When will the US financial baillout occur?

[mongon]

BKKT:

 

You wanted more proof, have a read. Fannie and Freddie are at the heart of this crisis, Barney Frank is the face of what caused it, and now he is the one working on and pushing for a bailout.

 

Fannie Mae's Patron Saint

SEPTEMBER 9, 2008

WSJ

 

Taxpayers are now on the hook for as much as $200 billion to rescue Fannie Mae and Freddie Mac, and if you want to know why, look no further than the rapid response to this bailout from House baron Barney Frank. Asked about Treasury's modest bailout condition that the companies reduce the size of their high-risk mortgage-backed securities (MBS) portfolios starting in 2010, Mr. Frank was quoted on Monday as saying, "Good luck on that," and that it would never happen.

 

There you have the Fannie Mae problem in profile. Mr. Frank wants you to pick up the tab for its failures, while he still vows to block a reform that might prevent the same disaster from happening again.

 

At least the Massachusetts Democrat is consistent. His record is close to perfect as a stalwart opponent of reforming the two companies, going back more than a decade. The first concerted push to rein in Fan and Fred in Congress came as far back as 1992, and Mr. Frank was right there, standing athwart. But things really picked up this decade, and Barney was there at every turn. Let's roll the audiotape:

 

In 2000, then-Rep. Richard Baker proposed a bill to reform Fannie and Freddie's oversight. Mr. Frank dismissed the idea, saying concerns about the two were "overblown" and that there was "no federal liability there whatsoever."

 

Two years later, Mr. Frank was at it again. "I do not regard Fannie Mae and Freddie Mac as problems," he said in response to another reform push. And then: "I regard them as great assets." Great or not, we'll give Mr. Frank this: Their assets are now Uncle Sam's assets, even if those come along with $5.4 trillion in debt and other liabilities.

 

Again in June 2003, the favorite of the Beltway press corps assured the public that "there is no federal guarantee" of Fan and Fred obligations.

 

A month later, Freddie Mac's multibillion-dollar accounting scandal broke into the open. But Mr. Frank was sanguine. "I do not think we are facing any kind of a crisis," he said at the time.

 

Three months later he repeated the claim that Fannie and Freddie posed no "threat to the Treasury." Even suggesting that heresy, he added, could become "a self-fulfilling prophecy."

 

In April 2004, Fannie announced a multibillion-dollar financial "misstatement" of its own. Mr. Frank was back for the defense. Fannie and Freddie posed no risk to taxpayers, he said, adding that "I think Wall Street will get over it" if the two collapsed. Yes, they're certainly "over it" on the Street now that Uncle Sam is guaranteeing their Fannie paper, and even Fannie's subordinated debt.

 

By early 2007, Mr. Frank was in charge of the House Financial Services Committee, arguing that he had long favored some kind of reform. "What blocked it [reform] last year," Mr. Frank said then, "was the insistence of some economic conservative fundamentalists in the Bush Administration who, to be honest, don't think there should be a Fannie Mae or a Freddie Mac." What really blocked it was Mr. Frank's insistence that any reform be watered down and not include any reduction in their MBS holdings.

 

In January of last year, Mr. Frank also noted one reason he liked Fannie and Freddie so much: They were subject to his political direction. Contrasting Fan and Fred with private-sector mortgage financers, he noted, "I can ask Fannie Mae and Freddie Mac to show forbearance" in a housing crisis. That is to say, because Fannie and Freddie are political creatures, Mr. Frank believed they would do his bidding.

 

And this is exactly what Mr. Frank attempted to prove when the housing market started to go south. He encouraged the companies to guarantee more "affordable" mortgages, thus abetting their disastrous plunge into subprime and Alt-A loans. He also pushed for, and got, an increase in the conforming-loan limits to allow Fan and Fred to securitize and guarantee larger mortgages. And he pressured regulators to ease up on their capital requirements -- which now means taxpayers will have to make up that capital shortfall.

 

But the biggest payoff for Mr. Frank is the "affordable housing" trust fund he managed to push through as one political price for the recent Fannie reform bill. This fund siphons off a portion of Fannie and Freddie profits -- as much as $500 million a year each -- to a fund that politicians can then disburse to their favorite special interests.

 

This is also why Mr. Frank won't tolerate cutting the companies' MBS portfolios. He knows those portfolios (bought with debt borrowed at taxpayer-subsidized rates) were a main source of Fannie's profits before the housing crash, and he figures that once this crisis passes they can do it again. And this time, his fund will get part of the loot.

