Good luck ever getting a 30 year fixed mortgage without them. There is a reason no other country in the world has a 30 year fixed mortgage they do not have Fannie Mae and Freddie Mac. Oh and by the way they are required to keep reserves. If you take them away watch the whole real estate market collapse as the 30 year fixed mortgage disappears and the prices people pay for homes today are unsustainable and evaporate. Your home will probably loose 30 to 50% of its value.
1
If they're liquidated them when they went bankrupt after the most recent bubble burst then their wouldn't be shareholders complaining that their profits we re being taken. As as as I'm concerned, the GSEs ARE the government, and they get the losses AND profits.
1
Per Fannie Mae's 2015 10K filing, they drew a total of $116.1 billion from Treasury. The estimated Q1 2016 dividend payment will bring their total payments to Treasury to $147.6 billion or 127%. Per the terms of the agreement, the dividend payments do not offset the draw. This means that Fannie Mae's profits will continue to be swept every quarter in dividend payments made to Treasury, yet they will still owe Treasury $116.1 billion. That is why there is a fuss.
2
"Since Fannie and Freddie returned to profitability in 2012, they have sent to the Treasury more than $50 billion over the amount they drew down in the bailout. Their profits continue to be funneled to the Treasury each quarter."
Something I've suspected for a long time is that a government mortgage lender or bank can operate profitably and that there actually is no practical need for lenders that operate for profit. State banks, such as the Bank of North Dakota or state-owned banks in socialistic countries operate just fine without the supposed need to be privately operated.
Something I've suspected for a long time is that a government mortgage lender or bank can operate profitably and that there actually is no practical need for lenders that operate for profit. State banks, such as the Bank of North Dakota or state-owned banks in socialistic countries operate just fine without the supposed need to be privately operated.
1
Question: If $50 billion were paid out since 2012, that sounds like $12 billion per year, which sounds very close to the original 10% dividend on the bailout? So why the fuss?
2
Just convert some of Fannie and Freddie's shares into passive shares for the US government (who then should bequeath that to social security). It's not fair that US taxpayers were forced to help these institutions during the downside, but cannot gain anything from the upside. All the upside profits are privatized, while the downside risks are socialized - this is the crony capitalism gripping America right now.
I think the US government should also revisit the other bailouts it made to big Wall Street banks and force them to issue shares to social security who can hold the shares passively. This will also prevent big banks borrowing at zero percent from the Federal Reserve to then buy-back their own shares which helps concentrate power in the hands o fa few elites. With social security bequeathed a huge stake, any share-back will bolster social security's concentration.
I think the US government should also revisit the other bailouts it made to big Wall Street banks and force them to issue shares to social security who can hold the shares passively. This will also prevent big banks borrowing at zero percent from the Federal Reserve to then buy-back their own shares which helps concentrate power in the hands o fa few elites. With social security bequeathed a huge stake, any share-back will bolster social security's concentration.
2
Ms. Morgenson...your diligence in this follow up is critical. I have written to my Senator, Sherrod Brown regarding this, but it's not clear if his interest or motivation is appropriately focused.
This is precisely the type of action in which "The Gray Lady" should take a leadership position.
This is precisely the type of action in which "The Gray Lady" should take a leadership position.
1
"The unsealing of the documents casts a spotlight on a legal proceeding that has been shrouded in secrecy from the start. The court granted the government’s request for confidential treatment of thousands of pages of materials produced in the case; Justice Department lawyers have asserted presidential privilege in 45 documents."
Don't want folks knowing what their rulers are up to when it comes to financial matters. Common folks can't understand the intricacies of government financial dealings, might misinterpret the facts as self-serving, become upset and stop paying their taxes. Hmmm.
Don't want folks knowing what their rulers are up to when it comes to financial matters. Common folks can't understand the intricacies of government financial dealings, might misinterpret the facts as self-serving, become upset and stop paying their taxes. Hmmm.
1
Many commenters are failing to grasp two important points:
1. In 2008/9 the Gov't stated its intention to save the GSEs, to enable them to return to solvency and keep them as private companies. There are public statements by Paulson, members of Congress and Treasury to that effect. It now appears that all along, many of these players had no intention of saving the GSEs, and were in fact deceiving the public in order to accomplish policy objectives. This sort of conduct would constitute fraud under general corporate law, so why not hold the gov't similarly accountable?
2. Even IF the GSE's were insolvent in 2008 (which is now in dispute, as various forensic accountants have demonstrated), in a standard wind-down or FDIC style receivership and liquidation, preferred equity would still have received a considerable amount of face value, perhaps 70 cents on the dollar.
Common shareholders would have been wiped out, but they are only part of the story. In my view, more than anyone, the government is harming the preferred equity holders, leaving them with 0 cents on the dollar, in what is clearly an unconstitutional taking of property without just compensation.
Keep in mind that many of these preferred and common equity holders bought or held shares in reliance on the public statements by the gov't that appear to be fraudulent. The whole thing is a mess, and the DOJ and WH should start settling ASAP to avoid more embarrassment.
1. In 2008/9 the Gov't stated its intention to save the GSEs, to enable them to return to solvency and keep them as private companies. There are public statements by Paulson, members of Congress and Treasury to that effect. It now appears that all along, many of these players had no intention of saving the GSEs, and were in fact deceiving the public in order to accomplish policy objectives. This sort of conduct would constitute fraud under general corporate law, so why not hold the gov't similarly accountable?
2. Even IF the GSE's were insolvent in 2008 (which is now in dispute, as various forensic accountants have demonstrated), in a standard wind-down or FDIC style receivership and liquidation, preferred equity would still have received a considerable amount of face value, perhaps 70 cents on the dollar.
Common shareholders would have been wiped out, but they are only part of the story. In my view, more than anyone, the government is harming the preferred equity holders, leaving them with 0 cents on the dollar, in what is clearly an unconstitutional taking of property without just compensation.
Keep in mind that many of these preferred and common equity holders bought or held shares in reliance on the public statements by the gov't that appear to be fraudulent. The whole thing is a mess, and the DOJ and WH should start settling ASAP to avoid more embarrassment.
3
This is absolutely mechanical from an accounting prospective, but absolutely false from an economic prospective. The numbers you suggest look fine in retrospect under "forsenic accounting", however, in 2008/2009, banks could not borrow in wholesale money markets, and non-deposit taking banks like Fannie and Freddie could not borrow from the Fed window by law. With no one lending to them (banks borrow short, to lend long), their cost surged. This is what economists call a credit crunch or liquidity crisis. This is what Lehman suffered, too. However, with the government's bailout, creditors knew they will be paid back because Fannie and Freddie's liabilities were backed by the government's triple-A rating. Their costs dropped that the "forensic accounting" worked. After Lehman crashed, the US government through the FDIC guaranteed the debts for all the remaining investment banks, resulting in a drop in their cost (while borrowing from the Fed). If you're an untrusty borrower, you'd pay loan shark rates; but if you're a borrower with the guarantee of the US government, your costs drop. And thus the other banks survived.
As for Paulson, et al you speak off... It's funny how you don't question the motive of the former CEO of Goldman who ran the firm during the housing boom, then suddenly go to the Treasury department in 2006. If you need me to spell it out - Goldman politically hedged their losses with the checkbook of the US taxpayers.
As for Paulson, et al you speak off... It's funny how you don't question the motive of the former CEO of Goldman who ran the firm during the housing boom, then suddenly go to the Treasury department in 2006. If you need me to spell it out - Goldman politically hedged their losses with the checkbook of the US taxpayers.
1
Why is the government supporting a company with shareholders?
2
Ask AIG, Chrysler, GM, Goldman, etc... all of them got a better deal than Fannie Mae and Freddie Mac.
