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Fannie and Freddie’s Blank Check Will Further Fuel America’s Rage

Posted by Larry Doyle on December 28, 2009 8:38 AM |

I remain incensed at the sheer arrogance and brazen demeanor of the Obama administration providing a blank check on Christmas Eve to cover future losses of the failed institutions Fannie Mae and Freddie Mac. Given the fact that this check has been issued, America deserves to know what exactly it is covering. Over and above a full and total exposition of these government sponsored entities, America is in a position to demand certain retributions. Let’s bang the drum and demand some answers, including:

1. The current valuations of all of Freddie’s and Fannie’s holdings so America can fully evaluate those holdings relative to market prices.

2. The current fees being paid for all services rendered.

3. An independent audit.

4. Why aren’t these stocks delisted immediately? To allow stock in these entities to continue to trade is a total mockery of a legitimate market.

5. Clawback all bonus payments rendered to Franklin Raines, James Johnson, and Leland Brendsel, the executives at Fannie and Freddie who truly plundered these institutions.

6. Immediately extinguish Freddie’s and Fannie’s contingency liabilities to Wall Street firms.

7. How are we to know and appreciate that this blank check is not merely a conduit to deliver slush funds and hush money to every favored friend of the administration?

8. Any market analyst who favorably opines on the housing market in light of this blank check is hereby rendered a total jackass.

Our pursuit of real truth, transparency, and integrity in our political and financial system took a major hit with the issuance of this blank check.

While America signs the check, we must make sure that each and every individual affiliated with this process co-signs the check.

If those in Washington and Wall Street are wondering what is fueling America’s rage, this blank check is nothing short of the Exxon Valdez.

Comments, color, constructive criticism always appreciated.

LD

  • Tom P.

    Larry I just want to make sure I’ve got this all understood…

    1. People need places to live

    2. Banks originate mortgages to these people. (Accepting default risk for the reward of interest + principal)

    3. Banks (if they want to) sell this mortgage in the secondary market to someone else, often to Fannie and Freddie (To lock in all current profits, make money on transaction fees, or to get rid of default risk)

    4. People start sending their monthly payments to fannie and freddie now.

    5. People lose their job due to bad economy and can no longer afford monthly payments. They default on their loan.

    6. Instead of taking $150,000 loss, Tax dollars are sent to Fannie and Freddie in order to keep red ink off their balance sheet

    7. Keeping red ink off Fan and Fred’s balance sheet makes things appear to be ok???????

    What would happen if we just let fannie and freddie fail?

  • Larry Doyle

    Tom P.

    All good points. The fact is Fannie and Freddie can serve a purpose and fulfill a role in the realm of the mortgage finance process without subverting the entire private market.

    Risks were entirely mispriced for an extended period and the American taxpayer is now picking up the tab for those risks. These risks are continuing to be mispriced to an even greater degree and the long term losses will be that much greater.

    We should allow the market to establish proper rates and levels, then merely allow Freddie and Fannie to package and sell the securities back into the secondary market.

    We are moving dramatically away from free market principles and the costs will be greater and over a longer time period than if we developed a game plan to recognize losses sooner and in an appropriate fashion. The fact that the government has provided a blank check through 2012 tells me the losses are far greater than they would ever have or want us to believe. It is also an indication that Washington wants to usurp the free market so that redistribution (the cornerstone of the Obama administration’s programs) can be promoted.

    Writing this blank check to Freddie and Fannie in the dark of night on Christmas Eve speaks volumes.

    • Harold

      Larry Dolye,
      STOP SHORTING FRE & FNM, then your
      outlook regarding FRE & FNM will
      improve and be better aligned.
      How about SALLY MAE?
      Once FRE & FNM go over $3., then there
      is leverage by all, which will propell
      the stocks, and FRE & FNM can issue new
      shares to cover ALL its dept.
      Wow! 5 Trillion in morgages, they hold.
      HWM

      • Larry Doyle

        Harold,

        Is that how it works? I don’t think so. Not that I ever comment on my personal, specific financial transactions, but I can assure you I have no position or exposure to FNM or FRE. For any entity to issue shares, a full, total and honest accounting of their books needs to occur. I think that is exactly what I am calling for here.

  • Michael
    • Larry Doyle

      Michael,

      Thanks for that link. I especially liked the last paragraph,

      The above actions would preserve and strengthen the government’s involvement and control over the country’s housing finance system and make it harder to reintroduce substantial private sector involvement later on. They would also continue distortions in the marketplace leading to who knows what unintended consequences. Finally these steps would do nothing to deleverage the housing finance system, a key step in returning it to any degree of normality.

      To coin a phrase, it’s called “socialized housing.”

  • Tom P.

    If we have enough problems creating demand now and encouraging private investment, what will happen if and when Govt. assistance is EVENTUALLY pulled out?

    Prices are pretty much guaranteed to plummet worse than they were before the crisis began. Why are we trying to keep prices at levels that are not realistic for investment by private capital? I don’t think demand is just going to “catch up” to current levels. Not with such low employment.

    Something tells me that if actual amount of losses that fannie and freddie suffered was known then other countries would stop lending us money, and we would be forced to pay it back (doubtful unless we plan on throwing away the next 100 years of earnings) or default.

    …then what? World war? Or We begin a new barter economy due to price of food skyrocketing?

  • Jim Richardson

    The corruption continues, the cancer spreads. We need some accountability for these people. We need a complete and independent audit of not only Fannie Mae and Feeddie Mac, but of the federal Reserve.






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