Why did Obama/Geithner burden taxpayers with unlimited support for Fannie Mae/Freddie Mac?

Transparency suggests we should be allowed to know.

ON EDIT: Especially in light of today's headline: Fannie-Freddie Bailout Could Cost Taxpayers $1 Trillion
Discussion taking place here: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8657267

http://www.huffingtonpost.com/sheldon-filger/us-treasury-strikes-on-ch_b_406510.html

U.S. Treasury Strikes On Christmas Eve: Unlimited Taxpayer Support For Fannie Mae And Freddie Mac
Sheldon Filger
December 29, 2009

It was the night before Christmas, when normally nothing newsworthy stirs. Like a thief in the night, that was the moment selected with precision by U.S. Treasury Secretary Timothy Geithner to stealthily announce a radical policy shift regarding the two bankrupt Government Sponsored Entities (GSEs), Fannie Mae and Freddie Mac. When both of these mortgage giants teetered on the edge of insolvency in September 2008, they were placed under the largesse of the federal government and the overburdened American taxpayer. In the early days of the Obama administration, $400 billion was established as the maximum guarantee the Treasury Department would provide to these two GSEs to ensure their survival. It was highly unlikely that anything close to $400 billion would be the ultimate cost to the American taxpayer, so assured the Treasury Department. But amid the reassuring rhetoric, something very peculiar is obviously being hatched by Geithner and Company.

On Christmas Eve, one of the quietest news days of the year, the U.S Treasury announced that in lieu of the previous $400 billion backstop, the U.S. taxpayers will now provide unlimited financial support to ensure the survival and liquidity of Fannie Mae and Freddie Mac for the next 3 years. Apparently, by slipping in this policy change near year end, no new legislation is required from Congress. Which is just as well, since it is unlikely that such an unfathomable level of bailout support would be approved by Congress during a mid-term election year.

The real question is this: if, as Treasury originally claimed, a $400 billion guarantee was more than sufficient for these two GSEs, why sneak in a new taxpayer commitment, with no limits? Speculation is rife, and being fed by the total lack of transparency on the part of Timothy Geithner and his minions. However, this much is clear: Fannie Mae and Freddie Mac collectively underwrite or guarantee half of all the residential mortgages in the United States. If the U.S. Treasury is privy to data on emerging trends on mortgage defaults and residential real estate deflation, there must be something Geithner and his team are cognizant of that they are too frightened to share with the American public, and are spooked to a level that requires such a surreal form of taxpayer guarantee.

With more than $5 trillion of mortgages sitting on the balance sheets of these two GSEs, a new wave of bad real estate news could conceivably witness the American public assume responsibility for another trillion dollars in bad debts, without a single vote by Congress. There is much more to this story than meets the eye, and the policymakers at U.S. Treasury desperately want to keep the full picture as to why they enacted such a massive overdose of moral hazard in the dark of night under wraps. But a Christmas Eve news dump only obfuscates reality, as opposed to making it disappear. Red lights and shrill klaxons must be going off at Treasury. As with much else involving the global economic and financial crisis, however, the public will be the last to be enlightened when the rationale underlying the decision to guarantee all the financial obligations of Fannie Mae and Freddie Mac to infinity can no longer be suppressed.

without having any scrutiny over what's going on or where the money is going. Banks that "play nice" may have some of their toxic assets taken by Fannie and Freddie, banks that don't will find themselves keeping their bad loans. This in and of itself isn't necessarily a bad thing, as it may be good to have incentives to dangle at the banks, but in the end, it amounts to leaving an enormous pile of cash at the mercy of bankers and hoping they'll be responsible with it.

It was a bassackwords approach which was only designed to save the exec's of the lenders and prevent the investors from the risk of losses.

It has done nothing to deal with the crisis.

It would have been cheaper (and the crisis would have been ended by now) to pay off the mortgages and give the titles to the homeowners.

Mustn't reward irresponsible overspending, dontcha know. :eyes:


I swear we proles are our own worst enemies.

Seems to be working

"working"

:rofl: :rofl: :rofl:

But...way better than if them GOP Fellas were in there...Sarah included...

Nuf said.

http://www.hussmanfunds.com/wmc/wmc100104.htm

January 4, 2010
Timothy Geithner Meets Vladimir Lenin

John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Reprint Policy

“The best way to destroy the capitalist system is to debauch the currency.”
Vladimir Lenin, leader of the 1917 Russian Revolution

Last week, while Congress and the nation were preoccupied with the holidays, the Treasury made a Christmas eve announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years. The Treasury's press release notes:

“At the time the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship in September 2008, Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth. Treasury is now amending the PSPAs to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years.”

