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Fannie Mae Blight Plagues America

By Larry Doyle on February 27, 2010 at 9:00 AM in Bailouts, Economy, Sense on Cents (Larry Doyle blog)

Is it any surprise that the next drawdown in a multi-billion dollar ongoing bailout gets posted at 5pm on a Friday afternoon? Not in this economy where Uncle Sam, that’s you and me boys and girls, continues to pay for the woefully mismanaged financial and legislative practices of those in Washington.

The gutless typically prefer to operate under a veil of darkness.

I am referring to the sinkhole that is the organization known as Fannie Mae, as it comes back to the well for another $15 billion. Bloomberg highlights this ongoing bleeding in writing, Fannie Seeks $15 Billion in U.S. Aid After 10th Straight Loss:

Fannie Mae, the mortgage-finance company under federal conservatorship, said it will seek $15.3 billion in aid from the U.S. Treasury after posting a 10th straight quarterly loss.

A fourth-quarter net loss of $16.3 billion, or $2.87 a share, pushed the company to request its fifth draw on an unlimited lifeline from the government, Washington-based Fannie Mae said in a filing today with the Securities and Exchange Commission.

Fannie Mae, which posted $120.5 billion in losses over the previous nine quarters, has already taken $59.9 billion in federal aid since April. Its shares, which peaked at $87.81 in December 2000, closed at 99 cents today in New York Stock Exchange composite trading.

While America has become numbed by the steady flow of red ink pouring from this organization, the fact is that Fannie’s then CEO, Franklin Raines, raped and pillaged this organization and walked out the door with tens of millions in bonus money. Franklin’s successor, Daniel Mudd, was an administrator not a risk manager.

Franklin’s friends up on the Hill, including Barney Frank, Chris Dodd, John Kerry, Barack Obama, et al not only promoted the misguided policies allowing Fannie to grow out of control, but these pols lined their pockets in the process.

If these aforementioned individuals worked in the private sector, they not only would have been summarily fired but they would have been banished as well.

I forecasted these losses at Fannie Mae last July in writing, Uncle Sam’s Dirty Little Secret Is Revealed:

The fact remains that these two wards of the state are no longer for profit entities but rather vehicles for promoting Obama’s housing plans and redistribution of wealth.

The losses within Fannie and Freddie will accrue as long as housing delinquencies and defaults increase. No credible analyst can truly predict when those statistics may peak. They can guess but given the runup in home prices along with the growth in housing, that is all they can do.

In fact, the argument can be made that the very policies being utilized to forestall delinquencies and defaults will ultimately exacerbate and extend the pressure on the housing market, and in turn, Fannie’s and Freddie’s losses.

Will the American taxpayer ever see a return on the funds being pumped into Fannie and Freddie? Don’t hold your breath.

These losses were avoidable.

This is no way to run a country.

LD

  • My other site

    Why do conservatives harp on Fannie Mae (an irresponsible company to be sure) when thousands of private banks and mortgage lenders did the exact same thing and taxpayers are paying for their corruption?  This recession wasn’t caused by Fannie Mae and Freddie Mac, but by a huge nationwide real estate bubble supported by they Bush administration.  I am always sorry to see people grasping at any straw to keep from admitting their party or their leaders did wrong things.  That partisan mindset is what keeps this country on the downturn.

  • mortuus lark

    Where did Fannie Mae learn its corrupted ways? No not from Congress but from us the American people. We are corrupted and they are corrupted, we all are corrupted. Lets be happy with all our corrupted ways.

    And soon our corruption will give birth to a new kind of Mafia to contest the governments authority and then we will become even happier people. It happened in Russia and is happening in many other countries and since we are now immitating everyone else in the world, well it can only be that we get a good measure of Mafia organizations to oppose government controls.

    We’ll see. I hope not but hope is now dead too.

  • mortuus lark

    Where did Fannie Mae learned its corrupted ways? No not from Congress but from us the American people. We are corrupted and they are corrupted, we all are corrupted. Lets be happy with all our corrupted ways. 
     
    And soon our corruption will give birth to a new kind of Mafia to contest the governments authority and then we will become even happier people. It happened in Russia and is happening in many other countries and since we are now immitating everyone else in the world, well it can only be that we get a good measure of Mafia organizations to oppose government controls. 
     
    We’ll see. I hope not but hope is now dead too.

  • HARP

    The subprime mortgage crisis started because banks and mortgage companies packaged risky loans and resold them on the secondary market, which was created by the legislation that created Fannie Mae and Freddie Mac. This legislation was supposed to help homeownership become more affordable.

  • mortuus lark

    Yes, both of you are right. The thing is that professionals in the entire field of banking as well are real estate, all the professionals knew they were doing something wrong and that they were gaming the system for their own gane.

    But they wanted to keep their status as deacons and elders in their churches and others wanted to bring lots of money for church projects and charitable deeds where people in their churches and their pastors would raise them to high esteem.

  • mortuus lark

    You are right. This is not a problem of party politics. Is a problem of immorality. Pastors and priest knew that their financial professionals and real estate professionals were immoral but they liked to see their donations flow. This is a problem were the whole society suffer of immorality because pastors and preachers are accomplice in wrongdoing.