1
It appears that the Treasury Department has required Fannie and Freddie to pay back what was invested in them plus 10 per cent and it still syphoning off funds. They are paying to operate Treasury that is a misuse of trust.
3
Treasury - meaning Jack Lew and the Obama administration - just suffered a big legal smackdown over its process for labeling MetLife an SIFI - Systemically Important Financial Institution. Treasury is an example of an out-of-control federal agency; answering to none but itself. It's the wolf guarding the chicken house; and it hates being brought under any control.
Or following the law as the judge plainly indicated in Metlife's case in which Treasury did not. Instead it makes its own rules; rules completely unauthorized by legislation and without any analytical basis for implementation. Treasury fits perfectly with this administration's anti-growth, anti-business agenda. However, short of an administration change, there is little hope for the financial community to obtain legal or fair response from Jack Lew's business strangling fiefdom.
Or following the law as the judge plainly indicated in Metlife's case in which Treasury did not. Instead it makes its own rules; rules completely unauthorized by legislation and without any analytical basis for implementation. Treasury fits perfectly with this administration's anti-growth, anti-business agenda. However, short of an administration change, there is little hope for the financial community to obtain legal or fair response from Jack Lew's business strangling fiefdom.
2
With all due respect Ms Morgenson, Fannie and Freddie were both insolvent when they were seized by the government in 2008 who had to inject billions to keep them afloat and protect the wider financial system. Without that intervention their shareholders would have lost everything. In this respect the situation is not dissimilar to that AIG which was also rescued by the government not to save AIG but to shore up the wider system and this became the subject of a subsequent lawsuit by their shareholders who also would have lost everything had AIG been left to its own devices. Given the history of financial mismanagement at Fannie and Freddie where they massively over leveraged a narrow capital base, not to mention all the other unrelated financial shenanigans that took place there, it's not really suprising the government viewed with skepticism claims made by officers of Fannie/Freddie.
7
John,
I like your sense of history. Why did the government not retain control of GM which seemed to be going broke just like Fannie Mae?
As I remember, the SL crisis of the late 1980's when the Republicans sent 800+ bankers to jail, ah the good ole days! Can you shed some light on this please? My uninformed conclusion is the current Administration and Bankers are in each others pockets.
I like your sense of history. Why did the government not retain control of GM which seemed to be going broke just like Fannie Mae?
As I remember, the SL crisis of the late 1980's when the Republicans sent 800+ bankers to jail, ah the good ole days! Can you shed some light on this please? My uninformed conclusion is the current Administration and Bankers are in each others pockets.
2
Yes no one is arguing that point. But at the time of the rescue in 2008, the intent was to rehabilitate Fannie and Freddie and return them back to private stakeholders, like they did with AIG as you mention. But instead, in 2012, 4 years after the rescue, the government changed the terms of the rescue financing to take ALL PROFITS of Fannie & Freddie, robbing investors of profits who perhaps invested in Fannie & Freddie on the government's original terms: ie, rehabilitate and return the companies back to shareholders. That is a government takings.
2
@tim
Georgia
Because the government isn't GUARANTEEING GM as it is Fannie and Freddie. The guarantee always semi existed which is the only reason why they were able to take on so much exposure with such a small capital base. Essentially all the risk was being assumed by the government but the profit from it were being privatized. Now the profits flow to the taxpayer who had to rescue these institutions. As far as the S&L crisis was concerned most of the fraud was as fairly vanilla fraud with the fingerprints of the principals all over it. This was not the case with the banking crisis of 2007-9. Most of it was legal and the chances of finding the finger prints of any of the top bankers on the actual fraudulent bits were very small which is why the even aggressive prosecutors like Barara have had to settle for civil damages where the bar of proof is much lower.
Georgia
Because the government isn't GUARANTEEING GM as it is Fannie and Freddie. The guarantee always semi existed which is the only reason why they were able to take on so much exposure with such a small capital base. Essentially all the risk was being assumed by the government but the profit from it were being privatized. Now the profits flow to the taxpayer who had to rescue these institutions. As far as the S&L crisis was concerned most of the fraud was as fairly vanilla fraud with the fingerprints of the principals all over it. This was not the case with the banking crisis of 2007-9. Most of it was legal and the chances of finding the finger prints of any of the top bankers on the actual fraudulent bits were very small which is why the even aggressive prosecutors like Barara have had to settle for civil damages where the bar of proof is much lower.
1
When are the people responsible for the mortgage crisis going to jail?
13
These crashes are orchestrated just like the one in the 30's, Wall St & cronies want to buy up cheap real estate, they roll out the plan all over again. Certain well placed agents with connections in senate and congress at a given time will never send them selves to jail, and certainly not for failing to increase wages in proportion to productivity /give Americans a raise. Rather, they too well tried to hide collusion with revolving door lobbyists to steal private and mutually held companies and sell the pieces off for pennies on the dollar while keeping the most profitable for themselves, such as the GSEs as evidenced in this article. But we knew that already; people felt the tide starting to turn as soon as Bush got into to office with that fake FL recount, operating on a surplus, Pennetta announced the missing trillions from the Pentagon, next thing we know diversion tactics sweep in a whole new level of coup-de-eta, gas prices went to 4.69 a gallon, taxes kept rising to support mercenary forces at home and abroad, income could not keep up with expenses, people losing their jobs left and right, next obvious result is that people couldn't afford their homes, and here we are reading the articles as to how its always blamed on this one or that one but the real culprits never get caught red-handled. Meanwhile wealth of this nation (raises we never got) sit offshore someplace, its why cronies approved top tier tax cuts & loopholes. None of this is new, just sicker.
1
Never. But in part, a big part, it's joe usa that caused this as he borrowed money to gamble on the housing market for unearned gains. And didn't expect he had to be good for the bet.
Is there any wonder why citizens mistrust government? Every day you read of another negotiated or manipulated outcome. Edited to send a message of righting an offense or greedy wrong, it then comes to light the "story" is nothing close to the truth. In the past 2 days, with this travesty and the Goldman outcome, the only penalties seem to be levied on the general public, as those who manipulated the system are left to prosper. I'm tired of reading of a settlement, i.e. where banks are fined billions, only to have the CEO state it will have no effect on profits or business direction. Disgusting.
7
Hmm? What about the other banksters who embezzled trillions from the government and got away tax free? Don't give me any of that garbage about "let the free market take care of it". The corporations are not subjected to the so called "free markets" - they were given a socialist system by crooks like Ronald Reagan, while the workers got stuck to go fend for ourselves in the "free market" I'm still looking thru the Panama Papers to see where the banksters hid the money.
12
Two possible outcomes:
1. band-aid gets ripped off and FnF are recapped and released ASAP. This will blow up and cause much gnashing of teeth but will be all but forgotten by Election Day.
2. White House pushes back, fights to protect their own and themselves. This will be a slow burn and will potentially create a huge credibility problem in the last phase of the election cycle.
1. band-aid gets ripped off and FnF are recapped and released ASAP. This will blow up and cause much gnashing of teeth but will be all but forgotten by Election Day.
2. White House pushes back, fights to protect their own and themselves. This will be a slow burn and will potentially create a huge credibility problem in the last phase of the election cycle.
2
Is this why my 91 year old mother's Fannie Mae preferred stock stopped paying dividends?
8
Yes. Paulson committed fraud and stole money from your grandmother.
This article glosses over the fact the these "companies" were put into receivership by the Bush administration because they were broke and needed a taxpayer bailout. The intent was to wind them down, not to recapitalize them. This lawsuit is being led by investors who bought their shares for pennies after the bailout. They are just looking for a massive windfall profit at taxpayers expense.
