 

The worst possible situation is the one that we let develop, where we partially privatized those GSE's and let the lobbyists turn themselves loose to write the rules governing them, such that the risks behind any mortgage they took out were taken public but all the profits were allowed to go private.

 

History has shown us that the best system results in some banks going under, and most importanly, bad debts being written off. Look at Japan's 20 year slump and realize that they haven't recovered because it is culturally taboo to write off bad debts. As a bank you can only lend a certian percentage of your reserves out. If a chunk of that is sitting on the books as bad debt, you can't lend against that, and it shrinks the pool of available mortgage money out there. Taking money off of the market drives up rates for everyone else. I really believe between the waste of government and the lack of knowledge of complex financial instruments, they have proven that they don't belong in the mortgage business, or in anything financial in general.

 

I would fully agree with your last statement. Being in the middle on this is the dumbest thing possible. Even government waste was better than the system collapsing under its own stupidity.

[Balta1701]

Link

The dominant theme has been that Congress let the two government-sponsored enterprises morph into a creature that eventually threatened the US financial system. Mike Oxley will have none of it.

 

Instead, the Ohio Republican who headed the House financial services committee until his retirement after mid-term elections last year, blames the mess on ideologues within the White House as well as Alan Greenspan, former chairman of the Federal Reserve.

 

The critics have forgotten that the House passed a GSE reform bill in 2005 that could well have prevented the current crisis, says Mr Oxley, now vice-chairman of Nasdaq.

 

He fumes about the criticism of his House colleagues. “All the handwringing and bedwetting is going on without remembering how the House stepped up on this,” he says. “What did we get from the White House? We got a one-finger salute.”

 

The House bill, the 2005 Federal Housing Finance Reform Act, would have created a stronger regulator with new powers to increase capital at Fannie and Freddie, to limit their portfolios and to deal with the possibility of receivership.

 

Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration.

 

Adamant that the only solution to the problems posed by Fannie and Freddie was their privatisation, the White House attacked the bill. Mr Greenspan also weighed in, saying that the House legislation was worse than no bill at all.

 

“We missed a golden opportunity that would have avoided a lot of the problems we’re facing now, if we hadn’t had such a firm ideological position at the White House and the Treasury and the Fed,” Mr Oxley says.

[Balta1701]

Nothing from the other side quoted directly in this article, but Senator Obama and a few other Dems are making some noise over those executive pay packages for the bank robbers I mentioned above.

Mr. Obama, the Democratic presidential nominee, asked that any “inappropriate windfall payments” to the chief executives and senior managers of those agencies be voided, in a letter to Treasury Secretary Henry M. Paulson Jr. and the director of the Federal Housing Finance Agency, the new regulator for Fannie and Freddie.

 

Together, Daniel H. Mudd of Fannie Mae and Richard F. Syron of Freddie Mac are eligible for as much as $24 million in severance, retirement benefits and deferred compensation.

 

“Under no circumstances should the executives of these institutions earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources,” Mr. Obama wrote.

 

Senator John McCain, the Republican presidential nominee, has said on the campaign trail that the government rescue of Fannie and Freddie should not turn into a bailout for their top executives and Wall Street investors.

 

Two Democrats on the Senate banking committee, Charles E. Schumer of New York and Jack Reed of Rhode Island, wrote a letter similar to Mr. Obama’s. They called the pay packages “out of line” and urged the agency to “substantially reduce or eliminate” them using new powers granted in a housing law passed this summer.

 

Neither letter questioned the oversight of Fannie Mae and Freddie Mac’s previous regulator, which was absorbed into the agency. That regulator, the Office of Federal Housing Enterprise Oversight, had final approval on the pay deals struck with Mr. Mudd and Mr. Syron. It was run by James B. Lockhart, who also oversees the new regulator.

 

In an interview, Mr. Schumer said that the regulator “should have probably limited” their pay on its own. But he added that with taxpayers now stuck with the bill, the bailout underscored the need to trim the pay packages.

[Cknolls]

Nothing from the other side quoted directly in this article, but Senator Obama and a few other Dems are making some noise over those executive pay packages for the bank robbers I mentioned above.

