Archive for the ‘Freddie’ Category

Government-induced Economic Crisis Getting a Government-insured Resolution

November 28, 2008

There is a condign symmetry about this financial crisis. A government-induced crisis is getting a government-insured resolution.

The excesses of Freddie Mac and Fannie Mae are being mopped up by huge federal spending made all the more massive by all the reckless endeavors of the politicians, the regulators, and the financiers who frivoled with the intemperance of Freddie and Fannie.

Now President-elect Barack Obama has perhaps faced up to the mess. He has not shied away from bringing former Treasury Secretary Larry Summers onto his economic team as head of his National Economic Council.

By R. Emmett Tyrrell
The Washington Times

Mr. Summers was a proper critic of Freddie and Fannie, having noted this past summer that, “The illusions that the companies were doing virtuous work made it impossible to build a political case for serious regulation.” This virtuous work was extending mortgages to those who could not afford those mortgages. The toxic mortgages were then bundled in with healthy mortgages and sold around the world by Wall Street geniuses like some enormous chain letter whose day of reckoning came some months ago.

The endeavor was a fantasy that had to end badly and so it has. Yet at a certain level the constituent elements of the Democratic Party are given to fantasy and excess. Consider the most vocal critics of Mr. Summers. They are not bankers or economists. They are feminists, often feminist scientists, who forced him out of the presidency of Harvard for his recognition that women of genius are not as plentiful as men of genius in the sciences and math.

What he cited was a fact. Mr. Summers drew no invidious conclusions and offered no program that would limit the number of lady scientists. He just noted the data in a forum supposedly open to free discourse. Kaboom – the women of the fevered brow drove him from office. Remind me not to read a book aloud in Harvard Yard.

Read the rest:
http://www.washingtontimes.com/news/2008
/nov/28/recognizing-crisis/

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Fighting the Financial Crisis, One Challenge at a Time

November 18, 2008

WE are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

By Henry M. Paulson, Jr.
Treasury Secretary
Op-Ed, The New York Times

Treasury Secretary Henry Paulson addresses a gathering of corporate ...
Treasury Secretary Henry Paulson addresses a gathering of corporate CEOs, Monday, Nov. 17, 2008. (AP Photo/J. Scott Applewhite)

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and minimize further damage to our economy.

By the time the legislation had passed on Oct. 3, the global market crisis was so broad and so severe that we needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities. But the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would not be effective enough, quickly enough. Therefore, exercising the authority granted by Congress in this legislation, we quickly deployed a $250 billion capital injection program, fully anticipating we would follow that with a program for buying troubled assets.

There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance Corporation’s guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority, which was to immediately stabilize the financial system.

Read the rest:
http://www.nytimes.com/2008/11/18/opinion
/18paulson.html?_r=1

To Rescue the Economy: How Much Government?

November 9, 2008

What is the right amount of government intervention in the American economy?  That is the question.

China manages its economy from the halls of the Beijing communist government’s headquarters.  Yet the communist government, unable even to assure people of basic safeties like pure and untainted food, often blames other “criminals” that they themselves are unable to deter, prevent or defend against.  Even today, China wants Western nations to clean up the environmental disaster that is China today: despite the fact that China’s communists have gotten unbelievably wealthy by ignoring the environmental lessons learned in the West for decades.

Personally, the fact that China’s ground water is now polluted to a degree of about 90% doesn’t sound like an issue the West should have to deal with: the Chinese communists have allowed filth to proliferate and now they live in filth.  Corrective action is up to them.

A policeman stands gaurd amid the smog in Beijing's Tiananmen Square one month before the Olympic Games start.
Above: A policeman stands gaurd amid the smog in Beijing’s Tiananmen Square one month before the Olympic Games started this summer.  Photo: Reuters

So we know, or should know, that too much government intervention may not be a good thing.  Judging from the vast number of pages of our Tax Code and the fact that even smart accountants often have to consult “outside experts” to figure their own taxes, my faith in the U.S. government’s ability to manage the economy and my life is, let us say, tenuous…..

This brings us to the “blame game” of the American and global economic and financial meltdown.  Russia blames the U.S.  But nobody who got rich due to the lavish practices of spending and lending seems to have been taken to account.  They got rich and they got away.

