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  • Morning Bell: Big Government Fails Again

    This weekend Treasury Secretary Henry Paulson announced that mortgage giants Freddie Mac and Fannie Mae will be placed in a government conservatorship that closely resembles a bankruptcy reorganization. The move puts U.S. taxpayers on the hook for $5.4 trillion in outstanding mortgage debt and commits the government to provide as much as $100 billion to each company in capital commitments. Two months ago, the Congressional Budget Office estimated that the ultimate cost to taxpayers of such a move would be $25 billion. But bankers hired by the Treasury Department now estimate that $50 billion of taxpayer money might be needed to offset the Freddie and Fannie’s combined losses.

    How did we get here? The answer is certainly not “too much deregulation” of the marketplace. Freddie and Fannie are not, and never were, private companies. Instead they are quasi-public/private mutants — Fannie is a relic of the New Deal and Freddie was chartered by Congress in 1970 — that are owned by shareholders but, until this year, also enjoyed an implicit guarantee that the federal government would cover their losses. The companies nominally exist to help make homes more affordable for lower- and middle-income families by increasing the supply of money available for mortgages. However, research by the Federal Reserve finds that Freddie and Fannie “have no significant effects” on either primary or secondary mortgage rates. Furthermore, they have completely lost their focus on helping low- and middle-income families. Witness Speaker Nancy Pelosi’s continued efforts to raise the cap on the size of the loans that Fannie and Freddie can buy.

    So what did taxpayers get in exchange for two quasi-government agencies that did nothing to help families afford homes? Thanks to their implicit government guarantees, Fannie and Freddie became a massive mortgage industry duopoly that socialized risk while privatizing profit. Contrary to the claims of big government apologists like The New York Times Paul Krugman, Fannie and Freddie are at the core of the housing bubble. As early as 1995, President Bill Clinton allowed Freddie and Fannie to get affordable-housing credits for buying subprime securities. By 2004 Fannie and Freddie purchased $175 billion worth of subprime securities — 44% of the entire market. Even the largest truly private company crippled by the housing bubble was heavily influenced by the government’s market intervention. Countrywide Financial has lost $2.5 billion in just the past year and has another $6 billion in nonperforming assets on its books. Fannie was the biggest buyer of Countrywide loans. Former Walter Mondale and Barack Obama campaign adviser James Johnson worked personally with Countrywide CEO Angelo Mozilo to make it easier for Fannie to buy Countrywide products.

    Now that the federal government has officially taken over Freddie and Fannie, the next question is what to do with them. Paulson is staying neutral on the matter, and has said it should be up to the next administration and Congress. John McCain has already said he wants the two entities privatized or liquidated. Congressional Democrats want to keep them intact. Barack Obama is still studying the situation.

    Quick Hits:

    Posted in Ongoing Priorities [slideshow_deploy]

    11 Responses to Morning Bell: Big Government Fails Again

    1. R Buck Gray, Pittsbu says:

      So the top brass at Freddie and Fannie get a golden parachute, congressmen get campaign donations, and the taxpayer gets to pay for non qualifying loans for $ 200 billion or more. Sure, help the first time buyer with a little $500,000 loan. What is wrong with this picture ?

    2. Dixon Webb says:

      To have a lively debate on social and political issues is a good thing. It must however be separated from hard, factual news reporting.

      People like Keith Oberman, Chris Mathews, and David Gregory OBVIOUSLY do not understand the need for separation.

      They should be free to voice their OPINION in the media provided they allow equal opportunity for someone else to state an opposing view.

      If they are to be employed as news reporters THEY MUST TRY TO BE IMPARTIAL PURVEYORS OF FACTS.

      Dixon Webb

    3. Frank Grundman says:

      Where is the accountability in government for the Fannie Mae – Freddie Mac debacle? Where was Congress? It is high time for the taxpayers to end the terms of all Senators and Representatives with any responsibility for Congressional oversight.

    4. Pingback: Morning Bell: Big Government Fails Again : thegameoflove

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    6. Jim, Rio Rancho, New says:

      With all this money going to Fannie & Freddie, how much money is being paid out for the exec's retirement porfolio/umbrella fund???

      $100 Billion is a lot of money and washington has the gall to think we are going to save these companies from going up side down?? What Nerve!

      The lib's are some how getting a big kick back.

      They have to be espicially with all this money floating around. WIth the news talking about how our gov't is going to support F&F, it's there way of throwing the American people off while they rake in the money.

