Sunday, September 7, 2008


All those years of profits, and massive pay packages to their CEO's, and it comes to this - we the people are buying trillions of dollars of mortgages. Or at least we're buying the companies that bought these things and then resold them.

It's very apparent now that these companies should be dismantled and made private - parceled out to the highest bidder. All this hassle is only saving us borrowers 7 basis points on our loans. That's 7/100ths of one percent. Read on...

from The WSJ:
In its most dramatic market intervention in years, the U.S. government seized two of the nation's largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.

Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies' chief executives.

With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector. Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.

These companies are, uh, were, public corporations that were started by the government, but not owned or operated by the government. Now apparently they are.

These companies were designed to make the mortgage market "liquid", by buying loans from the companies that originate them. These loans are then packaged and resold into other markets. The credit crunch began to occur when these markets suddenly stopped buying these mortgages because they stunk. To high heaven. From bad credit profiles of the people that were making the payments. And now a lot of those people are not making the payments - and you and I now own their loans.

Remember, the government has no money - they only have our money.

And regarding Freddie and Fannie - here is a very telling article from the WSJ.

These companies are huge and powerful, with congress in their pockets.

Their unique clout derives from a combination of liberal ideology and private profit. Fannie has been able to purchase political immunity for decades by disguising its vast profit-making machine in the cloak of "affordable housing." To be more precise, Fan and Fred have been protected by an alliance of Capitol Hill and Wall Street, of Barney Frank and Angelo Mozilo.

Freddie's accounting fiasco became public in 2003, while Fannie's accounting blew up in 2004. Mr. Raines was forced to resign, and a report by regulator James Lockhart discovered that Fannie had rigged its earnings in a way that allowed it to pay huge bonuses to Mr. Raines and other executives.

Or consider the experience of Wisconsin Rep. Paul Ryan, one of the GOP's bright young lights who decided in the 1990s that Fan and Fred needed more supervision. As he held town hall meetings in his district, he soon noticed a man in a well-tailored suit hanging out amid the John Deere caps and street clothes. Mr. Ryan was being stalked by a Fannie lobbyist monitoring his every word.

Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.

The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine "change," not that either presidential candidate seems interested.

More at The Pantheon Journal.

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