 

* * *

Mr. Frank has had many accomplices from both parties in his protection of Fan and Fred. But he was and is among the most vociferous and powerful. In any other area of American life, this track record would get a man run out of town. In Washington, he's hailed as a sage whose history of willful error will be forgotten faster than taxpayers can write a check for $200 billion.

 

 

Link

[mongon]

For an example of the sort of crap this guy forces onto taxpayers, here is an actual bill he got passed in the House:

 

H.R. 1852, the Expanding American Homeownership Act of 2007, contains a directive for FHA to serve high risk (FICO score of 560 or lower) borrowers, while lowering up-front fees for high-risk buyers and allowing a zero down payment for first-time home buyers.

 

Sounds like a subprime mortgage. Frank requires the FHA (i.e. the gov) to guarantee this crap.

 

here

[mongon]

So long as the Dems kept making it easier for Fannie and Freddie to finance mortgage deals, they got paid off very well. The lower the credit score of borrowers that Dems would permit, the more deals/money F and F could make; the more money F and F made, the bigger the payoffs to the Dems in return. Anyone who wanted to do something about this had no chance. Chris Dodd could filibuster in the Senate and that would be the end of it.

 

Have a look at the top recipients of F and F money, you will see some interesting names.

 

Open Secrets

[Faustian]

Interesting list, which doesn't actually mean much....it is guilt by association, not actual wrong doing.

[Bangkoktraveler]

For an example of the sort of crap this guy forces onto taxpayers, here is an actual bill he got passed in the House:

 

H.R. 1852, the Expanding American Homeownership Act of 2007, contains a directive for FHA to serve high risk (FICO score of 560 or lower) borrowers, while lowering up-front fees for high-risk buyers and allowing a zero down payment for first-time home buyers.

 

Sounds like a subprime mortgage. Frank requires the FHA (i.e. the gov) to guarantee this crap.

 

here

 

 

H.R. 1852 was sponsored by Rep. Maxine Waters [D-CA]

The Cosponsors [as of 2008-09-27] are

Del. Donna Christensen [D-VI]

Rep. Elijah Cummings [D-MD]

Rep. Anna Eshoo [D-CA]

Rep. Bob Etheridge [D-NC]

Rep. Barney Frank [D-MA]

Rep. William Jefferson [D-LA]

Rep. Edward Markey [D-MA]

Rep. James Moran [D-VA]

Rep. Bobby Rush [D-IL]

Rep. Adam Schiff [D-CA]

Rep. Albio Sires [D-NJ]

Rep. Peter Welch [D-VT]

Rep. Albert Wynn [D-MD]

 

This bill has not been passed yet.

 

 

"This bill has been passed in the House. The bill now goes on to be voted on in the Senate. Keep in mind that debate may be taking place on a companion bill in the Senate, rather than on this particular bill. [Last Updated: Sep 26, 2008]"

 

Sep 18, 2007: This bill passed in the House of Representatives by roll call vote. The totals were 348 Ayes, 72 Nays, 12 Present/Not Voting.

 

225 Democrats voted YES 123 Republicans also vote YES.

 

The bill would establish pilot program to allow mortgagors with insufficient credit histories to obtain an alternative credit rating based on rent, utilities, and insurance payment histories.

 

The bill would also Authorize the Secretary to: (1) establish underwriting standards for higher-risk mortgages for mortgagors with a credit score equivalent to a FICO score of less than 560; (2) provide for flexible premium rate variations according to the credit risk associated with the type of mortgage product being insured; and (3) create certain payment incentives, both discretionary and mandatory.

 

 

 

 

[..]

Mongon, you are being fooled by the GOPers "shiny object" blame game -- Ooo, look, shiny! Pay no attention to the man behind the curtain. None of what you posted has much to do with the problem at hand, and it is very important to understand why.

 

The mortgage pools which were bundled into mortgage-backed securities (MBS) were separated into tiers of anticipated likely failure rates, called tranches, and this process was in many cases repeated at multiple levels. Under pretty much zero regulation; that's why the banker's invented these -- to game the system. What that means in practice is that for an MBS which is not based on senior tranches, the value of that security is very much like being a creditor who is last in line during a bankruptcy process. If the banks did not have this shitty paper to burn off shitty debts to some other clueless entity, then they would have never made those bad loans nor forced appraisers to inflate appraisals -- Frank's legislation in no way forced banks to make bad business decisions.

 

All of the money which can be extracted from the underlying set of mortgages will be used to pay off the senior tranches first and to do so completely, while the junior tranches will be left to see if there is anything left for them before the cash runs out. If the monetary stream runs dry before the junior tranches are paid, they can sustain up to 100% losses even if the default rate of the underlying mortgages is much closer to 0 than it is to 100%.