 

 

Its funny nobody, i.e. DEMS, mentions the $92 million dollars Franklin Raines stole or the $26 miilion that Gorleick stole.How about former Veep vetter Johnson? Short-term memory is a b****.

 

And please don't tell me they were not convicted of anything. They ran Fannie into the ground and deliberately misttated earnings to receive higher stock awards. How much value has been lost by this mess? directly and tangentially? Enron is a pimple on an ass compared to Fannie.

 

 

[NorthSideSox72]

Its funny nobody, i.e. DEMS, mentions the $92 million dollars Franklin Raines stole or the $26 miilion that Gorleick stole.How about former Veep vetter Johnson? Short-term memory is a b****.

 

And please don't tell me they were not convicted of anything. They ran Fannie into the ground and deliberately misttated earnings to receive higher stock awards. How much value has been lost by this mess? directly and tangentially? Enron is a pimple on an ass compared to Fannie.

I call manufactured outrage here. Saying that Dems don't mention some specific persons is no different than saying the GOP didn't mention some other specific persons. No one here came anywhere near defending certain execs because of some party affiliation, and I doubt anyone would.

 

[Cknolls]

I call manufactured outrage here. Saying that Dems don't mention some specific persons is no different than saying the GOP didn't mention some other specific persons. No one here came anywhere near defending certain execs because of some party affiliation, and I doubt anyone would.

 

 

Okay did the Dems ask for prosecutions like they did with Enron? Rhetorical I know. Don't answer.

[NorthSideSox72]

Okay did the Dems ask for prosecutions like they did with Enron? Rhetorical I know. Don't answer.

I honestly don't know, and honestly don't care, in terms of party. This is not a party issue, IMO. You are trying to make it one.

 

[Texsox]

I don't think we established a government to bailout corporations that make bad business decisions

 

Oh, by the way, the auto industry is now asking for a bailout.

 

I don't think we should bail out businesses either. But I do believe when a "bail out" is in the best interest of America, we should consider it. Kind of like cutting off your nose to spite your face. To say we should never ever bail out a business ties our hands needlessly.

[Balta1701]

I don't think we should bail out businesses either. But I do believe when a "bail out" is in the best interest of America, we should consider it. Kind of like cutting off your nose to spite your face. To say we should never ever bail out a business ties our hands needlessly.

Here's my problem with that concept. At the rate things are going, unless housing prices suddenly turn around, it seems like within a year we might as well reopen Andrew Jackson's nightmare, the national bank, because the federal government is going to be the only bank left standing after it is forced to bail them all out.

[EvilMonkey]

Plus it is worth mentioning that Freddie and Fannie have spent something like $200 million in lobby money over the years, including people working on both campaigns and people who were on both candidates VP vetting groups.

"Working on both campaigns"? How about Obama the #3 beneficiary over the last decade. Kerry even more so than Obama, and Hillary right behind him.

http://www.opensecrets.org/news/2008/07/to...s-of-fanni.html

[Texsox]

"Working on both campaigns"? How about Obama the #3 beneficiary over the last decade. Kerry even more so than Obama, and Hillary right behind him.

http://www.opensecrets.org/news/2008/07/to...s-of-fanni.html

 

Yet it's Bush leading the way. Interesting.

[southsider2k5]

Republician policies, huh? I notice a bipartisian effort on this one, including some very key names such as Chuck Shumer, Chris Dodd, and one VP candidate from the lower 48.

 

http://thehill.com/leading-the-news/dems-t...2008-09-16.html

 

Dems tie Wall Street woes to Phil Gramm

By Manu Raju

Posted: 09/16/08 11:06 AM [ET]

Democrats and their allies attempted to tie Wall Street's growing financial crisis to the policies advocated by John McCain's former senior adviser.

 

The critics are pointing to a 1999 law co-sponsored by then-Sen. Phil Gramm (R-Texas) and that paved the way for consolidation between commercial and investment banks.

 

 

"The system of regulation of these integrated banks has failed, and it is clear that much stronger firewalls are needed," AFL-CIO President John Sweeney said of the so-called Gramm-Leach-Bliley Act.

