Tuesday, September 9, 2008

"Paulson's Stunning Use of Federal Power"

I'm not happy with the information we are receiving from the MSM and others who have reported on the U.S. government's actions regarding where the ultimate responsibility lies for the Fannie Mae/Freddy Mac debacle (if they bothered to do so at all). It seems to me that this has become just another in a long line of unexpected financial events, stemming from the deregulation madness brought by Congressional Rethuglicans gone wild that taxpayers are supposed to think is only one more "nothing to see here, move along" occurrence - a regular part of the business cycle (or at least what has happened to the business cycle under Rethuglican Congressional control). The fishiest part this time is that taxpayers, who have been expected to accept with great humility questionable business/accounting practices for over a decade now (or much longer if you are old enough to remember the financial chicanery that began in the early 1980's during Reagan's tender embrace and has extended through both Bushes and Clinton), have begun to notice that the chickens have found themselves a roost in the taxpayers' savings, as there is no other way to define what happens when the taxpayers have to pick up the bills (and make them good) for the risk taking gone bad of their betters: the financial movers and shakers (remember Phil Gramm recently deigning to call anyone complaining about this loss of purchasing power "whiners?"). (Emphasis marks and some editing are mine.) Steven Pearlstein reports for The Washington Post his view of what it means and why the Treasury has purchased the mortgage-backed securities of Fannie Mae and Freddie Mac with "a tidal surge of federal cash . . . . changing the landscape of housing finance in America."