9
Your statements nicely follow the government narrative, but not the financial facts that government has attempted (unsuccessfully) to suppress. The GSE were never even close to financial collapse at any tume during the crisis. The fact that government wrote down DTEs and wrote up loss reserves by over $100B during the crisis, then reversed these just after establishing the net worth sweep ought to be a red flag to anyone objective on the subject.
8
That may have been the intent of UST, but it's not what Congress authorized. Conservatorship was meant to be a temporary measure, and the FHFA was mandated to "preserve and conserve" the assets of the companies, not bleed them dry and bankrupt them. Then Treasury Secretary Hank Paulson (who came from Goldman Sachs) had been trying to get rid of FnF for years, and the crisis gave him the opportunity to do so. FnF assets were used to shore up the big banks, and since then Obama has used their profits as a way to get around the Republican-forced budget cuts. It all sounds crazy, I know, but it's true. Read David Fiderer's "The Plot To Destroy Fannie Mae" if you want to see how it went down.
4
You realize right that when they were put in the conservatorship they had more Capital than they ever had in their history? As the treasury and the FED said when they put them in a conservatorship they did it from market confidence the narrative that they were troubled institutions didn't come until later.
1
The quasi-government agency stealing from the shareholders. Sounds like we don't even need Bernie Sanders. The current administration has taken profits without justification in addition to all of the extractions from banks for mis-handling mortgage documents. Does someone have a total of the state, and federal fines imposed on banks for making loans?
2
Banks are the ones who made the most serious contributions to the crisis. Research shows that GSE portfolios faced max losses of 4-5%, while banks faced losses of 20-25% (and check the work of David Fiderer and other researchers if you want to see those stats in context). Folks should really ask who was it that really needed and benefitted from the *Government Guarantee"? There's a strong and factual case to be made that it was much less the GSE and much more the privately held banking and insurance corporations.
4
Let me get this, you're worried about the banksters paying fines? Fines they have undoubtedly written off on all of us. Boo hoo! Poor banksters got a raw deal... Is that why they're off shoring trillions in secret accounts?
2
Why doesn't the article state who the 'largest stakeholders/shareholders' are in FNMA. It's not your average US taxpayer - it's hedge funds who purchased the stock at a discount and are looking to make billions if the GSEs are released from conservatorship. While I don't approve of Justice lying in order to capture profits and retain control over Fannie and Freddie, I'm not so sure I agree these vulture funds should be the ones to profit. It's a difficult decision. The two companies are operating soundly - however, I've recently heard where the FHFA and Congress are pushing both GSEs to increase their purchase of subprime loans which they believe count towards 'low income housing credits'. It's really a sham - not sure who's behind the push to buy lower credit with higher risk, but it's not prudent policy.
3
you can buy a share for 1.50....do it
1
Apply the US constitution,5ta amendment , You should be shame sr, choice shareholders rights vs government lying and ignoring constitution , Hard choice !!!
3
The largest shareholder, by far, is the US government. They hold rights to 79% of the shares and all of the profits - all of it "aken, not earned". We should be talking "Watergate" here, not "hedge funds".
5
I think this is fair because the government bought Fannie and Freddie
1
If you take a look at the facts instead of the (government sponsored) hype, "stealing" is much closer than "buying" regarding how government took control of the GSE. Read any of the 3 independent, and as yet unchallenged, forensic financial analyses to acquire an imminently more objective perspective than anything expressed by "government actors" to date. Just the fact of government claiming privilege on some 77,000 pages of documentation involved in the litigation should be a red flag to anyone with an objective perspective.
6
What? Do you know what happened? Illegal from the beginning. Put into conservatorship under HERA but didn't meet any of the requirements under HERA to do so. Was not bought and as documents are released you will see.
The government bought 79.99% of both companies and now takes 100% of the profits. Furthermore, the companies were put in a conservatorship (meant to conserve companies) as opposed to a receivership (meant to facilitate orderly liquidation of a company). The governments position that they are entitled to all of the profits is absurd.
3
let's remember that the govt insisted that these docs and depos be subject to confidential seal because of reasons amounting to national security and the ability of the conservator to exercise his statutory duty.
in what way was confidentiality appropriate for these docs and depos?
is it in the national interest to be able to commit a theft and be insulated from consequences? is it in the national interest to construe a statute imposing a conservatorship as giving free reign to the conservator, under a fiduciary duty, to steal form its ward?
in what way was confidentiality appropriate for these docs and depos?
is it in the national interest to be able to commit a theft and be insulated from consequences? is it in the national interest to construe a statute imposing a conservatorship as giving free reign to the conservator, under a fiduciary duty, to steal form its ward?
15
Fannie should be handled in one of three ways 1) keep it a government guaranteed entity with all profits going to the government 2) Allow it to operate as a private entity with shareholders getting profits but no government guarantee and it explicitly explained to investors and the market as such. or 3) Shut it down and let the private market take over the role. I prefer option 3 but any one of them gets the job done. The financial crisis showed that implicit government guarantees become explicit when the going gets tough. It is critical that the government not be sucked into this swamp again during the next crisis.
4
Do you read the article? Govt it's lying and ignoring constitution ,maybe that's good with you ,not with the majority of American people.
6
I think you need to understand the reason Fannie Mae exists in the first place. It was started by FDR in the 1930s, because the private market has no taste for loaning money during bad times. When that happens, the economy hits quicksand and the Government is mired in the swamp anyway. The Government backstop gives banks the confidence to loan money when they otherwise might not. Also, the 30-year fixed-rate mortgage is possible only because banks know they can sell the note to Fannie and loan the money again.
7
I don't think you know the truth.
1. Fannie did not cause the crisis. Bad mortgages were dumped to Fannie and Freddie. Fannie's mortgage default rate was 1.5%, while mortgage from TBTF banks was 30%, according to some analysis after the crisis.
2. Fannie did not require any bailout. Worst case scenario was used, that no financial institution could meet. Proof: (a) ex-CFO said Fannie was aware of the coming crisis and had reserved funds to run for many more quarters. (b) Fannie was running in +ve cashflow during the crisis. (c) Fannie resumed profitable very soon, even with the 10% bailout dividend payment.
3. Fannie model is very cost efficient (about 0.15%) to ensure liquidity at low mortgage rate, and is proven for decades. This is proven. Any other alternative will mean a 1-1.5% higher mortgage rate and no more 30-years mortgage loan.
4. The so-called private market are the TBTF banks.
5. Net Worth Sweep is clearly an illegal taking of private property and is unconstitutional. Do think about those people who invested in Fannie at $60~$70 per share. They deserve something back, now that Fannie is working well again.
6. Conservator-ship is to re-build the company, so that it is solvent.
7. Net Worth Sweep is an agreement by government with his own-self (i.e. between FHFA and Treasury).
1. Fannie did not cause the crisis. Bad mortgages were dumped to Fannie and Freddie. Fannie's mortgage default rate was 1.5%, while mortgage from TBTF banks was 30%, according to some analysis after the crisis.
2. Fannie did not require any bailout. Worst case scenario was used, that no financial institution could meet. Proof: (a) ex-CFO said Fannie was aware of the coming crisis and had reserved funds to run for many more quarters. (b) Fannie was running in +ve cashflow during the crisis. (c) Fannie resumed profitable very soon, even with the 10% bailout dividend payment.
3. Fannie model is very cost efficient (about 0.15%) to ensure liquidity at low mortgage rate, and is proven for decades. This is proven. Any other alternative will mean a 1-1.5% higher mortgage rate and no more 30-years mortgage loan.
4. The so-called private market are the TBTF banks.
5. Net Worth Sweep is clearly an illegal taking of private property and is unconstitutional. Do think about those people who invested in Fannie at $60~$70 per share. They deserve something back, now that Fannie is working well again.
