Economics

Putting the "Government" in Government Sponsored Entities

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You bailed it out, you own it:

Despite assurances that the takeover of Fannie Mae and Freddie Mac would be temporary, the giant mortgage companies will most likely never fully return to private hands, lawmakers and company executives are beginning to quietly acknowledge. […]

In the last six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.

Lawmakers have given the companies access to as much as $400 billion in taxpayer dollars, a sum more than twice as large as the pledges to Citigroup, Bank of America, JPMorgan Chase, General Motors, Wells Fargo, Goldman Sachs and Morgan Stanley combined. […]

On Monday, Freddie Mac's chief executive, David M. Moffett, unexpectedly resigned less than six months after he was recruited by regulators, having chafed at low pay and the burdens of second-guessing by government officials, according to people with knowledge of the situation. […]

Last week, Fannie Mae announced that it lost $58.7 billion in 2008, more than all its net profits since 1992. Freddie Mac is also expected to reveal record losses in coming days. […]

One reason that Fannie and Freddie will never return to their earlier forms is simple mathematics: to become independent, Fannie Mae and Freddie Mac must repay the taxpayer dollars invested in the companies, plus interest. Even if the firms achieve profitability, it could take them as long as 100 years — or longer — to pay back the government. And almost no one expects the companies to return to profitability anytime soon.

Reason on Fannie and Freddie here.


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  1. Is it too early in the day to start drinking?

  2. Why do they have to pay the government back? Eventually when the US gets its Thatcher to clean up the mess BO is creating, that person will have to just cut them lose like Thatcher did to the nationalized industries in Britian. It is not like any government run company ever made a profit, so we might as well face reality and give up on our money and get rid of the damn things.

  3. loosen internal policies so they can work with more questionable borrowers

    But, but, but, govt “encouraged” loans to questionable borrowers were the only good loans made during the bubble, because Corporate Greed wasn’t involved. Why do these borrowers need our help, as these loans are causing nobody any problems at all?

  4. it could take them as long as 100 years – or longer – to pay back the government

    This sentence makes no sense to me. “As long as” contradicts “or longer”, right? So both estimates are being pulled from an ass, correct? FSM bless the New York Times.

  5. From the always smart if depressing John Derbyshire. I think his friend’s friend has BO nailed. God help the country.

    “A friend in the finance biz:

    I was talking to one of my Ph.D. coworkers this morning about competitive inflation of all paper currencies which will cause most currencies to remain more or less unchanged against each other, but will shatter their value against hard assets. We’re both convinced this is happening now and will continue for the foreseeable future.

    Anyway, I was giving him my usual rap about Caracas on the Hudson, and how cardboard box cities will spring up in Miami, Houston and Los Angeles over the coming decade. “It’s the poor who always suffer worst from inflation.” I said.

    “Not in this case,” said my friend, “because all the poor in this country are deeply in debt. They’ll all have the relative value of that debt wiped away while the middle class will end up bearing the brunt of the burden. All Obama has to do is dilute the currency and he’ll be responsible for one of the greatest transfers of wealth in human history without firing a shot.”

    This was so obvious (and frankly brilliant) that I was embarrassed it hadn’t occurred to me before. Naturally this solidifies my view of the future even further”

    http://corner.nationalreview.com/post/?q=YmI2NThjNWJkZTMyYjI4YzE4ZWZiOTA3M2QxZjk3NTk=

  6. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.

    On January 8, 2009 while explaining the causes of our economic woes, then President-elect Obama said

    Throughout America’s history, there have been some years that simply rolled into the next without much notice or fanfare, and then there are the years that come along once in a generation, the kind that mark a clean break from a troubled past and set a new course for our nation. This is one of those years.

    Banks made loans without concern for whether borrowers could repay them, and some borrowers took advantage of cheap credit to take on debt they couldn’t afford. Politicians spent taxpayer money without wisdom or discipline and too often focused on scoring political points instead of problems they were sent here to solve. [italics added]

    That speech is the gift that keeps on giving.

  7. “In the last six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government.”

    They were both creations of the federal government to begin with.

    They were never truly independent even after they were supposedly “privatized” by issuing stock to the public.

    Their purpose was always political and they always enjoyed an implicit government guarantee that gave them a comparative advantage over other financial institutions and without which they never could have lasted.

  8. This sentence makes no sense to me. “As long as” contradicts “or longer”, right? So both estimates are being pulled from an ass, correct? FSM bless the New York Times.

    I’ll pull one out my own butt fountain of wisdom.

    They will never pay back the government.

