Washington’s capacity to foster crony capitalist larceny and corruption never ceases to amaze. But according to Bloomberg, Wall Street’s shameless thievery from US taxpayers is about to get a whole new definition.
To wit, Freddie Mac is handing three private equity billionaires deeply subsidized debt financing in order to undertake $18 billion in rental apartment deals. According to no less an authority than Morgan Stanley, the subsidy embedded in this cheap financing amounts to 150 basis points or roughly $150 million per year on the loan amounts in play.
– New York Times Reports – “Fannie and Freddie are Back, Bigger and Badder Than Ever” (Liberty Blitzkrieg, July 22, 2015):
Just in case you still harbored any doubt that absolutely zero lessons were learned from the cataclysmic financial collapse of 2008/09. We learn from the New York Times that:
AFTER the financial crisis of 2008, there was one thing that almost everyone agreed on. The government-sponsored mortgage giants, Fannie Mae and Freddie Mac, had to go. While shareholders and executives reaped the profits from Fannie and Freddie in good times, taxpayers were stuck with the bill in a crisis. President Obama described their dysfunctional business model as “Heads we win, tails you lose.” But here we are, seven years after the crisis, and nothing has changed.
– Government Hints Fannie/Freddie Would Need Another Bailout If Conditions Deteriorate (ZeroHedge, March 19, 2015):
FHFA finds that the GSEs might well need billions more in taxpayer dollars in the event of a downturn, suggesting the deck may be stakced against those the companies’ common.
– If At First You Fail Miserably & Blow Up The Financial System, Do It Again! (ZeroHedge, Dec 9, 2014):
Here we go again! Mortgage giants Fannie Mae and Freddie Mac have now officially approved 3% down payment mortgages. Having government entities provide low down payment mortgages to people who can’t afford to buy a house is always a good move. Keynesians like Krugman approve wholeheartedly. The housing market will get a nice boost and the working taxpayers will fund the bad debt through Fannie and Freddie. You own Fannie and Freddie. Everyone wins. In case you forgot, the closing costs to sell a house are usually 8% of the home price. So these home buyers are immediately 5% underwater when they move in… “Sometimes I can’t believe I live in a world this f##ked up. And no one notices and no one cares.”
– Mel Watt, Federal Housing Finance Agency Head, is Pushing Banks to Make Extremely Risky Home Loans (Liberty Blitzkrieg, Oct 16, 2014):
Mel Watt is one of the most dangerous financial oligarch puppets operating in America today. The first time he came across my radar screen was back in 2009, when he “gutted” Ron Paul’s End the Fed bill while it was in subcommittee, something I outlined in the post: Leverage in PE Deals Soars Despite Fed Warnings; Amidst Insatiable Demand for Risky Fannie Mae Debt.
– Bank Of America Caught Frontrunning Clients (ZeroHedge, Jan 25, 2014):
Every time a TBTF bank releases its 10-Q, we head straight for the section, usually well over 100 pages in, that discloses the bank’s total profitable trading days.
This is what the most recent Bank of America 10-Q said on this topic:
The histogram below is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for the three months ended September 30, 2013 compared to the three months ended June 30, 2013 and March 31, 2013. During the three months ended September 30, 2013, positive trading-related revenue was recorded for 97 percent, or 62 trading days, of which 69 percent (44 days) were daily trading gains of over $25 million and the largest loss was $21 million. These results can be compared to the three months ended June 30, 2013, where positive trading-related revenue was recorded for 89 percent, or 57 trading days, of which 67 percent (43 days) were daily trading gains of over $25 million and the largest loss was $54 million. During the three months ended March 31, 2013, positive trading-related revenue was recorded for 100 percent, or 60 trading days, of which 97 percent (58 days) were daily trading gains over $25 million.
– US Gov’t Takes Bank Of America To Court And Wins, Jury Finds Countrywide Liable For Fraud (Forbes, Oct 23, 2013):
Thought those mortgage lawsuits against banks were winding down? Think again.