6. Conservator-ship is to re-build the company, so that it is solvent.
7. Net Worth Sweep is an agreement by government with his own-self (i.e. between FHFA and Treasury).
6
As a reporter I have covered the GSEs since 2004 and saw the determined efforts on the part of Republicans in Congress pre-crash to destroy the two because of the competition they afforded the big banks. Though blamed, they had little to do with the housing crash; their mortgages performed substantially better throughout than the industry as a whole and they were more victim than perpetrator. They were not bankrupt either, as some comments above allege; when placed in conservatorship they owned trillions of dollars in largely performing mortgages.
I never understood the standard for their treatment. Others, AIG, Goldman, GM, were all allowed to pay back their loans and regain their autonomy. The GSEs have been specifically forbidden from doing so. Although the GSEs have paid billions more than they borrowed, their debt has not been reduced one cent; all payments have been treated as dividends.
Morgenson does not mention the Bush holdover behind the dividend sweep. Edward J. DeMarco, acting director of the Federal Housing Finance Agency from 2008 until early 2014, seemed determined to scrape every ounce of flesh off of the GSEs and the Senate refused to confirm the President's replacement.
In addition to the lousy financial hand the GSEs have been dealt over the last eight years they have also been treated unfairly in the court of public opinion. I now hope that the real story will eventually come out.
I never understood the standard for their treatment. Others, AIG, Goldman, GM, were all allowed to pay back their loans and regain their autonomy. The GSEs have been specifically forbidden from doing so. Although the GSEs have paid billions more than they borrowed, their debt has not been reduced one cent; all payments have been treated as dividends.
Morgenson does not mention the Bush holdover behind the dividend sweep. Edward J. DeMarco, acting director of the Federal Housing Finance Agency from 2008 until early 2014, seemed determined to scrape every ounce of flesh off of the GSEs and the Senate refused to confirm the President's replacement.
In addition to the lousy financial hand the GSEs have been dealt over the last eight years they have also been treated unfairly in the court of public opinion. I now hope that the real story will eventually come out.
20
What is never well communicated is that the GSE's really haven't been government agencies since the 1968. Only GNMA remained a true government lending agency. Fannie and Freddie were and are private mortgage banks with a federal charter. There was no government ownership. The assumption that they were backed by government guarantees derives from the 1968 enabling legislation, which gave Treasury discretion to expend up to $1.5 billion should a recapitalization be necessary. The government's further bailout obligations only date from July of 2008, when Congress authorized a conservatorship at John Paulson's behest. He made the odd promise that if the power was granted, it would calm the markets and would never need to be used. Six week later, he closed both banks and threw the markets into turmoil. That must have been the plan from the beginning.
But 2008 was merely the goal post. The kickoff was the 2003/2004 reorg perpetrated by OFHEO. As in 2008, the management of both companies was decapitated after an accounting scandal. It's easy to falsify a capital insufficiency in these firms with non-cash balance sheet adjustments, which allowed the regulator to seize control. The 2004 massacre required a restatement of accounting, which I don't think was completed until 2007. Leading up to catastrophe, these firms were flying blind.
So that's what happened. You are so right to be puzzled as to the why. But even more important than what and why is what's next!
But 2008 was merely the goal post. The kickoff was the 2003/2004 reorg perpetrated by OFHEO. As in 2008, the management of both companies was decapitated after an accounting scandal. It's easy to falsify a capital insufficiency in these firms with non-cash balance sheet adjustments, which allowed the regulator to seize control. The 2004 massacre required a restatement of accounting, which I don't think was completed until 2007. Leading up to catastrophe, these firms were flying blind.
So that's what happened. You are so right to be puzzled as to the why. But even more important than what and why is what's next!
1
The GSEs were bankrupt. They had no capital, given the plunge in mortgage backed securities that they had purchased (not originated) and held in their portfolios. The government allowed them to operate with a very slim amount of capital that was dissipated easily during the crisis.
They should have been forced into bankruptcy, not conservatorship, but the government didn't want to put their debt on its balance sheet, given the size of the deficits during the crisis.
Projections made by managers during the crisis should be viewed with a jaundiced eye. Any scenario they came up with was likely to show a going concern. They wanted to,retain their positions.
They should have been forced into bankruptcy, not conservatorship, but the government didn't want to put their debt on its balance sheet, given the size of the deficits during the crisis.
Projections made by managers during the crisis should be viewed with a jaundiced eye. Any scenario they came up with was likely to show a going concern. They wanted to,retain their positions.
Very well said, Jann!
1
Ms. Morgenson:
thank you and The NYT for your continuing efforts to bring a spotlight to this ongoing process.
together with your earlier reporting in December,
it appears that there must-be a lot-more to this story than has been revealed thus far.
exactly upon whose authority did Treasury make the August, 2012, changes to the previous agreements?
were such change-options enumerated in these earlier agreements?
in any event, what specific provisions triggered these fundamental "adjustments"?
subsequently, were proper notices given in the appropriate federal journals,
e.g., the Federal Register or its equivalent?
and: how can any of these unilateral changes be on-going and continuously enforced?
is the F.H.F.A. required to make scheduled reports to Congress?
are the respective oversight committees, or sub-committees, doing their reviews and analysis?
with what presently appears-to-be a relatively high turnover rate at the highest levels of many of these agencies, Justice and Treasury included, this entire operation is rapidly beginning to challenge or exceed the perpetual operational mess at the VA.
as events require, please keep us informed and updated as best as you are able.
5
Conservatorship is a strange state of affairs. FHFA, supposedly an independent agency, gives the orders that shareholders via a board used to. So FHFA and Treasury effectively had the authority. Congress's incentives unfortunately are aligned with those of these two, so there is no effective check/balance. Ultimately, there has to be a balance between a reasonable return on the taxpayer infusion made (something like 25% per year) during the crisis, with a return to shareholders of whatever residual value there may or may not be.
As I recall, the FHA and Fannie Mae were considered a quasi government agency, a product of a long forgotten era, the Great Depression. The unspoken word was that the government would never let them fail. Investors took advantage of the "guarantee" to make risk free investments and the agencies management took advantage of their government free employment contracts to enhance the agencies profits by taking unusual risks and thereby also increasing their compensation. Well the government and we tax payers are also entitled to our profit for bailing out these agencies and their investors who took advantage of our guarantee.
2
Facts show that the big banks took most of the risk and benefitted most from a government bail out that is tantamount to a government guarantee. *Big bankers" have been active on this matter, operating as government employees in Treasury and FHFA throughout the conservator ship. How can anyone consider the government narrative of events as objective given those circumstances?
2
The Government has already received $50B more than it gave out. Best single investment our Government has ever made. The amazing thing is that the bailout was not really needed. The Government assumed a worst case scenario and forced FnF to take the money. Perhaps they can be forgiven for overreacting in such a crisis, but once the money was paid back with interest why continue to steal all the profits? This is America, not Venezuela or the USSR. Investment and free enterprise are as American as mom and apple pie.
3
Incorrect. FHA is a government agency and Fannie is a public company. As far as an implied guarantee you could say that for the big Banks as well because they will always be bailed out.
2
Government math...
1
Ms. MacFarland sees light at the end of the tunnel, eh? We have heard that one before.
Since they are making such huge profits, it would be better to turn this work over to the government and cut out the middle men and women.
Since they are making such huge profits, it would be better to turn this work over to the government and cut out the middle men and women.
1
Hey Mrs. Gretchen Morgenson I am ashamed of how we let the banksters get away with murder. Then on top of that Obama promised "Hope and Change" but he was more of the same ole status quo politician. We need to clean out the whole govt and start fresh.