It might just be me but I believe in accountability — which seems to be gone in our modern society. 

Who paid for the economic meltdown? 

Apparently: you and me.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”  Barney Frank, quoted by The New York Times, said this on September 11, 2003.  Had appropriate action been taken then perhaps we woulnd’t be in this mess.

House Financial Services Committee Chairman Barney Frank listens ... 
Above: House Financial Services Committee Chairman Barney Frank listens during testimony before the committee in a hearing on ‘the Future of Financial Services Regulation,’ on Capitol Hill, October 21, 2008.(Mitch Dumke/Reuters)

Republicans generally want less regulation.  Democrats generally want more.  That is the crux of the issue, as I see it.

And there is already at least some government involvement in the U.S. economy, as Walter E. Williams points out, (see link below) thanks to the Congress, BATF, CAA, CFTC, CPSC, DEA, EEOC, EPA, FAA, FCC, FDA, FDIC, FEMA, FERC, FRB, FTC, INS, IRS, NHTSA, NIH, NLRB, OHSA, SEC, the Departments of: Health and Human Services, Housing and Urban Development, Interior, Education, Commerce, Labor, Agriculture, Transportation, other federal agenciesand etc…..

Related:
 Capitalism, fiscal woes; contempt for economic liberty

Mortgage firm arranged stealth campaign to avoid tighter government oversight

October 20, 2008

Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI’s chief executive is Doug Goodyear, whom John McCain’s campaign later hired to manage the GOP convention in September.

Freddie Mac’s payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel’s bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

In the midst of DCI’s yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

“If effective regulatory reform legislation … is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,” the senators wrote in a letter that proved prescient.
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Read the rest:
http://news.yahoo.com/s/ap/20081020/
ap_on_bi_ge/the_influence_game_
housing;_ylt=AvK3BUDakqOgbxPm3r49QB2s0NUE

Fear, Panic, the Economy and Ridding Ourselves of Debt

October 13, 2008

By Robert J. Samuelson
The Washington Post

It’s easy to explain the continuing financial chaos — and the failure of governments to control it — as the triumph of psychology. Fear reigns, and panic follows. Everyone dumps stocks because everyone believes that everyone else will sell. Only rapidly falling prices attract sufficient buyers. All this is true. But it ignores the real engine of mayhem: “deleveraging.” That’s economic shorthand for purging the financial system of too much debt.

Just how this deleveraging proceeds will largely determine the fate, for good or ill, of the crisis. The turmoil has already moved beyond “subprime mortgages,” which (it now seems) merely exposed widespread financial failings. These were global, not just American, and their pervasiveness explains why leaders of the major economies have struggled, so far unsuccessfully, to fashion a common response.

An employee of the Korea Exchange Bank (KEB) counts U.S. 100-dollar ...

Alone, American subprime mortgages should not have triggered a global crisis. Losses are smaller than they seem. Mark Zandi of Moody’s Economy.com estimates that all U.S. mortgage losses will ultimately reach $650 billion. But that hefty amount pales against the value of all financial assets — stocks, bonds, bank loans. For the United States, these totaled almost $60 trillion at the end of 2007; for the world, the comparable figure exceeded $250 trillion.

Such a vast financial system should have absorbed the subprime losses without calamity. By way of contrast, the stock market’s drop since its peak in October 2007 to Friday was $8.4 trillion, or 42 percent, reports Wilshire Associates. The official response to the subprime losses also seems larger than the problem. The government has taken over mortgage giants Fannie Mae and Freddie Mac; the Federal Reserve is pumping out short-term loans of $1 trillion or more; and Congress’s $700 billion rescue allows the Treasury Department to buy subprime securities and to make direct investments in banks.

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/10/
12/AR2008101201631.html?hpid=opinionsbox1

Wall Street, Congressional Smart Guys Pretty Stupid

October 12, 2008

“If these guys are our best and brightest, then it is about time we rethink what constitutes wisdom….”

By Victor Davis Hanson
The Washington Times
October 12, 2008

Until the last few weeks, the financial panic was still mostly far away on Wall Street. But not now.

Car loans, mortgages and college financing are suddenly harder to come by. Millions are stuck in houses not worth what is owed on them. Cash-strapped consumers are cutting back. The economy slows. Jobs disappear. Who wants to open quarterly 401(k) statements only to learn everything they put away in retirement accounts the last two or three years is gone?

