Every time this subject shows up, I go into a towering rage over the
many friends, children and family members...as well as myself, who
lost great sums of money, up to and including their homes.
How many ways can Americans get screwed before they understand that
they're being raped?
Funny thing is while the American People know that Wall Street is full
of Predators, they have been hoodwinked into believing the Federal
Government is incompetent. But in fact, if the White House were a Hen
House, it would be hard to find a Hen among the Foxes.
Private Sector or Public Sector, a screwing is still a screwing.
Carl Jarvis
On 7/27/17, Miriam Vieni <miriamvieni@xxxxxxxxxxxxx> wrote:
A For Sale sign in front of a house. (photo: Bloomberg News)
New Documents Show Government Misled Public on Fannie/Freddie Takeover
By Matt Taibbi, Rolling Stone
27 July 17
Following Tuesday's successful Senate vote, at least several days of drama
lie ahead
In August 2012, a few months before Barack Obama told Mitt Romney the
Eighties had called and wanted their foreign policy back, the U.S.
government made a momentous and little-discussed decision. It unilaterally
changed the terms of the bailout of Fannie Mae and Freddie Mac, seizing all
of the companies' profits.
The government originally insisted on a 10 percent annual dividend in
exchange for what ultimately became a $187 billion rescue. In 2012, the
government quietly changed that 10 percent deal to one in which the state
simply seized all profits. Government regulators euphemistically described
this as "fully capturing financial benefits." The press paid almost no
attention to this event.
"New Bailout Terms for Fannie, Freddie," wrote the Washington Post, in a
page-8 yawner. "Treasury Pinches Fannie and Freddie," sighed the
Philadelphia Inquirer, in 439 words on page 7.
This was not, however, an inside-pages news story. It was one of the most
important decisions of the bailout era.
Also known as the government-sponsored entities, or GSEs, Fannie Mae and
Freddie Mac were two of the biggest companies on earth, and held about $5
trillion in mortgage debt.
They had gone bust during the crash years for a variety of reasons, mostly
due to incompetent and corrupt management. But by the summer of 2012, with
the real estate market in recovery, the companies weren't bust anymore. On
the contrary, they were about to start making money again - enormous piles
of it, in fact.
The government has always insisted it didn't know this. Not just in the
summer of 2012 but numerous times since, officials have insisted that they
needed 100 percent of Fannie and Freddie's profits because they wanted to
protect taxpayers from likely future losses, and because Fannie and Freddie
would otherwise be unable to pay back what they owed.
Mario Ugoletti, a special adviser to the director of the federal housing
agency, said in 2013 of the companies' debts that it was "unlikely that
[Fannie and Freddie] would be able to meet that amount consistently without
drawing additional funds from Treasury."
But documents just released in a court case show that the government
privately believed just the opposite before it made its historic decision
to
"sweep" the GSE revenues.
One key document is a memo from Mary Miller, assistant Treasury secretary
for the financial markets, to then-Treasury Secretary Tim Geithner. Dated
December 11th, 2011, Miller writes to Geithner that "Freddie is expected to
be net income positive by the end of 2012, and Fannie by the end of 2013."
In another memo, circulated through the agencies, analysts concluded that
the government would end up getting more through the "revenue sweep" than
it
would through "if the 10% [dividend] was still in effect."
The only reason this story is hitting the headlines at all this week is
because the government's 2012 decision triggered an all-out pitched battle
between two investor groups. Those who bet on Fannie and Freddie's revival
were wiped out by the government's 2012 decision, while those who shorted
the firms have made fortunes.
The documents that came out this week were released in a lawsuit brought by
Fannie and Freddie shareholders who believe that the government stole
billions of dollars in profits from them.
The ordinary American is not likely to care much about the outcome of that
case, unless the general principle of the government unilaterally seizing
the profits of private companies strikes him as bothersome.
But this story has vast implications beyond a fight over investment
returns.
Lurking underneath the scandal derisively termed "Fanniegate" is a
monstrous
struggle for future profits. The fight here is not just about the profits
generated by the GSEs, but what to do about them generally. Finance
lobbyists have successfully forged a bipartisan consensus that the
companies
need to be privatized. Essentially, Wall Street wants to step into the
shoes
of Fannie and Freddie.
In most versions of GSE reform currently winding their way through
Congress,
the same too-big-to-fail banks that blew up the mortgage markets in 2008
would assume most of the responsibilities of Fannie and Freddie. Crucially,
securitized mortgages would continue to enjoy government backing under many
of these proposals.
Privatized profits, socialized losses. Who doesn't love that formula?
It would be the ultimate triumph for Wall Street, and the ultimate shocker
ending to the crash era. After nearly blowing up the planet with a mortgage
bubble and getting bailed out by taxpayers, banks would now be handed
control of the real estate markets and granted permission to reap massive
profits trading government-backed mortgages until the end of time.
Even worse: legislative concepts like Corker-Warner and Crapo-Johnson would
not just privatize Fannie and Freddie, but eliminate the affordable housing
component of their original missions.
The GSEs are essentially huge piles of money that buy mortgages. They do
this ostensibly in service of a utility-like function to keep the real
estate markets liquid. Part of their mission has always been to invest in
low- and middle-income mortgages, to give the private sector an incentive
to
create and lend to those who need affordable housing.
That mandate is likely to disappear once the reform is finished. "Access to
affordable housing for millions of people is at stake," says John Taylor of
the National Community Reinvestment Council. "Even a lot of Democrats seem
unaware of this."
It should be noted that despite legends to the contrary, Fannie and
Freddie's affordable housing mission did not cause the 2008 crash.
In fact, the Financial Crisis Inquiry Commission concluded that delinquency
rates for GSE loans were "substantially lower" than those of the private
banks and mortgage companies that were lending subprime loans to anyone
with
a pulse during that era.
The crash was caused by greed, not social policy. The problem was that
banks
were using derivative tricks to successfully disguise toxic subprime loans
as good investments. All that housing credit was available because it was
profitable for banks to offer it, not because they were forced by
Fannie/Freddie or anyone else to lend it.
But probably because Fannie and Freddie were so unpopular after the crash -
deservedly, in part, because of numerous scandals involving its executives
-
the companies were treated very differently than other bailout recipients.
While other Wall Street firms that needed taxpayer or Fed rescues were
allowed to quickly repay their debts and get out from under additional
restrictions, Fannie and Freddie were specifically barred from ever
repaying
their obligations.
By 2015, the GSEs had paid $228 billion to the government, or $41 billion
more than the $187 billion bailout. This prompted a letter from Sen. Chuck
Grassley asking why the companies had not been released from debt.
The Treasury Department answered, in essence, that the bailout had not been
a loan, but an "ongoing financial commitment."
This was not a debt that could be paid back. Like a restaurant owner who
accepts protection from the mob, the GSEs were and are in an unseverable
relationship.
As of today, Fannie and Freddie have paid $130 billion to the government
above and beyond its original rescue, at least according to some
calculations. The ongoing seizure of such gigantic sums continues to be one
of the weirder subplots of the post-crash era, and these newly released
documents only add to the mystery.
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