3
If FannieMae is so profitable then why did they insist that they could not allow principal write-downs to help struggling homeowners who purchased their homes in the run-up to the bubble? I have a modified loan that still has nearly 50K balloon payment at the end, forced on me during a loan modification as my only alternative to foreclosure on an original loan that was a good conventional loan, not subprime and with no second mortgage but with an inflated principal due to the bubble. That 50K amount roughly represents the amount I overpaid for my house in 2006 due to the illegal activities of WAMU, the fraudulent bank appraisal at the purchase time, and the subsequent illegal activities of Chase during the loan modification. Teetering on foreclosure for years and being told my loan was ineligible for principal reduction because it was owned by FannieMae, and just now finding out they were making plenty of profit during my misery? So many lies - this is why Americans have lost faith in their government.
4
First of all, that was DeMarco's call; he steadfastly refused to allow loan modifications. Second, I don't even really know how to respond to this: "...I overpaid...." Who forced you to buy more house than you could afford? How about a little personal responsibility?
3
This is nonsense. 100% of the profits should go to the federal government, i.e., the taxpayers, since the taxpayers' bailout provided 100% of the shareholders' equity to keep FannieMae in business to begin with.
It is a corrupt bargain to begin with when shareholders get profits, but all of the losses are the responsibility of the federal government.
Don't look to us taxpayers for sympathy.
It is a corrupt bargain to begin with when shareholders get profits, but all of the losses are the responsibility of the federal government.
Don't look to us taxpayers for sympathy.
16
Sean is correct.
Exactly!
This is a completely Innacurate premise, if one reviews the 3 independent forensic financial analyses covering GSE results since before the crisis. Conservator wrote down DTA and increased loss reserves in total over $100 in 2008 and 09 to make paper loss changes in value to help justify the takeover. Absent these paper losses, GSEs were financially sound throughout the crisis. The fact of government attacking "hedge funds* as the primary sound byte is a diversion every objective and rational person should question.
1
Sounds like a case where the government should claim Eminent Domain.
Just like when a city takes your house or business (see what's going on in Dallas, Texas or what the Feds did to landowners over the Keystone Pipeline) to let a developer build something that will pay more in taxes than you do currently.
Just like when a city takes your house or business (see what's going on in Dallas, Texas or what the Feds did to landowners over the Keystone Pipeline) to let a developer build something that will pay more in taxes than you do currently.
Interesting Article. The Net Worth Sweep is a government taking of private property. The profits have been funneled into the treasury and have allowed the White House to avoid a debt ceiling showdown.
Now that the legal system is unraveling the story, the white house is covering their backside.
There is no conceivable reason why any documents related to this are "National Security".
The FHFA was mandated to preserve and protect the GSEs, instead they tried to kill them and steal shareholder value.
Now that the legal system is unraveling the story, the white house is covering their backside.
There is no conceivable reason why any documents related to this are "National Security".
The FHFA was mandated to preserve and protect the GSEs, instead they tried to kill them and steal shareholder value.
16
Steal FNM? Were you watching at the time? Without the government bail outs; all of them, they would have gone under. Couldn't make debt payments.
In receivership, they had unlimited free capital, which allowed them to survive. Without that gift, the free market was expressing the value. I didn't see anyone else standing up saying if you cram down existing equity we will capitalize these businesses.
So this is a Hank Paulson, W conspiracy passed on to the Obama administration.
In receivership, they had unlimited free capital, which allowed them to survive. Without that gift, the free market was expressing the value. I didn't see anyone else standing up saying if you cram down existing equity we will capitalize these businesses.
So this is a Hank Paulson, W conspiracy passed on to the Obama administration.
not true do your research
You need to read this: http://www.housingwire.com/ext/resources/images/A-Forensic-Look-at-the-F...
So the Federal Government executes a move that is revealed as being corrupt and crooked - similar to what we have learned to expect of many businesses!
Is it any wonder that the average citizen has such limited trust in essentially any part of life in our hallowed democracy?
Is it any wonder that the average citizen has such limited trust in essentially any part of life in our hallowed democracy?
6
I think you mean "hollowed democracy."
4
Are we no longer a nation of laws?
How can the government change the terms of a bailout 5 years after the terms were agreed to?
How can the government change the terms of a bailout 5 years after the terms were agreed to?
6
Even the terms of the initial conservator ship were never agreed to by the GSE management or shareholders. It was a forced takeover engineered by (the big bankers in) Treasury.
4
The Obama administration needs the money to fund their various "Executive Orders" and possible to try and offset the ever growing hole that is the ACA. They will take the money wherever they can get it from.
5
I think is Congressional leaders Like Paul Ryan that hand wring over deficits - he want to end Medicare and cut SSI.
1
It was Bush and Paulson! God, I hope we elect Trump. You deserve him.
1
Fannie and Freddie were going to go bankrupt unless the Treasury department took them over. The shareholders took a risk buying Fannie and Freddie shares, and they lost. The current arrangement is far better for both borrowers and the taxpayers if for no other reason than we now pay a GSE employee to run the operations for far, far less money than a private sector CEO, and they are doing a far, far better job. As for the shareholders, whatever happened to personal responsibility? Or does that only apply to poor people?
7
Right on. Trying to applaud the truthful comments. Yours is on the money.
Wow! Wrong on so many levels. You should read the book "good to great" . Then research the events you speak of .
Of course, if the Government had nationalized Fannie Mae and Freddie Mac at the time of the crisis, instead of injecting precious 2008 dollars, everyone would have complained about socialism.
Now when the Treasury is being paid back in cheap dollars, everyone trying to equate 2008 dollars with 2016 dollars. Not the same.
Now when the Treasury is being paid back in cheap dollars, everyone trying to equate 2008 dollars with 2016 dollars. Not the same.
The dollar is up 25% since then. Put another way for you, the dollar buys more today than 08. C'mon man.
2
Obama's White House cronies didn't want FannieMae to return to profitability, so they violated several constitutional clauses to steal the company from the shareholders. It's called felony theft. The did much the same thing to GM's 100% secured bondholders, who took a 45% haircut in order to facilitate transfer of control of the company to the UAW, never mind the law, and never mind the tnsof thousands of white collar non-union employees who watched their pensions evaporate. The level of criminality of this administration continues to astound me.
5
Dave, you forget that all the stakeholders in GM had to sacrifice in order to receive government funding. The bondholders, the workers, the pensioners, even the executive leadership (which was removed). But what was the alternative to those sacrifices? Immediate liquidation, which would have actually caused the pensions to evaporate overnight. As it stands, the workers (through VEBA) received way more than they would ever get if the government had not bailed out GM. The GM bailout was not a takeover, but instead the only option aside from immediate liquidation (where everyone would have lost everything).
3
It was Bush and Paulson, not Obama! What is the matter with you? This happened 9 months before he took office!
3
I was also a GM shareholder and lost my small stake in it. The difference is that GM really WAS bankrupt. FnF were not. http://www.housingwire.com/ext/resources/images/A-Forensic-Look-at-the-F...
1
The Fed owns $1,753,082,261,118 of MBS (Freddie and Fannie) securities. (check out the individual CUSIPS & totals on the Fed website.) Yes Virginia, that's $1.7 trillion of MBS purchased with private deposits U.S. banks placed at the Fed - and spent by the Fed in QE1, QEII and QEII.
No question in my mind why Treasury holds on tight their ownership of Freddie and Fannie - it's to protect the Fed's behind!
No question in my mind why Treasury holds on tight their ownership of Freddie and Fannie - it's to protect the Fed's behind!
3
Right on again. Your up against half the people who comment blaming Obama though.
The Fed's holdings are pools of mortgages from homeowners in the highest tiers of credit scores, i.e., they are collateralized by performing mortgages. Fannie and Freddie's credit comes into play only at the margin, in the event of default. That protection is afforded to every holder of mortgage backed securities. The Fed enjoys no special protection.