House Financial Services Committee Chairman, Rep. Barney Frank, ...
House Financial Services Committee Chairman, Rep. Barney Frank, D-Mass., talks with reporters after meeting with fellow Democrats about the financial bailout package Thursday, Oct. 2, 2008 in Washington.(AP Photo/Evan Vucci)

There is plenty of blame to go around. Greedy Wall Street speculators took mega-bonuses even when they knew their leveraged companies were tottering – and someone else would pick up the tab. Crooked or stupid politicians allowed Fannie Mae and Freddie Mac to squander billions, as they raked in campaign donations and crowed about their politically correct support for millions of shaky – and now mostly defaulting – buyers.

The new national gospel became charge now/pay later and speculate, rather than put something away in case of a downturn. To provide more goodies we hadn’t earned, politicians ignored soaring annual budget deficits and staggering national debt and kept spending.

But amid the gloom, there are some valuable….

Read the rest:
http://www.washingtontimes.com/news/2008/oct
/12/correction-wall-street-101/

Frank: GOP Criticism of Housing Crisis is Aimed at Poor Blacks

October 8, 2008

BOSTON —  Rep. Barney Frank said Monday that Republican criticism of Democrats over the nation’s housing crisis is a veiled attack on the poor that’s racially motivated.

The Massachusetts Democrat, chairman of the House Financial Services Committee, said the GOP is appealing to its base by blaming the country’s mortgage foreclosure problem on efforts to expand affordable housing through the Community Reinvestment Act.

He said that blame is misplaced, because those loans are issued by regulated institutions, while far more foreclosures were triggered by high-cost loans made by unregulated entities.

“They get to take things out on poor people,” Frank said at a mortgage foreclosure symposium in Boston. “Let’s be honest: The fact that some of the poor people are black doesn’t hurt them either, from their standpoint. This is an effort, I believe, to appeal to a kind of anger in people.”

Frank also dismissed charges the Democrats failed on their own or blocked Republican efforts to rein in the mortgage companies Fannie Mae and Freddie Mac. The federal government recently took control of both entities.

House Minority Leader John Boehner of Ohio called Frank’s remarks “a lame, desperate attempt to divert Americans’ attention away from the Democratic party’s obstruction of reforms that would have reined in Fannie Mae and Freddie Mac and helped our nation avoid this economic crisis.”

Read the rest:
http://www.foxnews.com/story/0,2933,434462,00.html

White House Meeting Fails To Yield Financial Crisis Settlement

September 26, 2008

By Paul Kane and Lori Montgomery
The Washington Post

A renegade bloc of Republicans moved to reshape a massive bailout of the U.S. financial system yesterday, surprising and angering Bush administration and congressional leaders who hours earlier announced agreement on the “fundamentals” of a deal.

At a meeting at the White House that included President Bush, top lawmakers and both presidential candidates, House Minority Leader John A. Boehner (R-Ohio) floated a new plan for addressing the crisis that has hobbled global markets.

Democrats accused Boehner of acting on behalf of GOP presidential candidate Sen. John McCain (Ariz.) in trying to disrupt a developing consensus. The new proposal also displeased White House officials, including Treasury Secretary Henry M. Paulson Jr., who chased after Democrats leaving the meeting and — half-jokingly — dropped to one knee and pleaded with them not to “blow up” the $700 billion deal, according to people present at the meeting.

Before the meeting broke up, President Bush had issued a stark warning about the impact on the nation’s economy if the measure did not pass. “If money isn’t loosened up, this sucker could go down,” Bush said, according to one person in the room.

Under the alternative Republican plan, the government would set up an expanded insurance system, financed by the banks, that would rescue individual home mortgages. The government would not have to buy up the toxic mortgage-backed assets that are weighing down financial institutions.

Paulson and Federal Reserve Chairman Ben S. Bernanke had already considered and discarded a similar idea, White House spokesman Tony Fratto said. “I’m not convinced it does what needs to be done for the banking system, and neither is Secretary Paulson or Fed Chairman Bernanke,” he said.

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/09/25
/AR2008092500268.html?hpid=topnews