Today a jury found Bank of America liable for defrauding Fannie Mae and Freddie Mac when its Countrywide unit sold it bad mortgages.
The jury also found former Countrywide executive, Rebecca Mairone, liable on the one fraud charge facing her, Reuters reports.
The verdict is a win for the US government as this is one of the few cases stemming from the financial crisis that it’s taken to trial.
“In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow. That profit, however, was built on fraud, as the jury unanimously found,” US Attorney Preet Bharara said in a statement.
The U.S. Department of Justice is looking to get a $848 million out of BofA.
– ALL IS WELL!!! (The Burning Platform, Feb 6, 2013)
– Marc Faber: “Paul Krugman Should Go And Live In North Korea” (ZeroHedge, Dec 13, 2012):
If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: “The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn’t intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea.” Priceless.
50 minutes of Faberian bliss:
– US Treasury Admits It Conducted A Circular Ponzi Scheme For Years (ZeroHedge, Aug 17, 2012):
While one may wonder about the implications of the just announced “accelerated windown” of the GSEs, predicated in no small part by the surge in animosity between Tim Geithner and the FHFA’s Ed DeMarco, there is one aspect of the announcement that is completely and utterly unambigious: as part of its justification to demand faster liquidation of Fannie and Freddie’s “investment portfolio” Tim Geithner gave the following argument:
This will help achieve several important objectives, including… Ending the circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury
In other words not some fringe blog, not some “partisan” media outlet, not some morally conflicted whistleblowing former employee seeking immunity, but the US Trasury itself just admitted it had been engaged in circular check kiting scheme, which essentially has all the components of a Ponzi scheme in it, ever since the nationalization (about which there is no now doubt and which means the GSE’s $6 trillion in debt is now fully on the Treasury’s balance sheet) of Fannie and Freddie in 2008.
Transfer one more conspiracy theory into the conspiracy fact bin.
YouTube Added: 13.06.2012
YouTube Added: 28.05.2012
– Freddie Mac Betting Against Struggling Homeowners (NPR, Jan. 30, 2012):
Freddie Mac, a taxpayer-owned mortgage company, is supposed to make homeownership easier. One thing that makes owning a home more affordable is getting a cheaper mortgage.
But Freddie Mac has invested billions of dollars betting that U.S. homeowners won’t be able to refinance their mortgages at today’s lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom.
YouTube Added: 22.11.2011
The article below is from Oct. 21. This is from CNN Money, Nov. 15:
– Fannie, Freddie Need More Money (FOX Business/Reuters, Oct. 21, 2011):
Fannie Mae and Freddie Mac may need as much as $215 billion in additional capital from the Treasury through 2013 to offset losses and maintain a positive net worth, their federal regulator said on Thursday.
Fannie Mae and Freddie Mac, whose programs fund the lion’s share of all new home loans, are at the center of debate as Congress sets to overhaul a U.S. mortgage finance system that contributed to the worst housing crisis since the 1930s.
The cumulative capital needs of the two housing finance giants, which were seized by the government in late 2008, will likely fall between $221 billion and $363 billion through 2013, the Federal Housing Finance Agency estimated.
WASHINGTON (AP) — Mortgage giant Fannie Mae is asking the federal government for $7.8 billion in aid to cover its losses in the July-September quarter.
– Fannie, Freddie execs score $100 million payday (CNN Money, Nov. 15, 2011):
NEW YORK — Mortgage finance giants Fannie Mae and Freddie Mac received the biggest federal bailout of the financial crisis. And nearly $100 million of those tax dollars went to lucrative pay packages for top executives, filings show.
The top five executives at Fannie Mae received $33.3 million in 2009 and 2010, while the top five at Freddie Mac received $28.1 million. And each company has set pay targets of as much as $17 million for its top managers for 2011.
That’s a total of $95.4 million, which will essentially be coming from taxpayers, who have been keeping the mortgage finance giants alive with regular quarterly cash infusions since the Federal Home Finance Agency (FHFA) took control of the companies in September 2008.
