The Next Dem Smokescreen: Fannie/Freddie Bonus Hype to Cloud Role in Financial Mess

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The Next Dem Smokescreen: Fannie/Freddie Bonus Hype to Cloud Role in Financial Mess

22 March 2009 15 Comments

barneysaur1

BY: NCViking

I have to give Barney Frank credit for one thing: he is getting ahead of the next shoe that’s about to drop. Fannie Mae and Freddie Mac executives have also been getting big bonuses for running these institutions into the ground, while Congress has looked the other way. Barney and Dems have to strike while the (bonus) hype is hot to produce another smokescreen, or Kabuki Theater performance as Michelle puts it, to hide the shenanigans involved with this Gong Show.

From Reuters:

WASHINGTON – A key U.S. House of Representatives committee chairman said on Friday that employee bonus programs at Fannie Mae and Freddie Mac should be halted, while the regulator who oversees the two government-controlled housing finance companies defended the programs.

The move by Representative Barney Frank, who heads the House Financial Services Committee, was the latest salvo in a growing controversy over large bonuses paid out to executives of companies receiving billions of dollars in government bailout funds, sparked by outrage over bonuses paid to employees of insurer American International Group.

Barney and his colleagues will need to produce a mighty large smokescreen to cover his coziness to Fannie Mae and Freddie Mac and the role he and other prominent Dems of today (and in the past) played in the financial mess. This one runs much deeper than AIG as Dems and some Republicans were happy recipients of over $4.8 million in FM² contributions and also invested $1.7 million of their own money into the companies.

Why is this so important? Because Fannie and Freddie are responsible for the housing debacle. Oversight of these institutions was nonexistent and Democrats blocked all attempts for regulation by the Bush Administration to bring the housing problem under control. Yes, the same Bush blamed for supposed deregulations of the financial industry that never happened. What, they were not deregulated during the Bush Administration? I thought el Diablo was to blame? Not quite true. Regulations that led to the tangled financial mess we are trying to unknot were a result of the repeal of the Glass Steagall Act led by Robert Rubin (Goldman Sachs) and Bubba Clinton.

Here is an incriminating Fox News video with a little more details on the Fannie and Freddie debacle:

If others in the press actually did their job and really looked into the financial crisis outside of accepting liberal Bush Bash Rhetoric like drones, they would actually realize (like after 9/11) the vastness of Democrat incompetence and culpability in the crisis. This would be devastating for the Hope/Change movement and help continue the accelerating rehabilitation of Bush the dump chimp’s legacy – can’t have that!

Mon Deu!

SPELLING UPDATE

I stink at spelling. I meant Fannie and not Fanny like in ‘bum’. To muhch reliunce on spehll chek.
homer-doh

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15 Comments »

Franklin's Locke said:

Absolutely right! Not only is the MSM ignoring how Frank and Dodd contributed to this mess, but also they are following these distractions like sheep. While the media was following the AIG furor, they ignored the FED infusing the economy with trillions. This could be catastrophic for our economy and our dollar if it does not work and cause massive inflation.

So, what is the government distracting us from this time with these bonuses? The $10 trillion in debt? The new budget? The “Obama Youth” bill? Good grief, it could be anything they are doing behind the scenes.

http://franklinslocke.blogspot.com/

# 22 March 2009 at 7:09 am

Mike said:

The article misses key points of this mess entirely.

I would say that this mess has nothing to do with the repeal of the Glass Steagall Act, or even Fannie and Freddie Mac. The causes of our economic problems are neither Republican or Democrat. No one with any credence is pointing the finger at Bush or Paulson. It is a real stretch to point at Clinton.

I’ll post a brief note on the repeal of the Glass Steagall Act and how it is quite a bit different from the description given above.

The current crisis has been predicted by a number of economists, for one reason or another because any market bubble will always break.

Here is the reason for the meltdown,

a) The current crisis is a result of the housing bubble burst

b) No one in the banking, whether investment or otherwise, and no one at Fannie or Freddie Mac can write a mortgage that isn’t stress tested.

c) Stress tested means that the risk is known. Known in this case (pretty much in all cases) means that there is an insurance policy that backs up the risk.

d) That insurance policy was underwritten by AIG Financial Services – the part of AIG that melted down.