Secretary Henry M. Paulson Jr. has taken responsibility for assuring that low-interest loans will continue to flow into the country's hard-hit housing markets. Not since the early days of the Roosevelt administration, at the depth of the Great Depression, has the government taken such a direct role in the workings of the financial system. Although the details of yesterday's takeover are complex, the rationale is quite simple: to restore some semblance of normalcy to the housing market. Paulson and other policymakers think that until that happens, neither financial markets nor the wider economy will be able to regain their footing. Fannie and Freddie did not go gently into conservatorship. Although their access to badly needed equity capital had dried up and their borrowing costs had increased, they had hoped that they could muddle through by raising fees and demanding higher interest rates from borrowers. But that plan was cut short when Paulson, backed by Fed Chairman Ben Bernanke and their newly empowered regulator, James Lockhart, concluded that Fannie and Freddie could no longer reconcile their sometimes-conflicting obligations to shareholders and homeowners without posing additional risks to an already shaken financial system. . . . . . . . Under the deal they could not refuse, Fannie and Freddie directors and top executives will lose their jobs. Shareholders will lose their dividends, voting rights and most of their ownership stake, while agreeing to pay dearly for the government's money and backing. Left unharmed will be holders of trillions of dollars in Fannie and Freddie debt - or securities backed by mortgages that Fannie and Freddie have insured against default - who will get all their money back, with interest. In figuring out where all this goes, it is useful to understand how we got to this point. Until this weekend, Fannie and Freddie have been unique entities - for-profit, shareholder-owned companies that were required by government charters to provide low-cost capital to secondary mortgage markets in good times and bad. And for most of the past 40 years, the companies have managed to balance those missions fairly successfully. Shareholders have earned a better-than-average return on their investment, while homeowners have had access to mortgages that not only have lower rates than in other countries, but rates that they can lock in for up to 30 years. But in the mid-1990s, things began to change. Rather than being satisfied with modest growth, Fannie and then Freddie began promising Wall Street double-digit earnings growth, which required them to grow their balance sheets well beyond what was necessary to assure liquidity in the mortgage market. Instead of just buying mortgages, insuring them and selling them in packages to investors, they bought more of them for their own portfolios, using ever-increasing amounts of borrowed money. Buying their own securities was profitable, but it left them highly exposed if anything went really wrong with the housing market, which is exactly what has happened. By 2005, however, Fannie and Freddie found they were losing market share to private competitors offering new, highly profitable mortgage products that they had generally ignored - variable-rate mortgages to homeowners with poor credit histories who offered little or no documentation and borrowed more than 80 percent of the estimated value of their property. To varying degrees, Fannie and Freddie decided to jump into these markets, both by insuring and packaging these mortgages and keeping some of them on their own books. That decision, too, has now come back to haunt them. It is fair to blame Fannie and Freddie executives for these misjudgments, although they were no more misguided than others in the industry. Some of the blame also goes to Fannie and Freddie's regulators - both Lockhart and his predecessor - who failed to use their limited powers to rein in the companies' growth. . . . . . . . It will now take several years at least for Fannie and Freddie to dig out of their financial holes, even with the infusion of taxpayer money. But that will not resolve the long-standing question of whether a for-profit company with some sort of government backing is the best way to assure a steady flow of low-cost capital to the housing markets. The crisis reminds us that, left on its own, the private sector will over-invest when the housing market is hot and then abandon the market when boom turns to bust. That's why Fannie and Freddie were invented, and why keeping them afloat now is crucial. But the lesson from the recent debacle is that if we are going to rely on government to bail out private entities, then government ought to have a much stronger hand in making sure a rescue is never needed.
- - - - - - - Meanwhile, back at the ranch, Sarah Palin continues to avoid all serious questions about her truthiness quotient as she skulks under "the protective bubble of the" non-"Straight Talk Express." And does she know "that in the days prior to Roe v. Wade, being an unwed mother was not publicly acceptable?" Perhaps someone should explain to her that:
Only since the women’s movement and the availability of legal abortion has the terrible stigma that was unmarried motherhood been eased, if not erased. As an advisory group to the Carter administration found, the only alternative to abortion in cases of unwanted pregnancy was motherhood, suicide or madness. Suicide was not uncommon in the face of disgrace, family shunning and abandonment. Many women died from back alley or self-inflicted abortions, and even more were maimed. Anti-abortionists only began embracing “fallen women” when they became rare due to safe, legal abortion.
- - - - - - - And I may be sorry that I am quoting this article from This Can't Be Happening's web site, but it certainly seems to present some solid reporting based on what we know of recent events.
According to reporting in the latest edition of the National Enquirer, a paper routinely maligned as a grocery-store scandal sheet, but actually boasting a skilled investigative reporting team that, as the New York Times admits, makes what passes for investigative reporting these days at most corporate media shops look like bad jokes . . . Palin sought to cover up, perhaps even from John McCain, her 17-year-old daughter’s pregnancy until after she was safely nominated. Her plan, says the Enquirer, which spoke to acquaintances and neighbors in Palin’s hometown of Wasilla, Alaska, had been to get through the convention, then get daughter Bristol married off to the infant-to-be’s father, 18-year-old Levi Johnston, and only then disclose the pregnancy. That devious scheme was reportedly scotched by Bristol, who the Enquirer reports was “at war” with her mother over the idea of a politically motivated shotgun wedding. According to the Enquirer, it was that paper’s disclosure to both Palin and the parents of Johnston, that it was ready to publish the pregnancy story, that led Palin to break the bombshell news about the pregnancy ahead of her nomination — a move that left the McCain campaign embarrassed and exposed to ridicule over its obvious haste and undeniable lack of any vetting of its vice presidential nominee. Why should we care about this domestic melodrama? Because, besides revealing the casualness with which the 72-year-old, health-impaired McCain is willing to treat the job of picking his alternate and likely mid-term successor, it reveals the deceptiveness and the inhumane, ruthless fanaticism of Palin, a candidate who is trying to market herself to voters as “Everymom.” Few real moms or dads in their right mind would try to force a 17-year-old daughter and an 18-year-old boy to get married, simply because they had accidentally conceived a baby. All the odds predict that such parentally imposed pairings are doomed to failure, with much unnecessary trauma and psychic damage to both kids and to their future child along the way. Is Palin afraid her fellow believers on the religious Right would condemn her if her daughter were allowed to bear her child as a single parent? Is she afraid the child would be a (gasp) “bastard”? This kind of religious fanaticism, in which the welfare of young children is run roughshod over for the sake of biblical correctness, has been evident and roundly condemned by Americans when practiced in Taliban-run Afghanistan, or Wahabi-run Saudi Arabia, where women don’t get any choices about their futures. We don’t need it coming from the White House.


WereBear said...

Gee, a nationalized mortgage company! What on earth do they call that...

oh, yeah. Socialism!

These deep-fried assholes have just about run out their string. Right now the clueless members of our electorate are just now waking up to getting sold a bill of goods... again.

I hope stuff like this: dead pets, endangered babies, dangerous produce, and now the mortgage meltdown, can all be linked with "deregulation" in the public's mind over the next generation.

So this particular bill of goods is a harder sell in future.

Suzan said...

I don't even think anybody is paying attention but us, WB.

They're all looking at the cheerleader's legs.