 

It is precisely the MBS which are based on junior tranches which the investment banks will be selling to the Treasury first, and then progressively more senior ones as they get deeper into their dodgy paper, as the unloading process continues.

 

This means that the first batch of paper sold to the Treasury by each investment bank will be completely and utterly worthless, and subsequent batches will only be worth something if they dig deep enough into their MBS pile to start selling us paper based on senior tranches - which they have little incentive to do because those securities are known by everybody on the Street to have value and will be liquid as a result.

 

So just because the actual houses continue to hold their value, or not, does not mean that the securities based on them will have any movement in value at all.

 

As a wild off the cuff guess, I'd estimate that if we purchase $700 billion in MBS over the next six months, the Treasury will be lucky indeed to recoup $100 billion from that mess of paper. Hence it was a bad deal and was rightly defeated.

 

Cheers,

SD

[Old Hippie]

The issues I have with all this is the people who profited from it keeping the money, and getting more. Additionally, if we bail out these guys, then we need to bail out ALL businesses who deliberately fuck up, car makers, airlines etc...then of course there are pension issues, why not just bail out everyone who fucks up, or gets fucked over?

 

I'm all for helping everyone we can, to slow/shorten the fall out, but we should have a well thought out plan that is carefully scrutinized before it is enacted.

[Bangkoktraveler]

The issues I have with all this is the people who profited from it keeping the money, and getting more. Additionally, if we bail out these guys, then we need to bail out ALL businesses who deliberately fuck up, car makers, airlines etc...then of course there are pension issues, why not just bail out everyone who fucks up, or gets fucked over?

 

I'm all for helping everyone we can, to slow/shorten the fall out, but we should have a well thought out plan that is carefully scrutinized before it is enacted.

 

If we let the market correct itself, then we will get rid of the shit players and I can guarantee this will not hapen again. If we bail them out, all we are doing is rewarding them for abusing their power (as oppose to making bad mistakes).

 

[Steve]

Almost all the politicians said they don't like the bailout bill and those that have voted for it said they are holding their noses and voting for it.

 

So I'm supposed to like the bill? A bill you don't even like?

 

Furthermore, the ones that are trying to get it past are chastizing those that are against it for actually listening to their constituents who are vehemntally against it. Aren't they supposed to listen to the will of the people? At least the ones in their district? The people have spoken, respect the decision do it. The only times I would not listen to the wil of the people is if it violates the constitution or bill of rights specifically or in spirit. This does neither.

 

What really pisses me off was the treasury originally wanting what amounts to dictatorial powers over the money. No accountability and the nerve to include language absolving them from any legal ramifications.

It illustrates how the administration has been and how they view themselves as above the law. Its not the first time. Bush, Cheney and company have done it before.

 

My view is still NO. Yes, there is a crisis and yes, there will be some "pain" (sharp drops in the stock market, bank failures) but so far without a bailout plan, the sky hasn't fell from the sky. The free market has been working well so far.

 

One more thing, Paulson is no economist. He is an investment banker. Totally different thing. Bernacke is though.

 

My view is that Congress with the administration should create a group to spend the money. The group should include academics, as well as market guys who have a relationship with the players. Remove as much politics and patronage from the decision making. The group would step in IF things get bad enough.

 

Finally, I'm disappointed Obama is for it frankly. I think most of them felt there was no choice. I think the complexity of the problem would confound a lot of economists. He, McCain and all of us have to rely on the view from the administration to a large extent. I'd like the view of those who have the knowledge but no political ties.

[Julian2]

I came across this yesterday.

 

Friends,

 

Let me cut to the chase. The biggest robbery in the history of this country is taking place as you read this. Though no guns are being used, 300 million hostages are being taken. Make no mistake about it: After stealing a half trillion dollars to line the pockets of their war-profiteering backers for the past five years, after lining the pockets of their fellow oilmen to the tune of over a hundred billion dollars in just the last two years, Bush and his cronies -- who must soon vacate the White House -- are looting the U.S. Treasury of every dollar they can grab. They are swiping as much of the silverware as they can on their way out the door.

 

No matter what they say, no matter how many scare words they use, they are up to their old tricks of creating fear and confusion in order to make and keep themselves and the upper one percent filthy rich. Just read the first four paragraphs of the lead story in last Monday's New York Times and you can see what the real deal is:

 

"Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

 

"Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

 

"At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

 

"Nobody wants to be left out of Treasury's proposal to buy up bad assets of financial institutions."

