Fannie Mae Freddie Mac Bailout


Protests against corporate greed and economic inequality spread across America.

Spreading unrest: Protesters gather on the front steps of the Idaho Capitol in Boise, Idaho.


The Occupy Wall Street movement, that began in New York last month with a few people, has now swelled to protests in more than a dozen cities.

They included Tampa, Florida; Trenton and Jersey City, New Jersey, Philadelphia, and Norfolk, Virginia in the East; to Chicago and St. Louis in the Midwest; Houston, San Antonio and Austin in Texas; Nashville, Tennessee; and Portland, Oregon, Seattle and Los Angeles in the West.

To understand how we got to this, we need to take a short look at history.

The Time Line of Events

This televised report aired in September 2004 and can be viewed here. In the space of four minutes, it attempts to time line the events leading to the greatest economic failure since the Great Depression.

A significant portion of the events leading up to the Fannie Mae and Freddy Mac debacle begins in – believe it or not – 1977

1977

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining. The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions.

And who signed this beautiful piece of legislation into law? The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977.

1995

In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods. It is the subject of heated political and scholarly debate whether any of these moves are to blame for our troubles, but they certainly played a role in creating a permissive lending environment. He also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation.

Clinton admitted that his Administration could have done more to “set in motion some more formal regulation of the derivatives market,” but he vehemently denied that the repeal of Glass-Steagall or his Administration’s housing policies helped spur the financial crisis.

1999

September In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

November: Clinton signs banking overhaul measure. Congress passed the bipartisan measure November 5, opening the way for a blossoming of financial “supermarkets” selling loans, investments and insurance. Proponents had pushed the legislation in Congress for two decades, and Wall Street and the banking and insurance industries had poured millions of dollars into lobbying for it in the past few years. “It was sweaty, it was tense, but it had momentum,” Sen. Charles Schumer (D-New York) said of the final bargaining session. He and Sen. Christopher Dodd (D-Connecticut) whose states are home to Wall Street and the banking industry (New York) and the insurance industry (Connecticut), helped broker the agreement.

Scandal at Fannie Mae

Corrupted political leaders contributed to the debacle we now wake up to every morning. In a Wall Street Journal analysis, the failure of the GSE’s began shortly after their 2003 and 2004 accounting scandals. Senior executives at Fannie Mae manipulated accounting to collect millions of dollars in undeserved bonuses and to deceive investors. The government-sponsored mortgage company was fined $400 million.

Franklin Delano Raines once a prominent Democrat and CEO of Fannie Mae, and Leland Brendsel, the CEO of Freddie Mac were removed from their assigned office in the wake of the multibillion-dollar accounting scandal. Source:The Fall of Fannie Mae

Many Warnings Ignored


Spanning a period of 6 years, President Bush and his Administration have not only warned of the systemic consequences of failure to reform GSEs but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties.

Beginning as early as 2001, the President made repeated attempts to reform the supervision of these entities but was thwarted by the legislative maneuvering of those who emphatically denied there were problems with the GSEs.

The mounting and overwhelming evidence points to the fact many Democrats chose to drive while their eyes were closed, ignoring call after call to fix the problem and in some cases, belligerently and arrogantly denying any problem existed with their policies.

Fast Forward — October, 2011

Now, three years after the meltdown of 2008, we watch in amazement as the disillusioned take to the streets to protest against Wall Street and the banks.

It’s a bit ironic once you realize that the failed policies designed to give them what they want – easier access to housing being among them – turns out to be the catalyst to send them out into the streets in protest. Too self-centered to see it, or too stupid to understand, they are actually protesting against their own principles and philosophies, the outcome of which they apparently don’t like.

Cry Baby, cry.

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First, Obama says Republicans gotta sit in back (presumably, the bus) when it comes to participating in the county’s affairs.

Obama said Republicans had driven the economy into a ditch and then stood by and criticized while Democrats pulled it out. Now that progress has been made, he said,

“we can’t have special interests sitting shotgun. We gotta have middle class families up in front. We don’t mind the Republicans joining us. They can come for the ride, but they gotta sit in back.”

Source:

Then he flips his position about the Republicans, casting them as slurpee sippers because in his eyes, Republicans won’t participate in governing.

“We’re down there (trying to get the economic car out of the ditch). It’s hot. We were sweating. Bugs everywhere. We’re down there pushing, pushing, pushing on the car. Every once in a while we’d look up and see the Republicans standing there. They’re just standing there fanning themselves — sipping on a Slurpee.”

Source:

A week before the election Obama calls Republicans “enemies”.

President Barack Obama, speaking on Univision, advised Latino voters to punish their Republican Enemies by voting Democrat. Obama’s advice was sound, Latinos should vote against their political enemies in the GOP.

Source:

At the end of October, perhaps as a result of paying attention to the polls, the Obambastic urges Republicans to ease partisanship “Win, Lose, or Draw”

President Barack Obama challenged Republicans to set aside partisan difference after the election, “win lose or draw,” and pursue “practical steps” to invigorate the economy and create jobs.

“Whatever the outcome on Tuesday, we need to come together to help put people who are still looking for jobs back to work,” Obama said in his weekly radio and Internet address.

Source:

On the day after the election, the Obambastic asks Republicans for “common ground”

US President Barack Obama told Republican congressional leaders that he wanted to find common ground after their crushing wins in mid-term elections, the White House said early on Wednesday, telling John Boehner and Mitch McConnell he was he was

“looking forward to working with him and the Republicans to find common ground, move the country forward, and get things done for the American people”

Source

You can’t have it both ways Mr. Obama.