1
Who seems to be clear. Why is not. I can't understand why an Obama administration would put federal home financing in such peril -- illegally and counter to most Democratic economic policy.
4
It was the Bush Administration!!! Hank Paulson. Obama was not in office!
2
FNMA and Freddie have always been wards of the state, with protectors like Barney Frank, and lets not forget Franklin Raines and all the other senior Democrats. If you are unfamiliar with that saga, check him out on Wikipedia. It has always been seen as stupid to have sold shares in what is basically a subsidiary of HUD, living on US govt. guarantees while taxpayers get little and the insiders get lots (sound familiar).
1
Well, to piggyback just a bit without the "Barney Frank" vitriol, No lender wants or ever wanted to, make fixed rate loans. This is a fact going back to the early 1900's. FNMA first became a quasi private entity by issuing stock so that consumers would be able to get 30 year fixed rates and not 5 year ARM's with a call. What caused the issuance of the stock and enabled a "semi-privatize" FNMA? The Viet Nam war. With deficits ballooning, LBJ wanted to get the books balanced and by doing this the whole FNMA enterprise went off the budget. That said, FNMA provides a great service to the US homeowner, but it became quite porky with former House and Senate workers getting high paying jobs there. The stockholders do deserve a return, and the Government deserves to get their money back with interest. That can all happen, but only if there is an understanding of what FNMA does and why they exist. No way does any private group come in and fill this void, which is why they are still around. Many Homeowners today are now getting very nice 4% fixed rate loans. As long as they keep disallowing stated income loans (thanks Dodd/Frank and the CFPB!), they will be ok.
1
Definitely a long-game strategy by the Dems to keep Fannie and Freddie undercapitalized, then when the next crisis hits and the require another bailout (because they haven't been allowed to build capital); the Dems can again sue the banks for $50+ billion and pound the table with "1%" "Death to Wall Street" chants that have riled up the voters.
3
Yes, Goldman Sachs did settle a 5 billon dollar fraud today. http://fortune.com/2016/04/11/goldman-sachs-doj-settlement/
Does this fit the narrative of injustice?
Does this fit the narrative of injustice?
Refinancing underwater loans never entered their minds. Foreclosure is much more profitable.
2
The Benevolent State is expensive.
Empty your pockets folks, from each according to his ability, to each according to his needs...
Empty your pockets folks, from each according to his ability, to each according to his needs...
2
When are we going to break up the 6 big banks come on Americans. They are robbing us blind and we do nothing about it but let them do it again. When are we going to wise up or are we going to let them do it to us again. It is like we truly living in dark times in America we need to see the light.
16
Really? The bank paid back every dime forced on them by the Treasury department, only GM (UAW controlled) has failed to repay the loans. As far as FannieMae, the government has stolen fifty BILLION dollars from shareholders, and have no legal basis for doing so.
4
How are the 6 big banks "robbing you blind"? And what will breaking them up do to solve that?
4
Really? How much have they taken from you? As far as I can tell, they charge me $15 a month or so for my checking account plus a buck and a half if I use a different banks ATM. That's not much for the ability to get money any time I want practically anywhere I want and the ability to pay my bills electronically.
If you don't like how your bank treats you, you can go to another bank. If you don't like how your government treats you, you're stuck. This story is about the taking of legitimate profits illegally and then lying about it.
That's why a huge proportion of the country is outraged enough to vote for Trump. He may be a lot of things - but he is not part of government....yet.
If you don't like how your bank treats you, you can go to another bank. If you don't like how your government treats you, you're stuck. This story is about the taking of legitimate profits illegally and then lying about it.
That's why a huge proportion of the country is outraged enough to vote for Trump. He may be a lot of things - but he is not part of government....yet.
2
The article should state what legal justification the government had for claiming Fannie's and Freddie's profits unless this information is unknown.
3
David,
The system is corrupt. The government is corrupt. The military industrial complex is corrupt. Wall Street is corrupt. The media is complicit in the corruption.
Even though the entire ship of state is sinking the RNC and DNC are invested in proving government is the problem whether or not it is functional. "There's the rub."
http://www.theguardian.com/books/2016/apr/10/nation-on-the-take-wendell-...
I hope I have answered your question.
The system is corrupt. The government is corrupt. The military industrial complex is corrupt. Wall Street is corrupt. The media is complicit in the corruption.
Even though the entire ship of state is sinking the RNC and DNC are invested in proving government is the problem whether or not it is functional. "There's the rub."
http://www.theguardian.com/books/2016/apr/10/nation-on-the-take-wendell-...
I hope I have answered your question.
1
This is easy. Keep Fannie and Freddie as they are, with sweeps of profits into the treasury. All their value is tied to the the tax payer guarantee. Tax payers, whom bear the risk, should reap the reward. And this is coming from an owner of Fairholme shares, and someone that did quite well in Freddie. If however these zombies are unleashed to prowl the earth yet again, I stand ready to load up again. What did Pink Floyd say: "and no one knows which is which, and who is who" . Ah capitalism.
4
OK, but the government didn't have to pay out a dime, so what costs can they claim to recoup?
1
Replace "government" with "tax payer", and they paid out plenty individually ( I think you can fill in the blanks ) and collectively (look at the national debt b4 and after the financial crisis.)
Well that sure doesn't look good.
So the starvation of Fannie/Freddie is a bipartisan policy now?
So the starvation of Fannie/Freddie is a bipartisan policy now?
1
This is pure theft by the administration and truly disturbing. And yet further evidence why government should not own sectors of the economy be they housing finance or healthcare.
17
Really? the theft happened well before the government saved their bacon. The shareholders should have lost everything and would have but for the bailout. For them to be suing now is the height of nerve.
3
You are right and again another " blame it on Obama".
the voting public cannot understand these complex shenanigans, and we cannot trust the financial ongoing criminal enterprise, and we can't believe our politicians are acting in our best interests.
Time for a Bernie revolution. Bernie, Tusli, and the Senator from "Break up the banks)
Time for a Bernie revolution. Bernie, Tusli, and the Senator from "Break up the banks)
5
Zero sympathy for the shareholders, who have come out of this phenomenally better than anyone dealing with a business entity - rather than a benign government - could ever hope to expect.
16
That is what happens when a government is so big, so powerful that you can no longer drown it in a bath tub.
They go entitled to anything they choose, in this case private shareholder profits, and unaccountable to everyone (thus endless secrecy orders).
They go entitled to anything they choose, in this case private shareholder profits, and unaccountable to everyone (thus endless secrecy orders).
9
So the terms of a debt were changed, after the debt was issued, to the detriment of the debtor. Sounds like turnabout to me.
2
no, it's called felony theft.
2
Here is my personal timeline for the financial collapse of 2008:
1. As a contractor/developer I lost everything, there was no work, there was nothing I could do. I lived well below my means before the crash.
2. Wells Fargo and most other banks were giving mortgages to just about anybody, and them reselling them not as the junk that they were. I had a painter at the time who was making $25/hr. The banks gave him mortgages for a $600k house and a $350k house. How is that possible?
3. Although I had done nothing wrong and had worked 70 hr weeks to get where I was, I was not given a bail-out, instead the very people causing the crisis were. The criminals were bailed out.
4. 1.6 billion dollars of the bail-out went to pay executive salaries and bonuses. A reward to the very people causing the crisis.
5. Today a very small amount of people own most of the wealth in this country.
A nation by the people, for the people? Not in your wildest dream. This democratic experiment is no longer a Republic.
1. As a contractor/developer I lost everything, there was no work, there was nothing I could do. I lived well below my means before the crash.
