There is no doubt that past government intervention in the market, particularly by Fannie Mae and Freddie Mac, is largely to blame for the current financial turmoil. And while past government intervention cannot be used to justify further government interference, we also have to ask how much unnecessary pain the economy must bear. Absent action along the lines proposed by Treasury Secretary Hank Paulson, capital markets at home and worldwide would eventually normalize. But how many large and small companies are going to have to fail to make payroll because …
The $700 billion that Treasury Secretary Hank Paulson is requesting from Congress to restore liquidity in the financial markets is a breathtaking sum of money. But it is also important to remember Paulson has already committed $200 billion to recapitalize Fannie Mae and Freddie Mac. The size of their bailout should tip Americans off: Fannie and Freddie were the key enablers of the mortgage crisis. Fannie and Freddie’s implicit government stamp of approval on these risky investments fueled Wall Street’s appetite for subprime securities. As of last June, Fannie alone …
As a general principle, conservatives believe government should not intervene to protect those who have made poor business decisions — even if those decisions have been influenced by excessive government regulation. But there can be rare situations where the cumulative effect of many bad decisions in one sector of the economy can threaten everyone. In these rare cases, government has a critical role in keeping the market’s infrastructure functional. We are in such a situation today. Treasury Secretary Henry Paulson has presented Congress with an outline of an expensive and …
The following language was circulated on Capitol Hill this morning as Treasury’s plan to purchase residential or commercial mortgages. Heritage released eight goals and strategies that should guide lawmakers during the debate this coming week. LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS Section 1. Short Title. This Act may be cited as ____________________. Sec. 2. Purchases of Mortgage-Related Assets. (a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets …
In what some observers are calling a reshaping of Wall Street, two of the world’s largest investment banks, Merrill Lynch and Lehman Brothers, are set to disappear. Lehman has announced it will file for Chapter 11 bankruptcy protection, and Merrill Lynch was bought by Bank of America. For all the complicated financial instruments and relationships involved in the current financial turmoil, the underlying cause is still relatively simple: the bursting of the housing bubble. One market strategist told The New York Times: “We are in the grip of a vicious …
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 …
Heritage’s James Sherk says the employment estimates for August are being affected by the collapse of the housing bubble and the high cost of energy. The unemployment rate rose to 6.1%, a five-year high, primarily the result of large job losses among automobile manufacturers. He talked about the August employment numbers this afternoon on CNBC. [youtube]http://www.youtube.com/watch?v=Wk3wcVHyugQ[/youtube] Sherk says there are a couple steps Congress could take immediately to help American workers with these pocketbook issues: To get the economy back on its feet, Congress needs to address energy and food …
In 2004, after a tip from a whistle blower who was later fired, the Office of Federal Housing Enterprise Oversight (Ofheo) issued a report finding that the government-sponsored entity Fannie Mae had engaged in Enron-like accounting machinations that allowed Fannie to overstate its earnings and underestimate the risk the company faced. The accounting wizardry Fannie engaged in was designed so that Fannie could meet profit targets to maximize bonus payments to company executives like Clinton administration deputy attorney general Jamie Gorelick and Carter administration assistant director for domestic policy Franklin …
The latest news out of Capitol Hill is that the Senate will take up legislation enacting a much needed update of the Foreign Intelligence Surveillance Act (FISA), pushing final passage of the mortgage bailout bill back until after the July 4th break. This should give Senators some much needed time to explore some of the seedier aspects of the bill, including the establishment of a National Housing Trust Fund that has long been the legislative Holy Grail for the Association of Community Organizations for Reform Now (ACORN). We’ve covered ACORN’s …
Senate Banking Committee chairman Chris Dodd (D-CT) may not know what interest rates currently are, but the Wall Street Journal has crunched the numbers and estimates that the discount loan Countrywide Financial gave him will save him $75,000 in mortgage payments. The WSJ also looked into how much of the $300 billion Dodd hopes to give away to banks as part of his housing bailout bill will go to Countrywide: “If borrowers and lenders take full advantage of this new federal program, and Countrywide loans go south at roughly the …
