The decorated tree adorns the living room, the stockings are stuffed with care, the milk and cookies are set out for Santa and the newly-cleaned chimney awaits his arrival. If Santa Claus did not make an appearance at your house, he certainly did at the home of Fannie Mae and Freddie Mac, the two quasi-governmental entities responsible for most of the home loans in America.
These two entities, which together own or guarantee over one half of home mortgages, and which had previously been injected with a $111 billion bailout, received an unexpected Christmas present from the Obama Administration: an executive order, issued in the dark of the night, when everyone was tucked into bed and dreaming of gingerbread and Playstations. The Treasury announced they were eliminating the $400 billion limit available to these two entities – in essence giving them license to fritter away as much money as they want while the American people (and their grandchildren) pick up the tab.
By announcing this while Americans were focused on an important holiday, the Obama Administration performed a marvelous sleight of hand by burying the story. It couldn’t be found in the New York Times, the Washington Post, or on CNBC. If you searched any of their websites, you might have found a link to the story on another website, but regular readers would have had no clue about this significant policy change, put into effect purely by Presidential fiat. The only major publication that mentioned it was the Los Angeles Times, which buried it with one sentence in a related article.
This announcement comes just as major banks are starting to repay $68 billion they received from the TARP program; in fact, over half of the TARP money has already been returned. The banks have been anxious to get out of the grasp of Treasury and the burdensome operating rules that accompanied TARP money.
The story gets even better. The top executives are in line to receive $6 million compensation packages for 2009. Apparently, the fact that Fannie Mae lost $56.9 billion and Freddie Mac has lost $14.1 billion in the first 9 months of 2009 did not stop the Obama Administration from approving these payments. The Treasury claims that the compensation meets the guidelines set out by Kenneth Feinberg, the Pay Czar; however, it appears that the minimum salaries of $900,000 far exceed the $500,000 limit that Feinberg had previously established.
Compensation of Fannie and Freddie executives has been suspicious for a long time. Typically, executives would be given huge pay packages, and then funnel some of the money back to their favorite politicians to impede the oversight process. Franklin Raines and James A. Johnson, two directors who received enormous sums of money, ran Fannie Mae into the ground only to be rewarded by the Obama Administration until political pressure forced them into private life.
Skepticism abounds as to why the Obama Administration would make such a move when we already have a $289 billion commitment for additional funding to underwrite losses from the twin entities. Treasury Secretary Geithner claimed that they just wanted to stabilize the mortgage market, but, if this was of such great importance and urgency, why was it done so secretively?
What seems to be missing is major reform of the lending practices. There’s no evidence that they’ve become more vigilant in their loan procedures, or more attentive to the credit-worthiness of the borrowers. In fact, it seems pretty clear that they have resumed their lending habits of old.
Proportional fault has never been placed on Fannie Mae and Freddie Mac for the subprime loan crisis.
Because these entities have been protected by Barney Frank in the House and Christopher Dodd in the Senate, the two lenders have escaped the kind of brutal public scrutiny visited upon banks and other lenders. While bankers have been on the hot seat and skewered by late night comedians, the people who run these behemoths have escaped unfazed. If the American people knew that close to $100 billion of our money will be lost by these two in 2009 alone, they might be assaulting their elected officials and calling for heads to roll.
Knowing these facts, it becomes clearer why Obama let this announcement be made by Santa Claus. Everyone was too busy waiting for their presents to realize the country may be taking another huge financial hit – again with very little adult ….
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