2. Wells Fargo and most other banks were giving mortgages to just about anybody, and them reselling them not as the junk that they were. I had a painter at the time who was making $25/hr. The banks gave him mortgages for a $600k house and a $350k house. How is that possible?
3. Although I had done nothing wrong and had worked 70 hr weeks to get where I was, I was not given a bail-out, instead the very people causing the crisis were. The criminals were bailed out.
4. 1.6 billion dollars of the bail-out went to pay executive salaries and bonuses. A reward to the very people causing the crisis.
5. Today a very small amount of people own most of the wealth in this country.
A nation by the people, for the people? Not in your wildest dream. This democratic experiment is no longer a Republic.
34
I agree with you 100 percent sometimes I think to myself why does America raise the flag up they might as well take them 50 stars off the America and put the corporations that own this country. In my view America is done. We failed miserably.
You should know that tarp went to the public sector; not for new jobs, but to shore up their benefits and pensions. And still states are going bankrupt because of their continued expectations for largesse.
What possible motive could the Treasury have for making an excess profit, or any profit for that matter, for simply doing its job? Why require a return on bailout money, which is basically a normal function of government? Isn't that what taxes are for? The $50 billion to the Treasury was basically an austerity measure as it sucked money out of the economy and the pockets of folks that would have spent or invested/saved it.
3
What was the shareholders' equity position in Fannie and Freddie on the day of the conservatorship? If the government had not intervened, it would have gone to zero.
So the fair solution is to pay the shareholders what they would have gotten on the day of the conservatorship, and then wind down these two dinosaurs.
So the fair solution is to pay the shareholders what they would have gotten on the day of the conservatorship, and then wind down these two dinosaurs.
2
Like Ford and the auto shareholders? banks were bailed out also...what out those shareholders?
Like Ford? Ford was the only one out of the "big 3" that wasn't bailed out.
2
Ford was in the middle of a restructure and had a 3 billion dollar LOC in place. A fortuitous bounce, but luck really. Auto companies are capital intensive and when the credit markets freeze, this is what happens. Many other companies (like GE) came a day away from also going under.
What most do not realize is that without the so called "bailout" the entire auto ecosystem of suppliers would have collapsed, which Honda, Toyota, Mercedes, BMW, Ford, and Hyundai all knew (as did GM and Chrysler). The reason I say so called bailout is because these loans indirectly helped the entire nation as well as many, many other non auto companies. And what really caused the credit markets to "freeze"? Wall Street peddling stated Income loans and selling the securities while betting against them using Credit Default Swaps. That is very easy to understand.
What most do not realize is that without the so called "bailout" the entire auto ecosystem of suppliers would have collapsed, which Honda, Toyota, Mercedes, BMW, Ford, and Hyundai all knew (as did GM and Chrysler). The reason I say so called bailout is because these loans indirectly helped the entire nation as well as many, many other non auto companies. And what really caused the credit markets to "freeze"? Wall Street peddling stated Income loans and selling the securities while betting against them using Credit Default Swaps. That is very easy to understand.
The original shareholders should have been wiped out in 2008-09, when Fannie and Freddie were bankrupt. Both are only profitable today because they have a monopoly on mortgage finance in the US.
It's past time to wind down these monstrosities. If private investors want to start something similar without government involvement or guaranties, fine. But no more government subsidies for private enterprise.
It's past time to wind down these monstrosities. If private investors want to start something similar without government involvement or guaranties, fine. But no more government subsidies for private enterprise.
33
Since the collateral was good and the loan to value was fractional the securities worked out.
Banks are subject to excursions into insolvency when market-traded securities in their asset portfolios lose value in panics.
Banks are subject to excursions into insolvency when market-traded securities in their asset portfolios lose value in panics.
Fannie Mae and Freddie Mac are not private companies that is why the Bush administration found it easy to give them the shaft. That is the way it is with crony capitalism if a government run agency dare run a profit it is turned over to cronies. Here in Quebec our government run financial institution is the best run financial institution of its kind in North America by those that rate rate financial institutions like Bloomberg.
When people like Brownie are not the ones who run the institutions but the institution is run by the best and brightest government can do a good job at just about everything.
When people like Brownie are not the ones who run the institutions but the institution is run by the best and brightest government can do a good job at just about everything.
7
Might I also say that Fannie and Freddie failed not because of mismanagement but because of corruption. A week of reading The Guardian might convince any American that any change that doesn't address the fact that the entire financial foundation is rotted. A good place to start might be
http://www.theguardian.com/books/2016/apr/10/nation-on-the-take-wendell-...
http://www.theguardian.com/books/2016/apr/10/nation-on-the-take-wendell-...
1
What an interesting problem for both Democrats and Republicans. It is probably untenable for Democrats to admit the these entities have righted the ship and no longer need government support and should be looking out for the best interests of shareholders. On the other hand, saying that too loudly is probably toxic for the GOP as well, because most citizens do not understand what happened in the first place and still blame Fannie & Freddie.
The problem was lax underwriting, encouragement by Congress (especially Republicans ironically) to expand home ownership propelling real estate growth, and the securities industry's packaging of SIVs. The former two have been addressed, but the last is still pending as the GOP has already stopped most regulation of securities (Investment Banking, not to be confused with Commercial Banking) and tries to destroy the remainder.
We probably should consider charging Fannie & Freddie a government guaranty fee, though, that would give the government broad rights to interfere when needed, because we will never let them fail (sorry, but the whole residential real estate industry would tank, so it is not going to happen). Unfortunately, it is probably not politically possible as it would violate both parties individual fake narratives on the subject.
The problem was lax underwriting, encouragement by Congress (especially Republicans ironically) to expand home ownership propelling real estate growth, and the securities industry's packaging of SIVs. The former two have been addressed, but the last is still pending as the GOP has already stopped most regulation of securities (Investment Banking, not to be confused with Commercial Banking) and tries to destroy the remainder.
We probably should consider charging Fannie & Freddie a government guaranty fee, though, that would give the government broad rights to interfere when needed, because we will never let them fail (sorry, but the whole residential real estate industry would tank, so it is not going to happen). Unfortunately, it is probably not politically possible as it would violate both parties individual fake narratives on the subject.
17
I will never understand why no one from the ratings agencies was ever held to account for this fiasco. Companies and banks who followed the rule and only purchased AAA paper found themselves holding worthless securities primarily because the rating agencies said they were sound.
4
Lax underwriting? No. Wall street funded mortgage companies to do Sub Prime Stated Income loans. Bear Stearns, Option One, BNC, New Century and many others were all funded by Bear, Lehman, Merrill Lynch Goldman and a few big banks WAMU, CIT, CHASE, B of A, and others. Countrywide left A paper to do Sub Prime almost exclusively during the frenzy. These were not errors this was fraud in order to create big pools of loans and buy credit Default swaps betting against them.
"Honey, we gotta get us some deferred tax assets."
"The what?"
"The DTAs! You know what they are. Everybody's getting 'em!"
"DTAs? Oh right! And get us some Valuations Allows while you're at it."
"Right. Can't get enough Valuation Allows."
"The what?"
"The DTAs! You know what they are. Everybody's getting 'em!"
"DTAs? Oh right! And get us some Valuations Allows while you're at it."
"Right. Can't get enough Valuation Allows."
13
huh? the deferred tax assets were net operating losses realized that can be carried forward for 20 years in the US. The value of these future deductions is only be recognized in the income statement if the future deductions are deemed more likely than not, to be realized. If not, no tax benefit is recognized in that year's income statement (by recording a valuation allowance). The valuation allowance is released at the point time that management feels the deductions will be realized, and the benefit is recognized in the income statement.
I appreciate the snark, but it is nonsensical in this instance.
I appreciate the snark, but it is nonsensical in this instance.