Put simply, in a single, coordinated stroke, the Treasury and the Federal Reserve have encroached on spending powers that are enumerated for the Congress alone. Under the Housing and Economic Recovery Act of 2008 (HERA), the Treasury has no such open-ended authority. Indeed, the applicable portion of the Act explicitly limits the total amount of mortgage principal (not losses, but total principal) as follows:

"LIMITATION ON AGGREGATE INSURANCE AUTHORITY.—The aggregate original principal obligation of all mortgages insured under this section may not exceed $300,000,000,000."

more...

You said no facts, no sources. This article links to the treasury press release supporting the claim in the OP. Of course, it's all over Google, too.

This sounds like someone who wants to sell gold, like Glenn Beck's fear mongering.

And quoting Lenin? What's that about?

Hussman is a smart guy and doesn't want to sell you gold. If you have time, read some of the articles at his site.

Better yet,

nt

"so the people can see who is making arguments on behalf of their constituents."

-- Candidate Barack Obama

http://www.ritholtz.com/blog/2010/06/gses-1-trillion-dumping-ground-for-bad-bank-loans/">GSEs: $1 Trillion Dumping Ground for Bad Bank Loans
Barry Ritholtz

Post-receivership, the GSEs have become a government sanctioned back door bailout of regular banks. Any mortgage that cannot be refi’d or modified ends up on their books. This includes mortgages on the verge of default and foreclosure.

How much is the worst case scenario for the ongoing bailout of the banking sector, plus Fannie’s and Freddie’s own screw ups?

If everything goes precisely wrong, taxpayers are potentially on the hook for another $1 trillion bailout:

The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

Its not a coincidence that many of these banks are finding the capital to pay back their bailout loans. The Obama administration is continuing one of the more horrific policies of the Bush administration: Using the GSEs as a back door bailout for the rest of the banking sector: These banks are selling their garbage to the GSEs — and according to some anecdotal evidence, are getting pretty close to full boat (100 cents on the dollar) for these bad loans.

Hence, Fannie and Freddie have become a dumping ground for all manner of bad bank loans.

http://www.ritholtz.com/blog/2010/06/gses-1-trillion-dumping-ground-for-bad-bank-loans/">more...

That's the real reason. Unlimited ongoing bailouts of anyone stuck with a bad mortgage. We're seeing another wave of bad mortgages beginning. Gotta protect them banks!

and unlimited bailouts for the too big to fails.

Seriously. You people who are all over Fannie and Freddie the way you are have swallowed hook, line, and sinker for a right-wing crusade that's been going on for decades now.

Am I saying Fannie and Freddie are perfect? Absolutely I am not saying that. But it's a long way from them needing some serious improvement to the kind of nonsense that is spewing about them here and there and elsewhere, much of which is exemplified in this piece.

Go ahead. Keep attacking them. Keep harping on Obama and the administration for what they're doing with them. You'll eventually "win" after which we all lose. The Republicans are using a warped sort of populist outrage and the extremes of the current financial crisis to try to enact an agenda that no Democrat in his or her right mind would ever support but which seems to sound good to some of them because it mirrors the kind of rage they seem determined to let devour their good sense.

as Ritholtz says, this started under the Bush administration:

"The Obama administration is continuing one of the more horrific policies of the Bush administration: Using the GSEs as a back door bailout for the rest of the banking sector: These banks are selling their garbage to the GSEs — and according to some anecdotal evidence, are getting pretty close to full boat (100 cents on the dollar) for these bad loans.

Hence, Fannie and Freddie have become a dumping ground for all manner of bad bank loans.

The GSEs have had their own problems over the years — accounting fraud, recklessly chasing market share, lowering loan quality, etc. — but they have now become are now the last stop for every crappy mortgage ever written:"

It was wrong when Bush was doing it and it's still wrong now.

nt

It borders on bigotry

to dump their bad loans, rather than denigrating DUers?

nt

It's not news at all.

:hi:

The discussion is valid because we are now finding out that this bailout might end up costing us $1,000,000,000,000 - and the money is going straight into the coffers of the big banks that have wrecked our economy.

We need to have this discussion.

Corporate America is all about fucking over The People in the 21st century. I think they are making a sport out of killing off the middle class.

(Of course, the real size of bankster bailout is multiple trillions...)

We are being looted and raped, and it's just about to get much worse.


What will it take for people to wake up?