Tuesday, September 23, 2008
Expert, Schmexpert, we need a solution.
As the administration, the Congress and other kibitzers try to seal the deal on the trillion dollar bailout there are two items of importance missing from the so-far proposed solutions; Fannie Mae and Freddie Mac. The solution, which is being danced around, is to dissolve Fannie Mae and Freddie Mac. Create an organization like the Resolution Trust, which was created for the Savings and Loan debacle, to sell the good Freddie and Fannie holdings to investment firms or banks at a small discount and buy up the poor holdings at a greater discount. This will help the housing market find a bottom and at least open up the possibility of a housing recovery. More importantly it will take the Federal Government out of the mortgage business. The Congressional Chairman of the House and Senate Banking Committees should be forced to resign as should their Republican predecessors. The Banking Committees battled and defeated every effort to reform Fannie and Freddie when wiser heads saw the writing on the wall. They should not “Pass Go,” but “Go Directly to Jail.” As noted in a previous column and agreed with by most experts, Fannie Mae, Freddie Mac and the U.S. Congress have led us to this disastrous moment and their only response so far is to bicker over how to spend the taxpayer money that must be injected to save the system. The problems with Fannie and Freddie did not begin last week. Some may argue that the problems started with the inception of the organizations, which were started with taxpayer money and permitted to operate as quasi-government mortgage agencies. Later when there was lots of money in the till the Congress turned Fannie and Freddie loose on the mortgage market by making them "private" companies with stock, chief executives, boards of directors and shareholders. I would say it was more recent. Truth is Fannie and Freddie operated okay for while. Having more money than anybody else they held over 40-percent of all the mortgages in America. At some point along the way the goals of Fannie and Freddie were modified. It has become a cesspool of influence peddling and a dumping ground for administration officials after their party leaves the White House. In fact, we could see Treasury Secretary Hank Paulson emerge as a major player in both organizations when President Bush leaves the White House next year. Jamie Gorelick and Franklin Raines of the Clinton Administration were paid over $100 million to lead Fannie and Freddie, and Raines was president of Fannie Mae when Barack Obama became the largest second largest receiver of contributions from the mortgage giant. Raines has gone on to become a stealth economic advisor to the candidate, as his public presence is no longer of any value. Like other Barack advisors and friends (Ayres, Rezco, Pastor Wright, Louis Farrakhan and others) those who get caught in the media light must be thrown under the bus or made silent and invisible for the good of the candidate. In the 90’s it was decided that removing racism from the mortgage market would be the new goal and Freddie Mae and Fannie Mac were perfectly happy to participate. Through Congressional regulation and financial pressure banks began to provide mortgages in neighborhoods that had been previously locked out through the process of “redlining.” It was an honest enough mistake. Most banks thought they would never see their money from these redlined districts and the Congress felt it was guaranteeing these mortgages so the banks should comply anyway. So they did. The result was an increase in foreclosures, but it was not enough to ring the alarm bells yet. The something more drastic occurred. In order to provide the home-ownership component of the American dream Congressional leaders encouraged to Fannie and Freddie to finance the no-money down, no-income check adjustable rate mortgage and constructed regulations with the help of HUD to package these sub-prime mortgages and sell them to investors in the form of mortgage bundles. This action encouraged mercenary and legitimate real estate and mortgage brokers to sell homes to people who would not have been previously qualified giving rise to the late-nineties housing bubble that pushed up housing prices around the nation. The bubble has now burst because of that old axiom: If it’s too good to be true, it probably is. However American citizens may still have a say if they call their Congressman fast enough.