When the government underwrites 70% of the mortgages extant in 2007, how is it a secret? Or, any time there is the possibility something might go wrong, an automatic veil of secrecy shrouds the facts. Is this how our "democracy" works?
21
Is this how the dems work? Yes. Reason many have lost faith in government. At least those that follow facts.
1
Both are conduits which will in the long run always be profitable.
2
Zero profits from Fannie Mae or Freddie Mac should be distributed to anyone but the Treasury until such time that the US Government in no way backs their security products or even their continued existence.
If the Government takes the risk, then private investors shouldn't get the reward. It is as simple as that.
If the Government takes the risk, then private investors shouldn't get the reward. It is as simple as that.
63
OK, but the federal government has never lost a dime on Fannie/Freddie, so how do you rationalize the confiscation of their business?
1
So Toby R from Austin Tx is ok with the government coming to his house and taking his property?
Shareholders were owners of FNMA. Instead of wiping shareholders out during the bailout, the government allowed them to remain. Just like they did in GM and all the banks that they bought stakes in.
Then, at a time when the company's future was looking very bright, years after the original bailout agreement was struck, and different from each and every other bailout the government had done in GM and the banks, the government decided their other owners of this business we no longer owners.
They took our "house." Without any type of payment. Just by simply saying these profits are ours now. Would you be upset if the government came and took your house?
Allowing the government to take private property from owners of record violates the very constitution this country was founded upon.
Shareholders were owners of FNMA. Instead of wiping shareholders out during the bailout, the government allowed them to remain. Just like they did in GM and all the banks that they bought stakes in.
Then, at a time when the company's future was looking very bright, years after the original bailout agreement was struck, and different from each and every other bailout the government had done in GM and the banks, the government decided their other owners of this business we no longer owners.
They took our "house." Without any type of payment. Just by simply saying these profits are ours now. Would you be upset if the government came and took your house?
Allowing the government to take private property from owners of record violates the very constitution this country was founded upon.
really? and what happened with the banks,they were bailout too ,right ,maybe Govt have to confiscate all of them too,and maybe some other companies like apple and google,what do you think?
Check out "A White Paper Analysis of the Treasury Takeover of Fannie Mae" for additional financial information about more side moves by the Treasury in 2008 that continued into 2012.
3
Something fishy about this. Seems like theft.
8
In Killing the Host by UMKC econ professor, Michael Hudson, Fannie and Freddie were founded as public agencies in 1938 and then privatized in 1968, but their presumed semi-public character led most investors to view their debt as implicitly having a public guarantee against default. This enabled F and F to borrow at interest rates nearly as low as the Treasury had to pay, while buying mortgages yielding a much higher rate. For the rest of the story, you, too will have to buy the book. Going forward, I hope the private investors or whomever advises them on shady trades will have to eat their losses, as Main Street would not have been affected if more large financial institutions would have crashed in 2008. However the fact that there is a revolving door between the NY Fed, Treasury Secretary, Attorney General, and prominent financial firms--don't bet on it.
22
Along with Too Big To Fail, can we have another acronym, Too Complex To Understand--TCTU? All I understand is the last paragraph where Fannie and Freddie are sending $50 billion to the treasury, which doesn't sound like a bad thing.
This article in the Times discusses something that might be connected. How are the big banks going to profit from this?
http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-ba...®ion=EndOfArticle&pgtype=article
This article in the Times discusses something that might be connected. How are the big banks going to profit from this?
http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-ba...®ion=EndOfArticle&pgtype=article
4
Uh, that fifty billion is ALL of their profits, for eight years...
1
This is theft from shareholders of FNMA. Of course the government wanted to take possession of this cash cow from private stockholders. It has worked out quite well for them, hasn't it? But this is a frightening taking of property by the federal government. Something I would expect Putin's Russia or Venezuela to do, not the U.S.
Luckily we have a court system that upholds the law to balance the excesses of the Executive and Legislative branches. The stockholder of FNMA need to be made whole. There is a lot more at stake than this one case, huge as it is.
Luckily we have a court system that upholds the law to balance the excesses of the Executive and Legislative branches. The stockholder of FNMA need to be made whole. There is a lot more at stake than this one case, huge as it is.
47
Maybe the invetors are private, but what they invested in is a quasi-public entity. The value of the investment can go up for the privage investors, but it seems right that the profits go to the government/Treasury.
9
These being the same stockholders who would have held worthless stock in this cash cow had it died back in 2008 without the bailout by the U.S. government?
2
Yes, happily the courts are scrutinizing these decisions. Until now, though, few documents have been available so I'm hopeful that there will be further materials unsealed. Cover of darkness not a good thing here.
9
This administration is a little heavy-handed, to say the least.
29
A little? The administration is stealing money from the shareholders if it is true that they have repaid more than $50 billion over what was drawn down and related dividends in the bailout! And this is being lead by the President of the United States if the Justice Department is invoking presidential privilege. Grateful he is running a transparent government....other people go to prison for theft.
20
Transparency was supposed to have been the hallmark of the Obama administration. That's why the Justice Department's requests for secrecy in this case are so troubling.
26
Sorry that's the cost of saving your investments. No theft here!
I trust the the Right will scream about this, doing all they possibly can to get everybody to forget that they've been screaming about Fannie Mae running gigantic deficts and causing the giant crash back in 2007.
33
It the left thats withholding the shareholders profits.
3
The nationally-chartered mortgage-bundling securitization factories had the cleanest hands in the business.
1
Robert,
The Right will scream about this as should we all. There has been a vast conspiracy during the Obama Administration. The conspiracy has been to seise as much money as possible for a government desperately seeking new revenue sources. The promise implicit to those in charge here is if you pay no one important will go to jail! The recent $5 Billion "civil" settlement were again, no one went to jail is just another of many of these fines levied by the current administration.
Why should we care? The Administration is making the 1% pay and the people receive the money!
Wrong! In fact it's very wrong. The people are who are paying the fines. Each of the entities that were fined will ultimately recover the money paid from their customers as a cost of doing business and with the blessings of a government more interested in raising cash than in forcing the law.
This is exactly the same as the government taking a cut from liquor, tobacco and gambling none of which are in anyone's best interest except those profiting from it. Now the government is also profiting from sharp business practices as well!
The Right will scream about this as should we all. There has been a vast conspiracy during the Obama Administration. The conspiracy has been to seise as much money as possible for a government desperately seeking new revenue sources. The promise implicit to those in charge here is if you pay no one important will go to jail! The recent $5 Billion "civil" settlement were again, no one went to jail is just another of many of these fines levied by the current administration.
Why should we care? The Administration is making the 1% pay and the people receive the money!
Wrong! In fact it's very wrong. The people are who are paying the fines. Each of the entities that were fined will ultimately recover the money paid from their customers as a cost of doing business and with the blessings of a government more interested in raising cash than in forcing the law.
This is exactly the same as the government taking a cut from liquor, tobacco and gambling none of which are in anyone's best interest except those profiting from it. Now the government is also profiting from sharp business practices as well!
2
Lack of transparency and overreach have a really corrosive effect. The Republicans will be able to make much of this while continuing to be derelict on their constitutional duties, namely where justice is concerned.
17
Regardless of the merit of the case, it is very disturbing to read " a legal proceeding ...shrouded in secrecy from the start. ... Justice Department lawyers have asserted presidential privilege in 45 documents."
Voters are entitled to know what went on. This is an election year.
Voters are entitled to know what went on. This is an election year.
80
The public is entitled to know what went on, in any year.
77
You are 1000% correct.
10
We won't get to -obama's administration denies requests for information more than any administration since the Foa was enacted. And the politicians in dc make a fortune from Fannie and Freddie, either dollars or votes.
1
Politicians stink. But the NY times that refuses to stop their biased reporting should be ashamed.