Fannie, Freddie tentacles embraced many in Washington

[OhioChick]

Source: Reuters

Thu Nov 17, 2011 10:10pm EST

(Reuters) - While presidential hopeful Newt Gingrich was forced to defend his lucrative former role with Freddie Mac this week, the mortgage giant and its larger cousin Fannie Mae had a roster of Washington heavyweights on their payroll for years, many of them Democrats.

The two entities spent over $170 million on political and lobbying operations in a 10-year period leading up to the financial crisis of 2008 when both were seized by the government as they teetered on the brink of failure, according to the Center for Responsive Politics.

Fannie and Freddie hired figures such as Tom Donilon, now President Barack Obama's national security adviser, and Rahm Emanuel, Obama's former White House chief of staff, as part of a campaign aimed at protecting government ties that allowed them to borrow money cheaply from financial markets.

"It was a mob-like operation," said a senior congressional official who over the years dealt with the political and lobbying operations at the firms, the two biggest sources of U.S. mortgage finance. "They had tentacles everywhere."

Read more: http://www.reuters.com/article/2011/11/18/us-usa-campaign-freddie-idUSTRE7AH02A20111118

[chill_wind]

1. K & R.

[No Elephants]

2. Gotta love those partly privatized, formerly wholly governmental entities.

The executives and owners take the income and we bail them out, no matter how poorly they've done.

Had Fannie and Freddie stayed wholly governmental, as FDR and the New Deal Democrats in Congress envisioned, look how much they would have saved on lobbying alone. Oh, wait, I think I am beginning to understand why they did not stay wholly governmental.

Follow the money. Best civics lesson ever. Thanks, Deep Throat. RIP (well, as much as a Republican can.)

[SixthSense]

3. they shouldn't have existed in the first place

Fannie/Freddie boils down to a massive taxpayer backstop and subsidy for the real estate banking sector. The surplus money they put into the system is a great part of the reason why the price of a house hit historic levels relative to median income. They are each levered over 80:1 - almost 3x as bad as Lehman when it went down. The end result is that taxpayers are subsidizing private acquisition of property to the tune of several hundred billion at least - a figure that will probably be well over a trillion when the final count is made. Funneling funds from the public treasury into private hands is an inherently corrupt and corrupting practice, as was played out by the various financial scandals at each GSE over the years.

Companies that are taking public monies shouldn't be doing things like handing out executive bonuses or hiring ex-politicians for a million plus. They should be on bare bones no frills no luxuries operations before a dime of public support enters the picture, if there is to be any support at all.

[No Elephants]

4. Disagree. The money they put into the system during the Depression was not surplus.

They were created to fill a need.

I agree with your last paragraph to a degree. However, I would add that all companies are taking public monies, whether through taxes or through the prices they charge the public. I grant you, I have no choice but to pay taxes, while I can decide to forego a pair of shoes--for a while, anyway. So, I recognize a difference.

However, your cost of living and mine gets more and more inflated because of excessive compensation and excessive corporate spending, some of which, like the $2000 wastebasket, came to light during the bailout.

I think government and private sector should have good wages and working conditions and both sectors need to be mindful of their stewardship of other people's money, however they suck it in.

[SixthSense]

5. It's surplus by definition

It is new money created from leverage (thin air) that Fannie exists to create. But facilitating money into a system doesn't add houses to the system - there's more money to buy the same number of houses. By basic law of supply and demand, the essential function of Fannie Mae is to increase the price of housing. Regardless of any justifications made in rhetoric by the company or its supporters, the essential economic mechanic of the company is to artificially inflate the value of real estate assets in exchange for a fraction of a point of interest in each deal. Its stated purpose (to increase the availability of affordable housing) is diametrically opposed to the engineering of its operations; as an institution it helps real estate owners far more than first time buyers. What new buyers get is debt that the previous wave of buyers didn't have.

What would happen if Fannie/Freddie went away would be that housing prices would go down, dramatically, because it would be much harder to get a loan. Prices would have to fall to the level that people could afford without debt.

Looking at the big picture, the reason why this economy as-is is sucking 99% of us dry is that the enormous overall and individual debt levels demand interest payments (or bailouts), and the money has to come from somewhere. It comes from our surplus and increasing interest payments drain that surplus to the point where many must choose between default and survival.

The economic model where during a person's life he assumes many years of income of debt for his schooling, many years more for a home, while dropping thousands per year into health insurance, and on top of that paying for all the things necessary to survive and maybe even enjoy life a little bit, and maybe even actually have children... it doesn't work. There's not enough income in the average person's working lifetime to pay off all that debt and have anything more than a subsistence life. And in the context of the wage pressure applied by free trade and imported workers, that average expected total is dropping quickly.

All these schemes where there is heavy lending into a particular sector are inherently artificial and unsustainable. We have three major sectors in some stage of Tulip Mania - real estate (which just blew up of course), education, and health care. The money just isn't there to support 10% y/y price hikes indefinitely - available income is already being exceeded, debts taken for these purposes are now routinely in default. This kind of mania occurs whenever the banking sector is enabled to produce it - in our case, by their legal privilege to emit new credit into the economy.

The way to achieve the goal of affordable housing (or to sustainably raise housing prices) is to increase the standard of living of the average person. The way to do that is to basically reverse our policies of the past 40 years or so - put up tariffs, bring industry back to the US, send foreign workers home, stop wasting resources on wars and debt and the trappings of global hegemony, focus the resources that we still have towards improving the productive output of the country, and as a direct consequence to improving the standard of living. Then people will have money for things like schooling and houses and cars and whatever they want, but without becoming debt slaves in the process.

[Lance_Boyle]

6. Fannie tentacles... I've seen enough hentai to know where this is going. n/t

[sarcasmo]

7. The corruption runs deep.