  9. There’s a new n-word, isn’t there.

  10. What…the…fuck….

  11. Is it too early in the day to start drinking?

    Screw 5 PM. Its 4 PM somewhere.

  12. They will never pay back the government.

    Of course they won’t. They will bleed money until finally things change and someone kills them. Give it a few years and the NYT can bemoan the end of nearly a century of government helping homeowners. yada yada yada. No one could seriosly think Freddie and Fannie will ever be anything beyond a sinkhole for money and a dispursment mechanism for political favors.

  13. “Is it too early in the day to start drinking?”

    Is it ever too early to start drinking?

  14. In related news:

    The U.S. government announced a restructuring of a bailout plan for the troubled insurer American International Group Inc. Monday, extending $30 billion in additional aid to the company.

    YES WE CAN!

  15. Normally I wonder what John Derbyshire’s drinking, but this time he seems spot on.

    Why not go into debt? It’s the new American way!

  16. In the last six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.

    NO CHANGE FOR YOU!

  17. They will never pay back the government.

    Did anyone ever really expect them to pay us back?

    Or AIG? Or the car companies? Or any of the bailout recipients?

    If so, email me. I have some great deals on land down here in Florida…

  18. Please, somebody, anybody, MAKE IT STOP!

  19. Why not go into debt? It’s the new American way!

    Derb is half right. Bail out the overextended CRA beneficiaries with inflation to buy their support, use that inflation to encourage spending instead of saving and thus encourage dependence on govt to keep us all bought off, then use that consumer spending to ‘prove’ capitalism is evil and materialistic and our non-capitalist govt overlords are our moral superiors.

    BHO can’t lose.

  20. Please, somebody, anybody, MAKE IT STOP!

    Oh no, never make that stop. I’ll never get enough of the ruling elite getting at least *some* comeuppance.

  21. Only fools pay their mortgages

  22. Please, somebody, anybody, MAKE IT STOP!

    Wow, you just can’t make this shit up.

  23. “the mess BO is creating”

    True, but don’t forget that the takeover of Fannie Mae and Freddie Mac took place under Bush and it was the policy of Fannie Mae and Freddie Mac of buying up bad loans that encouraged the creation of more bad loans. Those bad loans began under the Clinton Administration to allow more people to become home owners. The taxpayers will ultimately have to pick up the tab for this disaster. I know you’re a Republican, John, so you want to blame it all on Obama, but both parties are responsible for this mess that the tax payers will end up having to pay for.

  24. Hmm, shaping up to be another great week. This stuff seems to come in waves, so I expect some other wonderful news this week.

  25. Please, somebody, anybody, MAKE IT STOP!

    Jesus, did Obama put Alberto Gonzales in charge of vetting nominees?

  26. 99 bottles of beer on the wall…
    98 bottles of beer on the wall…
    Too bad I’m at work. They have this weird habit of getting pissed off if you drink on the job. I’m not sure why.

  27. “Please, somebody, anybody, MAKE IT STOP!”

    Take it, b***h.

  28. So the Chinese government is loaning the U.S. government $400 billion so that Fannie Mae & Freddie Mac can continue to make their debt payments to said Chinese government. Leverage is a bitch huh.

  29. Only fools pay their mortgages

    Or their taxes apparently.

  30. “So the Chinese government is loaning the U.S. government $400 billion so that Fannie Mae & Freddie Mac can continue to make their debt payments to said Chinese government.”

    You know, I remember something like this (though not exactly) happened back in the twenties.

    It didn’t turn out well (and no, I haven’t Godwinned the thread).

  31. So the burning moral question for me is… Do I leave my mortgage as it is? Do I stop paying it and seek a “rescue”? Or do I seek refinancing to some spanktacularly low rate?

    Dilemma, dilemma

  32. So Fannie and Freddy are a US ponzi scheme on the Chinese, assuming we never pay back the principle?

    Just like social security is for US workers.

    Brilliant!

  33. I was reading about Moffet’s resignation just this morning. Incredible paraphrase from the article, “He’s a private sector guy. He’s not use to people second guessing him.” HA!!!

  34. This was so obvious (and frankly brilliant) that I was embarrassed it hadn’t occurred to me before. Naturally this solidifies my view of the future even further”

    This is hardly a new idea; it formed the basis of the free silver / granger movements of the 19th century.

  35. to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.

    Anyone else work out the math on this ‘remedy’ the same way I did?

  36. “to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.”

    Why are we re-posting stuff from several years ago? Just to drive home the government’s role in creating the housing bubble.

    Oh, wait…shit.

  37. “Throughout America’s history, there have been some years that simply rolled into the next without much notice or fanfare”

    I like those years. Those are the years that aren’t unpleasant. It’s the historic years that are terrible.