You can’t chide, ridicule and blame your opposition, “enemies” as you call them, then come calling with your hat in hand to ask for a little cooperation.

In the weeks leading up to the mid-term election, you have been fond of telling your minions about how the mean ol’ slurpee-sippin’ Republicans drove the economic car into the ditch and how America can not afford to hand the keys back over to them.

Contrary to your pathetic view, Mr. Obama, the mounting and overwhelming evidence points to the fact many Democrats chose to drive while their eyes were closed, ignoring call after call to fix the problem and in some cases, belligerently and arrogantly denying any problem existed with their policies.

Some segments of the media recognize the Democrats are largely at fault and point to the new oversight laws pushed largely by Republicans.

This televised report aired in September 2004 and can be viewed here. In the space of four minutes, it attempts to time line the events leading to the greatest economic failure since the Great Depression.

When Bush-era Republicans try to cut the Medicare/Medicaid budget, the Democrats howl.

Nancy Pelosi railed against town hall protesters by calling their efforts “astroturf” to insinuate that they were illegitimate. In this clip, we see her back home in San Francisco, conducting her own town hall and embracing the right for people to disrupt and indicating it is a just thing to do.

In August 2009, Nancy Pelosi called town hall protests “un-American” and “an ugly campaign… to disrupt public meetings”.

Here, Nancy Pelosi complains about what she sees as Republican free market philosophies and classifies them as “an anything goes mentality” with “no regulation, no supervision, no discipline”.

Four years earlier, Republicans and financial leaders alike almost begged the Left Wing Nuts to apply more regulation an oversight for Fannie Mae and Freddie Mac.

Let the meltdown begin

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining. The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions.

Where did this bill get started?

The CRA was passed as a result of national pressure to address the deteriorating conditions of American cities particularly lower-income and minority neighborhoods. Community activists, such as Gale Cincotta of National People’s Action in Chicago, had led the national fight to pass, and later to enforce the Act.

Hmmm… community activist. Rings a faint bell.

And who signed this beautiful piece of legislation into law?

The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977.

A democrat. Who woulda thunk?

…and the effects?

Some economists, politicians and other commentators have charged that the CRA contributed in part to the 2008 financial crisis by encouraging banks to make unsafe loans. Others however, including the economists from the Federal Reserve and the FDIC, dispute this contention. The Federal Reserve and the FDIC holds that empirical research has not validated any relationship between the CRA and the 2008 financial crisis.

You can read the time line of events here.

Washington: The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.”

Full story here.

ED:

Treasury monetizes debt by printing 1 trillion dollars to inject into economy – effectively borrowing from itself.

Taking such a measure this drastic means the “patient” is almost dead and this “injection” is a last ditch effort to save it.

Since 1989, Rep. Frank has received $42,350 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Senator Reid has received $77,000 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. Dodd has received $165,400 from Fannie Mae and Freddie Mac, more than any other Member of Congress. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. Carper has received $55,889 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

In just four years, Sen. Barack Obama (D-IL) has received $126,349 from Fannie Mae and Freddie Mac, more than any Member of Congress except for Sen. Dodd. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. John Kerry (D-MA) has received $111,000 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. Hillary Clinton (D-NY) has received $76,050 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, House Speaker Nancy Pelosi (D-CA) has received $56,250 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Rep. Rahm Emanuel (D-IL) has received $51,750 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

(AP – Tuesday, December 09, 2008)

WASHINGTON–Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans long before the housing market plunged, according to documents released Tuesday by a House committee.

E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.

“Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored” by the two chief executives, said Rep. Henry Waxman, D-Calif., the committee’s chairman. “Their irresponsible decisions are now costing the taxpayers billions of dollars.”

The two companies were seized by government regulators in September. A month later, Freddie Mac asked for an injection of $13.8 billion in government aid after posting a massive quarterly loss. Fannie Mae has yet to request any government aid but has warned it may need to do so soon.

Lawmakers questioned Mudd about an internal Fannie Mae presentation from June 2005 that showed the company at a “strategic crossroads,” at which it could either delve into riskier loans or focus on more secure ones.

Questioned about the presentation, Mudd defended his company’s effort to compete against Wall Street banks that were pouring money into subprime and other exotic loans.

“We couldn’t afford to make the bet that the changes were not going to be permanent,” Mudd said.

Mudd and three other former executives of the two companies defended their stewardship in a hearing held by the House committee.

“It’s important to remember that Freddie and its sister institution, Fannie Mae, did not create the subprime market,” said Richard Syron, Freddie Mac’s former CEO.

But Rep. Darrell Issa, R. Calif., blasted Syron and Mudd, along with former Fannie Mae CEO Franklin Raines, and former Freddie Mac CEO Leland Brendsel.

“All four of you seem to be in complete denial that Freddie and Fannie are in any way responsible for this. Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it. If we don’t do it, we’ll be left out.”

Fannie and Freddie own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt. The two companies are the engines behind a complex process of buying, bundling and selling mortgages as investments.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

Republicans blame Fannie and Freddie, and homeownership policies of the Clinton administration for sowing the seeds of the financial meltdown. Democrats defend the companies’ role in encouraging homeownership and stress that Wall Street banks — not Fannie and Freddie — led the dramatic decline in lending standards.

For years the two companies flexed their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D’Amato of New York were recruited with six-figure contracts.

The more difficult questions, however, will come next year, when lawmakers weigh what role, if any, the two companies play should play in the mortgage market.

Options include taking the companies private, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

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