 

Senate Majority Leader Harry Reid (D-Nev.) picked up on that line during a scathing floor speech Tuesday morning that compared Sen. McCain's (R-Ariz.) approach to the economy with that of the Hoover administration. In his speech, Reid blasted the Republican candidate's decision to choose Gramm as a top economic adviser.

 

"The same Phil Gramm who, as a senator, was responsible for deregulation in the financial services industries that paved the way for much of this crisis to occur," Reid said. “It was Phil Gramm who pushed legislation through a Republican Senate that allowed firms like Enron to avoid regulation and destroy the life savings of its employees, and it was Phil Gramm’s legislation that now allows Wall Street traders to bid up the price of oil, leaving us to pay the bill."

 

Gramm served as McCain's chief economic adviser until July when he resigned after saying the country is in a "mental recession" and has "sort of become a nation of whiners."

 

Republicans strongly reject that criticism, saying Democrats have been advocating destructive tax and spend polices that have made the economy vulnerable.

 

A McCain aide pointed out that a co-sponsor of the 1999 law, Rep. James Leach (R-Iowa), spoke at the Democratic National Convention and co-founded the group Republicans for Obama. And a Senate GOP aide pointed out that the 90-8 Senate vote in 1999 that sent the legislation to President Clinton's desk included "aye" votes from Reid and Democratic vice-presidential nominee Joe Biden (D-Del.).

 

http://campaignspot.nationalreview.com/pos...Tk5ZDYyNGJhZjE=

 

One can have many, many opinions on Gramm-Leach-Bliley, but to blame it for our current problems is a stretch in and of itself. That's a bit like blaming drunk driving deaths on the repeal of Prohibition. But then to blame Gramm solely for the contents of the bill is ludicrous. Even if it had language in it that said "initiate banking self-destruct sequence in 2008," anyone who knows anything about our legislative process knows that there were 534 other congressmen and women who can alter, add and delete a bill during the process. After that, the President could have rejected the whole thing, but didn't. Phil Gramm did not dream up that act in his basement one night. (In fact, studies on repealing Depression era banking laws had been happening for years. I'm no economics historian, but I believe it was a cottage industry amongst economists and academics at one point in the 80's.)

 

Don't get me wrong, Phil Gramm was instrumental in getting the bill passed, but the bill passed the Senate 90 to 8. (And only one senator registered as not voting. Any guesses on who the non-voter was? You got it: John McCain!) It passed the House 362 to 57. This was not a squeaker by any stretch. Then it was signed by Bill Clinton. He could have vetoed it, and even threatened to do so, but insisted on language being included in the bill that ensured application of the Community Reinvestment Act (CRA) to the financial institutions that were basically created by the law. (BTW - The deadlock on this amendment was broken by Chuck Schumer and Chris Dodd looking out for Wall Street and insurance companies who stood to gain tremendously under the bill.) When he got his way, he signed the bill amidst much hoopla. In fact, looking back on the process, the biggest worry about the bill was in protecting consumer privacy. There was nary a discussion about undermining the banking infrastructure.

[EvilMonkey]

Republician policies, huh? I notice a bipartisian effort on this one, including some very key names such as Chuck Shumer, Chris Dodd, and one VP candidate from the lower 48.

 

http://thehill.com/leading-the-news/dems-t...2008-09-16.html

 

 

 

http://campaignspot.nationalreview.com/pos...Tk5ZDYyNGJhZjE=

That has too many words to fit on the pages of the NY Times. Have top pare that down a bit. Let's see....

One can have many, many opinions on Gramm-Leach-Bliley, but to blame it for our current problems is a stretch in and of itself. That's a bit like blaming drunk driving deaths on the repeal of Prohibition. But then to blame Gramm solely for the contents of the bill is ludicrous. Even if it had language in it that said "initiate banking self-destruct sequence in 2008," anyone who knows anything about our legislative process knows that there were 534 other congressmen and women who can alter, add and delete a bill during the process. After that, the President could have rejected the whole thing, but didn't. Phil Gramm did not dream up that act in his basement one night. (In fact, studies on repealing Depression era banking laws had been happening for years. I'm no economics historian, but I believe it was a cottage industry amongst economists and academics at one point in the 80's.)

