“They Had a Blank-Check from the Federal Government”
Posted October 6th, 2008 at 2:08pm in Enterprise and Free Markets 
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The left really has no idea what free markets are. Witness Washington Post columnist Harold Meyerson who wrote a column last week blaming the current credit crisis on ‘unregulated capitalism’ and ‘laissez faire’ policies. According to Merriam-Webster, ‘laissez faire’ means: “a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.” Keep that in mind as you read this transcript from CNBC between Becky Quick and Warren Buffett:
QUICK: Let’s talk about Fannie Mae and Freddie Mac, specifically. These are two stocks that it seems like every time you turn around are touching new low levels. There’s a lot of concern out there on the market about these two stocks right now. What’s your general take on how they got here and what you think’s going to happen next?
Mr. BUFFETT: Well, how they got here was they had two businesses, basically.
QUICK: Mm-hmm.
Mr. BUFFETT: They insured mortgages on a huge scale, trillions, and then they ran sort of a hedge fund, a carry trade where they bought mortgages and borrowed extensively against them. And because they had really the backing of the United States government–and everybody assumed they had the backing. I assumed it. And the truth is they do have the backing of the United States government in terms of their debt, not in terms of their equity–they were able to borrow without any normal restraints in terms of capital or margin requirements or anything of the sort. They had a blank-check from the federal government.
QUICK: Mm-hmm.
Mr. BUFFETT: And they also had an added problem in that they had a dual mission. The government expected them to promote housing and the stockholders expected them to raise the earnings substantially every year. And as the years went by, they mphasized the latter more and more. They started talking about “steady Freddie,” and Fannie Mae said, `We’re going to increase the earnings at 15 percent a year.’ Any large financial institution that tells you that sort of thing is giving you a line of baloney. I mean, they may do it for a while, but when they can’t do it with operations, they do it with accounting and they cheat. And that’s what happened at both those places on a huge, huge scale.
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5 Responses to ““They Had a Blank-Check from the Federal Government””
Chris, New Hampshire on October 6th, 2008 at 2:08pm said:
Barney Frank was the primary force behind Fannie’s and Freddie’s protection from being charged criminally for their accounting “cheating” and he made it possible for them (F and F) to grow far beyond anything that they were chartered to grow to. He should face investigation, censure and then criminal charges
Paul CA on October 6th, 2008 at 2:08pm said:
FNM & FDMC
What was the problem?
1) Some wanted them to make cheap loans to Alt A or subprime borrowers.
2) Some wanted them out of business so instead they could sell Alt A and subprime borrowers more funky mortgages and make big money.
3) Some wanted them to make money and pay big dividends, bonuses to mgmt and directors, etc.
No one seemed to want them to run a nut-and-bolts mortgage business making low cost loans to people who documented that they qualified for a loan they could actually pay. No one seemed to want them adequately capitalized for the risks taken.
Don’t blame ONLY one group of sinners: There were many more who wanted them gone so they could steal more or for them to be run for someone else’s benefit than the American people /Uncle Sugar. paul
Jonness, Gig Harbor WA on October 6th, 2008 at 2:08pm said:
Barney Frank has an extremely low IQ. But then again, so does Bush. I suppose the reason these people get elected is because roughly 50% of people have an IQ of 99 or below, so they vote for people whom remind them of themselves.
James, San Jose on October 6th, 2008 at 2:08pm said:
This entire problem is from a residential real estate housing bubble, turned into a giant ponzi scheme by Wall Street. The hard won historical knowledge on foreclosures rates was ruined by do-gooders, in the Clinton administration, who decided to eliminate down payment requirements. By eliminating down payments, investors flooded the market and drove house prices wild. Who benefits from that? Here is the proof (ntimes 1999):
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=all&ref=patrick.net
Harry T on October 6th, 2008 at 2:08pm said:
Now only is Paulson a lousy Treasury Secretary, but now he is also showing me that he is a bad investor, he plans on buying up the exact stocks that are causing the Dow to go down massive points each and every day. Throwing money into those stocks are going to make the bailout money vanish over night each and every night. It doesn’t seem right, sure stockholders are losing their money in those stocks, but it doesn’t mean the Treasury needs to assist them, they need to take that $700 billion and find out where is the best place to restructure our economy. We’re so over stimulized that it doesn’t work anymore.