  • mortuus lark

    Yes, both of you are right. The thing is that professionals in the entire field of banking as well are real estate, all the professionals knew they were doing something wrong and that they were gaming the system for their own gane. 
     
    But they wanted to keep their status as deacons and elders in their churches and others wanted to bring lots of money for church projects and charitable deeds where people in their churches and their pastors would raise them to high esteem.

    This is not a problem of party politics. Is a problem of immorality. Pastors and priest knew that their financial professionals and real estate professionals were immoral but they liked to see their donations flow. This is a problem were the whole society suffer of immorality because pastors and preachers are accomplice in wrongdoing.

  • Anonymous

    I have no problem calling out Republicans or anybody else when they deserve it. I have done that in plenty of my writing. 

    The simple fact is the Dems to a VERY large extent fostered and promoted the practices and programs at Freddie and Fannie throughout the years. America is now saddled with the losses. 

    Actually fairly simple. 

    Your point and question are solid. I have no interest in partisan BS. I have every interest in exposing truth where and as I see it. 

  • Larry Doyle

    Inadvertently I forgot to enter my name to my comment above. 

    LD

  • felizarte

    Speak for yourself Lark; don’t use US in talking  about corruption at Fannie and Freddie.  Talk about the people directly involved such as Rahm Emmanuel’s stint at Fannie, Barney Frank’s friend, Raines and their relationship with Barack, and Obama as senator, Barac as POTUS and wasting all that time on the hc monstrosity instead of the pressing real estate/banking-finance/home foreclosures.  Barack has only shown his inability to set priorities and utter lack of empathy for the suffering of millions of his felloiw Americans.   

  • Hokma

    You are wrong.

    The real estate mortgage problem began under Jimmy Carter and the Community Reinvestment Act which ultimately forced banks to break their lending policies in order to get credit unworthy people to get mortgages for homes. The CRA was enacted with the false belief that it was every citizen’s constitutional right to own a home.

    The law suits from civil rights groups that forced banks to break their standards is where this started and resulted in banks creating new methods of lending.

    The credit problem in this country did not start or end with Bush. It hs been going on for decades and economists had been warning Americans that this credit problems would be a crisis for a very long time and no one paid much attention.

    At the time that Bush wanted to reform this, it was the new Democratic majority that stopped it with Barney Frank saying there was nothing wrong.

  • Diana L. C.

    There are many, many people who are also left-leaning centrists, though the country as a whole may be largely right-leaning centrists.  As one of the left-leaning centrists, the more conservative stances I have always taken were for financial reasons.  I have just never been a financial risk taker.  I have never felt it right to take those risks on other people’s money and hard work.  So, I often become upset when someone like “my other site” or m. lark blame me for financial irresponsibility.  I get upset when those same people label Larry Doyle with the broad stroke of “conservative,” as if to lump him in with neo cons, etc.

    The money in Raines’ coffers and in Obama’s coffers that were given to them by Fannie Mae and Freddie Mac was partly my money, now that I, as a tax payer, am being asked to bail out this organization.

    Poor people do need to figure out how to get themselves out of poverty.  But since recorded time, the way to do that is to work hard and save for one’s dreams.  It should never be that someone else should have to give over the fruits of their labor through taxes to help them–other than by giving to personally chosen charities.  

  • Diana L. C.

    And I meant to add after my second paragraph how angry it makes me feel to give one more dime to Fannie Mae in the form of government bailout

  • Guest

    TARP to the banks is being repaid in full or nearly so.

    However, the taxpayer money poured into Fannie and Freddie we’ll never see again. And there will be more dollars down this rathole to come.

    Folks, pay close attention to Fannie and Freddie. This is EXACTLY how Obamacare will play out.

    Providing health insurance under Obamacare regulation will not be an ordinary competitive activity for companies.

    Over the first few years of Obamacare, there will be mergers, encouraged by the government, until there is only a handful of eligible national health insurance providers.

    By necessity, these handful of companies will be very closely tied to the federal bureaucracy, as the most important business factor for each of them will be their relationship with their regulator.

    Like Fannie and Freddie, the few national health insurance companies will be seen by the market as quasi-federal entities, with an implicit federal guarantee of their financing requirements.

    At some point, there will be a dip in the market or some other event and the insolvency of these few companies will be made obvious.

    Then, like Fannie and Freddie, the companies will be brought directly under the federal umbrella and we will thereby be at the single-payer system which was the object of Obamacare from the beginning.

  • mortuus lark

    Did you say, Barack has only shown his inability to set priorities and utter lack of empathy for the suffering of millions of his felloiw Americans?

    I thought you said that.

    Did you said that?

    I thought you said that.

    Baaambiiino.

