By Steve Sailer
03/03/2009
The dreams from his father are coming true.From the New York Times:
U.S. Likely to Keep the Reins on Fannie and Freddie By CHARLES DUHIGGWhat could possibly go wrong with more lending to more questionable borrowers?Despite assurances that the takeover of Fannie Mae and Freddie Mac would be temporary, the giant mortgage companies will most likely never fully return to private hands, lawmakers and company executives are beginning to quietly acknowledge.
The possibility that these companies — which together touch over half of all mortgages in the United States — could remain under tight government control is shaping the broader debate over the future of the financial industry. The worry is that if the government cannot or will not extricate itself from Fannie and Freddie, it will face similar problems should it eventually nationalize some large banks.
The lesson, many fear, is that a takeover so hobbles a company’s finances and decision making that independence may be nearly impossible.
In the last six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.
Lawmakers have given the companies access to as much as $400 billion in taxpayer dollars, a sum more than twice as large as the pledges to Citigroup, Bank of America, JPMorgan Chase, General Motors, Wells Fargo, Goldman Sachs and Morgan Stanley combined.Interestingly, in Southern California, homes have started to sell again in the hardest hit exurbs. The secret? Foreclosures and price cuts of fifty percent or more. Nothing is selling in Santa Monica, where homeowners continue to believe that they just plain deserve seven figures for their four room shacks. (Santa Monica has some very small houses, along with some big ones — affluent people moving to Southern California before the invention of antibiotics preferred the dry Pasadena area to the damper beach). But out in the high desert, realism has returned and the number of sales has bounced back somewhat.Regulators defend those actions as essential to battling the economic crisis. Indeed, Fannie and Freddie are basically the only lubricants in the housing market at this point.
But those actions have caused collateral damage at the companies. On Monday, Freddie Mac’s chief executive, David M. Moffett, unexpectedly resigned less than six months after he was recruited by regulators, having chafed at low pay and the burdens of second-guessing by government officials, according to people with knowledge of the situation.The more the government demands "affordable" housing, the less affordable it gets.Fannie Mae has also experienced a wave of defections as people leave for better-paying and less scrutinized jobs.
Last week, Fannie Mae announced that it lost $58.7 billion in 2008, more than all its net profits since 1992. Freddie Mac is also expected to reveal record losses in coming days.
Most important, by taking over the companies, lawmakers have gained a lever over the housing market and national economy that many — particularly Democrats — are loath to discard, legislators say.
”Once government gets a new tool, it’s virtually impossible to take it away,” said Representative Scott Garrett, a Republican of New Jersey and member of the Financial Services banking subcommittee. “And Fannie and Freddie are now tools of the government.”
One reason that Fannie and Freddie will never return to their earlier forms is simple mathematics: to become independent, Fannie Mae and Freddie Mac must repay the taxpayer dollars invested in the companies, plus interest. Even if the firms achieve profitability, it could take them as long as 100 years — or longer — to pay back the government. And almost no one expects the companies to return to profitability anytime soon.
Moreover, the takeover has provided legislators with a long-sought ability to influence the mortgage marketplace directly and pursue social goals like low-income housing.
”There is a commitment to restructure these companies, and we are going to want to retain a hand in the things that matter, like affordable housing and making sure that the housing economy doesn’t become a threat to the entire economy again,” said Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee. “Some of what these companies did will be returned to the private sector, and some of it is going to remain with a public entity.”
Your Lying Eyes has more on the Big Picture:
The persistence of a few huge zombie banks, completely dependent on the Obama administration for their existence, will provide the streams of "capital" to fund administration-approved "private" ventures — the various health "insurers" and green "entrepreneurs" that will spring up in Obamaland. Any income that might have been dumped into savings in the past will now be redirected to "investments" in education and infrastructure. (Can I use any more scare quotes?)Granted, this was not Obama’s precise plan back when he and David Axelrod decided he should become president. Obama envisioned that as POTUS he could harness this incredible wealth-making machine that is the USofA to accomplish all the things he would have liked to have accomplished as a community organizer if being a community organizer didn’t totally suck. You know, like back when he was still talking about how "white folks' greed runs a world in need". So what to do when the white-greed machine blows a serious gasket?
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