 

Don't get me wrong, Phil Gramm was instrumental in getting the bill passed, but the bill passed the Senate 90 to 8. (And only one senator registered as not voting. Any guesses on who the non-voter was? You got it: John McCain!) It passed the House 362 to 57. This was not a squeaker by any stretch. Then it was signed by Bill Clinton. He could have vetoed it, and even threatened to do so, but insisted on language being included in the bill that ensured application of the Community Reinvestment Act (CRA) to the financial institutions that were basically created by the law. (BTW - The deadlock on this amendment was broken by Chuck Schumer and Chris Dodd looking out for Wall Street and insurance companies who stood to gain tremendously under the bill.) When he got his way, he signed the bill amidst much hoopla. In fact, looking back on the process, the biggest worry about the bill was in protecting consumer privacy. There was nary a discussion about undermining the banking infrastructure.

 

There. Now it fits the space.

[lostfan]

Haha Alpha. That was pretty good.

[EvilMonkey]

Haha Alpha. That was pretty good.

Thanks. I dedicate that one to my dear friend Tex.

[NorthSideSox72]

Republician policies, huh? I notice a bipartisian effort on this one, including some very key names such as Chuck Shumer, Chris Dodd, and one VP candidate from the lower 48.

 

http://thehill.com/leading-the-news/dems-t...2008-09-16.html

 

 

 

http://campaignspot.nationalreview.com/pos...Tk5ZDYyNGJhZjE=

Zero doubt that both parties can take some pie to the face on the mess out there right now. Then, there is also even MORE that can be put on actors not even in the political system.

 

[EvilMonkey]

Zero doubt that both parties can take some pie to the face on the mess out there right now. Then, there is also even MORE that can be put on actors not even in the political system.

Did I hear right this AM that the Feds were going to not allow the golden parachutes for the former CEO's of these two? That would be a good thing.

[Balta1701]

Zero doubt that both parties can take some pie to the face on the mess out there right now. Then, there is also even MORE that can be put on actors not even in the political system.

Here's the problem with that line of thinking I have. If I'm an actor outside of the political system...say I'm running one of these businesses...what is my main motivation? Am I working as CEO of FNMA because I want to serve the public good, because I want to make that company stronger, or because I want to make myself as much money as possible?

 

For the private sector...the actual correct answer there is "To make myself as much money as possible". Whether they lie, rewrite the rules, whatever, to get to that point...as long as they don't break the law to the point that their money is taken from them or they go to jail, then maximizing their personal benefits by taking big gambles with the money they're in charge of and ditching out before things turn sour is a perfectly rational behavior. They can retire with tens of millions of dollars in the bank at fairly young ages.

 

You can blame them all you want, complain, be angry with them all you want...but they're going to walk out of this millionaires because that's what the system encourages them to do. And you can swap out FNMA for any of these companies that are falling apart right now.

[southsider2k5]

Here's the problem with that line of thinking I have. If I'm an actor outside of the political system...say I'm running one of these businesses...what is my main motivation? Am I working as CEO of FNMA because I want to serve the public good, because I want to make that company stronger, or because I want to make myself as much money as possible?

 

For the private sector...the actual correct answer there is "To make myself as much money as possible". Whether they lie, rewrite the rules, whatever, to get to that point...as long as they don't break the law to the point that their money is taken from them or they go to jail, then maximizing their personal benefits by taking big gambles with the money they're in charge of and ditching out before things turn sour is a perfectly rational behavior. They can retire with tens of millions of dollars in the bank at fairly young ages.

 

You can blame them all you want, complain, be angry with them all you want...but they're going to walk out of this millionaires because that's what the system encourages them to do. And you can swap out FNMA for any of these companies that are falling apart right now.

 

Then again you are making the assumption that as a government entity your motivation is to do public good. Most of the time the motivation is to do just enough work to justify your existence and/or budget. I am really not convinced over the period of decades that a government bureacracy won't cost taxpayers more money than anything the private sector would do.