  • HARP

    For those keeping score at home, Fan’s three-year losses of $137 billion, as reported by the Associated Press’s Alan Zibel yesterday evening, plus the roughly $80 billion lost in the same period at kissing cousin Freddie Mac (“Fred”), is over three times the highest-end estimate of $66 billion in total losses at household word Enron, and over four times the roughly $50 billion investors lost to household name Bernie Madoff. Enron and Madoff are history; Fan and Fred are just warming up, and a large portion of the public has no idea who they are.
    Oh, by the way, Fan also told us yesterday that it would need another $15.3 billion in cash by the end of March. That would bring the total of Uncle Sam’s combined Fan-Fred cash infusions to $126 billion.

    http://newsbusters.org/

  • mortuus lark

    All very excellent points. I would only add “UNDER THE BEST SCENARIO.”

  • mortuus lark

    But the house that foreclosed very close to your home would still be holding for a buyer that would need to offer a sum close to what the selling realtor would call “market value.” Allowing you to believe that the market value of your home remains around 150 thousand or more – so that the property appraiser would have no trouble stabilizing values and the County Tax Collector (BELOVED OF ALL) would have no trouble collecting a good size millage rate of or around 1 thousand per household minimum – for good productive schools – of course – that aim are educating the professionals of the future.

    Oh America is the dwelling place of happy people.

  • Tricia

    Such scary stuff, Larry D., but thank you for keeping us informed.  I know we are all hurting, and it helps a little to understand why.

  • Peggy Sue

    Yup, yup and yup.  The blame for this economic mess is equal opportunity.  But when it comes to Fannie and Freddie, the Dems win the prize.  Raines, I understand, walked off with 90 million dollars during the fiasco.  And Barney Frank was touting the stability of the institutions 3 days before they imploded.

    And no.  This is no way to run country.  Not if you want it to survive. 

  • Tex-Mex Soup

    They wouldn’t be having these losses, if they would simply work with homeowners to modify their loans.  Fannie Mae is not putting enough pressure on the banks who service their accounts to step up to the plate and get the loans modified. 

  • Docelder

    Pretty much anything these “new democrats” say anymore are lies. Nobody in the media ever calls them on it, so they become emboldened to just lie bigger next time around. This is going to destroy democracy, because there is no basis for trust in government.

  • Docelder

    But if you actually want it to implode so that it can be rebuilt into some socialist Utopia, then it makes more sense. All this administration has given us has been crisis upon crises. It is absolute rule by way of fear.

  • Docelder

    They aren’t modifying loans, bcause we little people aren’t supposed to own homes in the end of this. We will all be renting from the holding companies of the banks which are too big to fail. They in turn can partner with government. Government won’t have to worry about us, they can just deal with the big boys. It is like marxism in teh effect but not for marxist reasons. I will call it corporatist fascism for the lack of a better term. Whatever it is, it isn’t freedom.

  • No Longer Banned in Beantown

    Warren Buffets latest idea has my vote.

    NEW YORK (Fortune) — Warren Buffett has an elegant solution for the thorny problem of too-big-to-fail banks: Put the bankers’ bank accounts on the line.

    http://www.noquarterusa.net/blog/2010/02/27/fannie-mae-blight-plagues-america/#respond 

  • Anonymous

    Larry – you are awesome – my son is majoring in business and wrote a paper last semester analyzing Freddie and Fannie and the “roots of rotten mortgages.” He read your article from July and went back to the Community Reinvestment Act in the 70′s when orgs like ACORN were mobilizing their forces in the local legislatures and the local financial institutions to force loans to unqualified persons. This has been 3 decades in the making and I fear that an economic tsunami of unemployment, more foreclosures and deflation is upon us. And who do we have in the lead, the same people that caused this mess decades ago – God help us, if you believe you better start praying and if not save every last penny you can, you’re going to need it.

  • MBC

    Where do we save it?  I fear even with careful diversification, the government will end up with it anyway.  The mattress?

  • Larry Doyle

    Thanks very much!! How did your son do on his paper? Hope his prof was inclined to read and understand the truth as opposed to wanting to promote his own ideology. 

    Thanks again. 

    LD

  • M Miller

    You need to look past Frank, Dodd, et al. You need to see that on December 24, 2009 Congress granted ‘unlimited’ funds to FM and FM. This was done while Barney Frank introduced legislation to dismantle both agencies as they should be noted in the Federal Budget and are not. This adds two trillion more to the deficit…
    Second and more importantly..look at the bank failures…The Wall Street Journal reports that a consortium of investors..bought Indy Mac..remember them? They were Countrywide and several others whose portfolios of mortgages-backed by the FDIC..were guaranteed by the US government Fannie Mae and Freddie Mac..HUNDREDS of BILLIONS of dollars worth of assetts from that failure..INDY MAC.. were purchased by George Soros and his consortium..for less than one hundred million dollars on paper. The bank is now called ONE WEST. Look it up!
    They just did it again for a bank in Florida, Illinois and LaJolla..BILLIONS OF LOANS LISTED AS ASSETTS FOR NOTHING, ALL BACKED BY FANNIE MAE AND FREDDIE MAC..now owned by George Soros and his friends through their different consortiums..Look it up!
    That’s why Frank wants to close them now..the trail leads to him and Dodd. How much more can this country absorb from Obama? He and Geitner are aware of this..