  38. Or do I seek refinancing to some spanktacularly low rate?

    Always pick C.

    Also, you never know when the winds will shift and bailouts become unfashionable again.

    So Fannie and Freddy are a US ponzi scheme on the Chinese, assuming we never pay back the principle?

    iirc the bonds (which I think make up the bulk of foreign investment) were made whole; it was the equity – common/prefered stock holders – who got the haircut.

  39. “John, so you want to blame it all on Obama, but both parties are responsible for this mess that the tax payers will end up having to pay for.”

    Both parties were certainly to blame until 2008. But Obama inherited a majority of both houses and a popular mandate and has proceeded to do exactly the same thing that caused the problem in the first place on an even greater scale. He is like a medieval doctor showing up on the scene of a sick patient and determining that the reason why the patient hasn’t improved is because the previous doctors were only applying two leaches instead of ten.

    Obama is clearly poorly read, shallow and has a limited understanding of the economy. Saying that he inherited a mess made by both parties does not excuse his making things ten times worse than they had to be. Further, since he is the one actually in office, his ignorance is a lot more relevent than anyone elses.

  40. because all the poor in this country are deeply in debt.

    I guess that makes the United States Federal Government poorest of all. As a debtor nation the incentive for both inflationary monitary and fiscal policies is a given. Meanwhile market “analysts” continue to fail to understand that the DJIA is forward-looking. Its demise is a signal that people who actually put their money where their mouths are have no faith whatsoever in a positive outcome.

    Where’s my Greater Fool?

  41. Here’s hoping they simply dismantle them, though that’s unlikely to happen under BO.

    They are currently like a second HUD.

  42. “I guess that makes the United States Federal Government poorest of all.”

    Yes it does. That is all the more reason why a big spending socialist like BO wants to have big inflation. If you have enough inflation, that 13 trillion dollar debt isn’t that much money anymore and the government is free to spend without worrying about debt servicing payments.

  43. If you have enough inflation, that 13 trillion dollar debt isn’t that much money anymore

    And people will clamor for a Strong Man On Horseback to stabilize things after the debt is inflated away. Guess which party our current overlords want that man to be a member of?

  44. jsh,

    You joker you. Any one can be a Strong Man On Horseback but on a Unicorn? That’s CHANGE I can believe in!

  45. Naga Shadow,
    Not just a strong man on a unicorn, but a strong man on a rainbow-crapping unicorn!

  46. Im not sure about the rainbow-crapping variety, but cant only virgins ride unicorns?

    Just sayin…

  47. economist, all unicorns crap rainbows. The trick is to find one that pisses gasoline as well.

  48. You bailed it out, you own it

    Then where’s my stock certificate.

    I bailed it out, sure, but I don’t own shit.

  49. “Hmm, shaping up to be another great week. This stuff seems to come in waves, so I expect some other wonderful news this week.”

    +?

    I don’t drink, but I need a fucking shot of something. And yeah Epi, this week will probably see more of the good news role in.

  50. RCD, you overlook the Magic Pronoun Switch. Replace every ‘I’ with ‘we’, and thru the magic of govt, everything is fair.

    Kinda like the old proof technique of changing all your ‘2’s to ‘N’s.

  51. “Im not sure about the rainbow-crapping variety, but cant only virgins ride unicorns?

    Just sayin…”

    Well, according to the South Park episode “About Last Night”, the children aren’t his…

  52. He is like a medieval doctor showing up on the scene of a sick patient and determining that the reason why the patient hasn’t improved is because the previous doctors were only applying two leaches instead of ten.

    We used to think that sickness was caused by “evil humors” inhabiting the body. What fools we were! Now we know they are caused by an evil dwarf living in the stomach.

  53. it could take them as long as 100 years – or longer – to pay back the government Paul

    Fixed.

  54. It would be interesting if the monkeys who wrote this could try and imagine where all these investments went aND WHO POCKETED ALL THIS MONEY.

    Money doesn’t disappear, it is transferred. I wonder if the authors might try and use their drug sodden imaginations and try to imagine who pocketed this money.

    By the way, prior to the bailouts these companies were government guaranteed which is why this giant ponzi scheme played out so well.

    You’ll notice the investigation happy “progressives” just can’t imagine an investigation into what happened and why when it is so easy for Barney Fag and Chriss Dofus to play the role of chief inquisitioner of a star chamber of CEOs. Last year oil execs now the financial sector.

    Cmon dullards, try and focus on something other than drugs. You might demonstrate your skills and get a real job and leave your mommy’s basement.

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