The housing bubble burst in teh suburbs, in places like Phoenix, Miami, upstate NY, small towns in California. It burst when prices finally became too large for consumers to bear. It doesn’t just peak. It begins as a slow down in demand. As more and more homes stay on the market, prices drop. Eventually, the drop is steep and severe.

Today, even people who bought homes in 2002 (and can afford them, and paid their mortgages on time) can be underwater as prices receded into 2000 values and going lower.

As prices fell, banks began calling the value of their insurance policies. Mark-to-market rules demand that they do so. As they did, the stress test – usually no more than 2% will ever be foreclosed – proved grossly inadequate.

These are the result of market forces that have nothing to do with the repeal of Glass Steagall Act, or even Fannie and Freddie Mac.

You may also find this story interesting

http://nearing.newsvine.com/_news/2008/09/28/1924224-anyone-remember-elliot-spitzer-warning-us-about-bushs-ownership-society-and-predatory-lending-by-these-banks-that-now-want-a-bailout

# 22 March 2009 at 1:14 pm

Mike said:

About the repeal of the Glass Steagall Act.

The article above is correct that the repeal of the Glass Steagall Act was instrumental in creating very large financial institutions (the too big to fail).

Where it is incorrect is that it was initiated by Clinton/ Rubin.

a) A Republican introduced the bill to the Senate floor (Phil Graham)

b) A Republican senate and a Republican house passed the bill. The house passed it 214-213, meaning many Republicans dissented. The vote was almost a party line vote. This pretty much disproves the Clinton hand theory.

c) Phil Graham (R) used strong tactics to pass the bill.
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.

On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill’s effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.

Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill’s chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, “You’re buying the government?”

# 22 March 2009 at 1:21 pm

NC Viking (author) said:

Bill Clinton signed the repeal of Glass Steagall, not George W. Bush – this was the point in the post. I guess Pelosi has no credence (see her quote) and Obama for that matter for putting the blame on W, especially when the former pres and Greenspan were waving red flags in 2001 and 2003 and being ignored. Many hands are red with this, but the post points out the vastness of Democrat incompetence and culpability in the crisis when they wag the finger in the other direction.

# 22 March 2009 at 1:42 pm

Mike said:

Since repeal of Glass Steagall Act has nothing whatsoever to do with the current economic crisis, I would say that Bill Clinton had every right to sign the bill. Your post completely, even if inadvertently to your intentions, exonerates him.

There is no connection between the repeal and bond insurance, which is issued by an insurance company.

# 22 March 2009 at 5:07 pm

NC Viking (author) said:

Fannie/Freddie bubble responsibility

Gramm-Leach-Bliley and Commodity Futures Modernization Act of 2000

# 23 March 2009 at 6:07 am

The Windy City Windbag said:

I will make my judgment based upon photographic evidence, as pictures tell 1000 words. It is obvious that Barney Frank has the ability to morph into a giant, 5 story purple dinosaur, so he must be to blame for all this mess, and for the death of the scientist who tried to warn us that messing with genetics and politicians was a bad idea.

There is likely nothing further worth adding.

# 23 March 2009 at 6:26 am

NC Viking (author) said:

LOL! Is that you he holds in his mitt? Runaway!

# 23 March 2009 at 6:37 am

Mike said:

Next time you post a link to yet-another-conservative-Fannie-caused-the-bubble, at least read the comments first. Here is a sample,

What a bunch of CRAP… obviously you have no idea how a bank lends money. If it weren’t for these GSE’s there would have been no money to lend to people to buy homes… they would have run out of money you moron. They created liquidity so banks could continue to lend and people could buy homes at reasonable rates.