 

Unbelievable. Wall Street and its backers created this mess and now they are going to clean up like bandits. Even Rudy Giuliani is lobbying for his firm to be hired (and paid) to "consult" in the bailout.

 

The problem is, nobody truly knows what this "collapse" is all about. Even Treasury Secretary Paulson admitted he doesn't know the exact amount that is needed (he just picked the $700 billion number out of his head!). The head of the congressional budget office said he can't figure it out nor can he explain it to anyone.

 

And yet, they are screeching about how the end is near! Panic! Recession! The Great Depression! Y2K! Bird flu! Killer bees! We must pass the bailout bill today!! The sky is falling! The sky is falling!

 

Falling for whom? NOTHING in this "bailout" package will lower the price of the gas you have to put in your car to get to work. NOTHING in this bill will protect you from losing your home. NOTHING in this bill will give you health insurance.

 

Health insurance? Mike, why are you bringing this up? What's this got to do with the Wall Street collapse?

 

It has everything to do with it. This so-called "collapse" was triggered by the massive defaulting and foreclosures going on with people's home mortgages. Do you know why so many Americans are losing their homes? To hear the Republicans describe it, it's because too many working class idiots were given mortgages that they really couldn't afford. Here's the truth: The number one cause of people declaring bankruptcy is because of medical bills. Let me state this simply: If we had had universal health coverage, this mortgage "crisis" may never have happened.

 

This bailout's mission is to protect the obscene amount of wealth that has been accumulated in the last eight years. It's to protect the top shareholders who own and control corporate America. It's to make sure their yachts and mansions and "way of life" go uninterrupted while the rest of America suffers and struggles to pay the bills. Let the rich suffer for once. Let them pay for the bailout. We are spending 400 million dollars a day on the war in Iraq. Let them end the war immediately and save us all another half-trillion dollars!

 

I have to stop writing this and you have to stop reading it. They are staging a financial coup this morning in our country. They are hoping Congress will act fast before they stop to think, before we have a chance to stop them ourselves. So stop reading this and do something -- NOW! Here's what you can do immediately:

 

1. Call or e-mail Senator Obama. Tell him he does not need to be sitting there trying to help prop up Bush and Cheney and the mess they've made. Tell him we know he has the smarts to slow this thing down and figure out what's the best route to take. Tell him the rich have to pay for whatever help is offered. Use the leverage we have now to insist on a moratorium on home foreclosures, to insist on a move to universal health coverage, and tell him that we the people need to be in charge of the economic decisions that affect our lives, not the barons of Wall Street.

 

2. Take to the streets. Participate in one of the hundreds of quickly-called demonstrations that are taking place all over the country (especially those near Wall Street and DC).

 

3. Call your Representative in Congress and your Senators. (click here to find their phone numbers). Tell them what you told Senator Obama.

 

When you screw up in life, there is hel_l to pay. Each and every one of you reading this knows that basic lesson and has paid the consequences of your actions at some point. In this great democracy, we cannot let there be one set of rules for the vast majority of hard-working citizens, and another set of rules for the elite, who, when they screw up, are handed one more gift on a silver platter. No more! Not again!

 

Yours,

Michael Moore

MMFlint@aol.com

MichaelMoore.com

 

P.S. Having read further the details of this bailout bill, you need to know you are being lied to. They talk about how they will prevent golden parachutes. It says NOTHING about what these executives and fat cats will make in SALARY. According to Rep. Brad Sherman of California, these top managers will continue to receive million-dollar-a-month paychecks under this new bill. There is no direct ownership given to the American people for the money being handed over. Foreign banks and investors will be allowed to receive billion-dollar handouts. A large chunk of this $700 billion is going to be given directly to Chinese and Middle Eastern banks. There is NO guarantee of ever seeing that money again.

 

P.P.S. From talking to people I know in DC, they say the reason so many Dems are behind this is because Wall Street this weekend put a gun to their heads and said either turn over the $700 billion or the first thing we'll start blowing up are the pension funds and 401(k)s of your middle class constituents. The Dems are scared they may make good on their threat. But this is not the time to back down or act like the typical Democrat we have witnessed for the last eight years. The Dems handed a stolen election over to Bush. The Dems gave Bush the votes he needed to invade a sovereign country. Once they took over Congress in 2007, they refused to pull the plug on the war. And now they have been cowered into being accomplices in the crime of the century. You have to call them now and say "NO!" If we let them do this, just imagine how hard it will be to get anything good done when President Obama is in the White House. THESE DEMOCRATS ARE ONLY AS STRONG AS THE BACKBONE WE GIVE THEM. CALL CONGRESS NOW.