      Yes, it's time for change and I'm looking forward to see what President McCain & Vice President Palin will do with this mess.

    7. E Paul Lian, Scottsd says:

      I've got a better idea….show both of them the door. Both Mr Matthews & Mr Olberman look like they haven't bathed in weeks. Dirty hair, wrinkled clothes, fake humor, no class.

    8. Beaner, Alabama says:

      Frank Grundman writes:

      Where is the accountability in government for the Fannie Mae – Freddie Mac debacle? Where was Congress? It is high time for the taxpayers to end the terms of all Senators and Representatives with any responsibility for Congressional oversight.>>>

      They were too busy trying to find ways to impeach President Bush and Vice President Dick Cheney. Congresses focus has been on getting Obama elected, to stop oil from being drilled and watching Nancy Pelosi prance around getting her time to promote her new book. The democratic Senate and House have an agenda, to do nothing until the November elections. They believe they’ll have more seats in Congress and the Senate. And they will have a democratic in the White House. They will rule the world and everyone in it.

      They forget one thing, they have done nothing for the last two years, so why would we want to keep them there? I personally believe that Nancy Pelosi will loose her seat in Congress. Instead of voting for an Oil Bill, Drill here, drill now, she decided it was more important to promote her new book. It’s all about me! Oops! Know Your Power. The idea of keeping this women in Congress is an embarrassment to all American’s. The only thing she’s shown is that she can abuse power just a good as any man in Congress.

      Once again, I will reiterate that they, liberal democrats will only ever look after the liberal democrats and not the American public. They make a lot of decision based on their liberal beliefs instead of representing their constituents in the House and Senate. If I could I would want to get rid of everyone in Congress and start over again. But, since that’s not an option, I’ll settle for her losing her seat in Congress. She’s abused her position in Congress and misused her position and has turned into a power whore. I’d love to see her get the message from those she’s supposed to represent and lose her job. Why were the democrats in the House and Senate focusing on Bush and Cheney? They spent more time on that then anything else. It’s frustrating to watch them beat up on the President and Vice President. Pelosi appeared to want to take over there for a while, trying to show Americans how to appear presidential. Going overseas to show us she’s next in power, after Cheney and Bush. Bash Bush, eliminate Cheney and I will be Queen of the Country.

      <>

      Good for John McCain! Democrats want to keep them because they are the ones that created them, privatizing them would limit their control. Of course, Barack Obama needs to confer with other Democrats to make his decision, business as usual. He cannot make a decision without conferring with other democrats, he acts the same way he votes. Congress has failed Americans for far too long, it’s time we start taking control back.

    9. Dean Morgan. Phoenix says:

      Taxpayers of this country are being raped, yet again. This is worse than Enron and people (friends of Bill)should go to jail for a very long time. The finances of this country is becoming a house of cards. Just look at medi-care, social security and how many other government programs. Arizona just canceled 8 highway projects, 200 million in federal transportation funds dried up, this is just the beginning. Lets raise taxes on corporations and small businesses and send more jobs overseas. Then blame the president for the loss of jobs. Fannie and Freddie exist to launder tax payer dollars so money can be funneled to the right organizations (acorn) and friends of certain politicians. Of course congressional democrats want to keep them intact, duh!! It is time that responsible journalists started reporting the truth and inform the voters of the facts and dirty money deals in Washington. The republicans are complacent with the democrats in this and should be punished. Don't fool yourself thinking that the republicans didn't know what was going on. Every incumbent politician should be removed from office this November. With the fairness doctrine being held over their heads, no one in talk radio dares call for a voter revolt and the removal of incumbent politicians. But they could "report" on, Dean Morgan, some guy in Phoenix, Arizona calls for a voter revolt and the removal of of all incumbent politicians. Not mad enough yet, well consider this. 1987 a stock market scare and politicians rush to pass laws that would shut down Wall Street if it happens again. Can't have rich donors loosing money in the stock market. 2008 a possible trillion dollar bail out of Fannie and Freddie to protect rich investors. 2008, middle class America loosing their homes and paying $4.00 a gallon for gasoline, food and transportation costs soaring, families savings accounts being drained, what do the politicians do, why of course take a five week vacation instead of voting on an energy bill. Politicians are hoping to sandbag and create as many smoke screens between now and November to sidetrack the voters. That is why I tell everyone I speak too, vote every incumbent out of office, regardless of party. The future of this great country is at stake.

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