What happened here was some nitwit coming up with accounting rules that caused so many asset problems and people like this that write articles that downgrade the stock that in turn puts a crack in market and affects our dollar nationally and internationally.

and…

… the housing bubble resulted more from over hyped demand that can be traced directly to: a) the easy credit that the Fed maintained in order to effect a recovery from the 2000 Tech melt down and 9/11 terrorist attacks and b) a bias in Federal tax law that encourages home ownership by allowing deductions for mortgage interest but not rent. Markets will always go to extremes. Bubbles are followed by busts. Value investors understand this concept and will be the first to begin picking up the pieces.

and there are many many more.

# 23 March 2009 at 7:27 am

Rob said:

Couldn’t be Windbag in the clutches of the Evil Purple Dinosaur – he has hair!

Sorry, had to do a hair joke.

# 23 March 2009 at 7:56 am

The Windy City Windbag said:

Neither Viking or I have hair… one of the fringe benefits.

# 23 March 2009 at 8:19 am

NC Viking (author) said:

Author saying yes, some commenting no, some agreeing. Subjective dismissal.

As we continue to pick fly turds out of pepper, here is another interesting reference from Barron’s reviewing a book on the meltdown.

Wall Street Journal, Barron’s all Motley Fools – anonymous commentors know better.

# 23 March 2009 at 8:31 am

NC Viking (author) said:

The article from Barron’s is subscription and only offers a preview to non-subscribers, so here it is in full:

A Tale of Two Meltdowns
By GENE EPSTEIN

TWO QUITE DIFFERENT BOOKS on the economic crisis share the same one-word title: Meltdown. The first is a collection of articles from The Nation — “America’s leading progressive weekly.” The second was written by Ludwig von Mises Institute senior fellow Thomas E. Woods Jr., and includes a foreword by libertarian Rep. Ron Paul of Texas.

I found Meltdown II a must-read. Writing with remarkable clarity and occasional mordant humor, Thomas Woods makes a compelling argument for a radical turn to the free market as the only way to prevent meltdowns from recurring. Not that The Nation reporters don’t contribute a few nuggets. For example, their general feeling that something radical should be done about the way the Federal Reserve operates — that we should no longer be “subservient to the Fed mystique” — is surely progressive in spirit. But when they go on to urge that the Fed make itself subservient to “democratic discourse,” we have to remind ourselves that the term “progressive” is a code word for greater government control of the economy, which generally leads to retrogression.

As Woods says, in creating the housing bubble, the Fed was already far too subservient to pressure from Democratic congressmen like Barney Frank, mentioned favorably in Meltdown I. At the same time Frank was disavowing “any kind of financial crisis,” Ron Paul was warning of “the long-term damage” from “the government’s interference in the housing market.”

What Paul understood, and The Nation reporters clearly don’t, is that the Fed isn’t a product, as they declare, of “market ideology,” but of a very different way of thinking. “Instead of planning the production of steel and concrete,” writes Woods, the central bank “plans money and interest rates, with consequences that necessarily reverberate throughout the economy.”

According to Austrian business-cycle theory, boom-and-bust is caused by the feckless expansion of money and credit that can come only from government intervention. By beginning his story with the Panic of 1819, nearly a century before the Fed was created, Woods makes it clear that government-initiated credit expansion can also occur without the Fed.

But the central bank does help systematize the process. The Fed operates in the dark, in precisely the way any planning agency would that sets prices in the absence of a market. When the interest rate is set too low, “malinvestment” results, eventually leading to bust. One key difference in the case of malinvestment in housing was that the credit mania was actively supported by government-sponsored enterprises, most notably Fannie Mae and Freddie Mac, underwritten by the central bank.

Some now see more regulation as the ultimate solution. And in the abstract, certain forms of regulation might have helped. But, Woods asks rhetorically, with George W. Bush in league with Democrats to push the “ownership society,” what regulator “would have…dared tell the regime something other than what it obviously wanted to hear?”

Besides, more regulation won’t prevent boom-and-bust; only true free-market banking can accomplish that. Woods again: “If you believe in the free market, you cannot support the Fed, one of the most intrusive interventions into the market.” Now, there is a truly progressive idea.

# 23 March 2009 at 8:37 am

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