Fannie CEO Michael Williams and Freddie CEO Charles Halderman, each received about $5.5 million in pay for last year, and they could receive more when their final deferred compensation for 2010 is set. All the executives receive a significant portion of their pay in the year or years after they earn it.
Read moreFannie & Freddie Executives Score $100 Million Payday (Which Is Essentially Taxpayers Money – Fannie Mae Asked For Another $7.8 BILLION Of Taxpayers Money To Cover Its Losses In Third Quarter)
YouTube Added: 09.11.2011
By Catherine Austin Fitts (in the first person) and Carolyn Betts
The Administration is now proposing the transfer of significant defaulted mortgages and foreclosed properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration (“FHA”) to large national institutional investors.
A Huge Housing Bargain — but Not for You
The Street (18 Aug 11)
White House Seeks Ideas to Shrink Foreclosure Glut
Catherine, News & Commentary (11 Aug 11)
Enterprise/FHA REO Asset Disposition (PDF)
RFIFinal (10 Aug 11)
Such a transfer is not economic — other than for the large investors and to serve a wider agenda of social control and engineering, including gentrification of numerous areas whose former residents were fraudulently induced and evicted with the use of these mortgages.
I served as FHA Commissioner (See: Austin Fitts Better be Good With Hammer and Nails) during the first Bush Administration and then, several years later, my company, Hamilton Securities Group, served as the lead financial advisor to FHA, providing portfolio strategy advice with respect to $400 billion of financial liabilities and assets, including over 50,000 of foreclosed properties held by the government as the result of mortgage insurance claims for defaulted FHA-insured mortgages.
On Friday, free and efficient market champion Ted Kaufman, previously known for his stern crusade to rid the world of the HFT scourge, and all other market irregularities which unfortunately will stay with us until the next major market crash (and until the disbanding of the SEC following the terminal realization of its corrupt and utter worthlessness), held a hearing on the impact of the TARP on financial stability, no longer in his former position as a senator, but as Chairman of the Congressional TARP oversight panel. Witness included Simon Johnson, Joseph Stiglitz, Allan Meltzer, William Nelson (Deputy Director of Monetary Affairs, Federal Reserve), Damon Silvers (AFL-CIO Associate General Counsel), and others.
In typical Kaufman fashion, this no-nonsense hearing was one of the most informative and expository of all Wall Street evils to ever take place on the Hill. Which of course is why it received almost no coverage in the media. Below we present a full transcript of the entire hearing, together with select highlights.
The insights proffered by the panelists and the witnesses, while nothing new to those who have carefully followed the generational theft that has been occurring for two and a half years in plain view of everyone and shows no signs of stopping, are truly a MUST READ for virtually every citizen of America and the world: this transcript explains in great detail what absolute crime is, and why it will likely forever go unpunished.
Key highlights from the transcript:
Read moreFormer Senator And Chairman of the Congressional Oversight Panel Ted Kaufman: ‘TARP Was The Largest Welfare Program For Corporations And Their Investors Ever Created In The History Of Humankind’
I heard a recent talk by Richard Wolff – Professor of Economics Emeritus at the University of Massachusetts in Amherst (PhD in Economics from Yale) – where Wolff said that 97% of all U.S. mortgages are either written or guaranteed by the government.
As Bloomberg explained last August:
Fannie Mae and Freddie Mac, the government-controlled companies that issued and guaranteed more than 71 percent of mortgage-backed bonds last year. Between those companies and Ginnie Mae, which guarantees loans insured by the Federal Housing Administration, the government backed nearly 97 percent of U.S. mortgages in 2009.
There are supposedly plans in Washington to wind down Fannie and Freddie. Critics say that would destroy the “recovery” in housing.
If continuing to throw money at Fannie and Freddie would stabilize the economy, I might be for it – even though it is not free market capitalism. I am not wed to either liberal or conservative ideologies, and am instead simply motivated to do whatever will work to stabilize the economy and help the most people.
But as I noted in January:
Most independent experts say that the government’s housing programs have been a failure. That’s too bad, given that the housing slump is now – according to Zillow’s – worse than during the Great Depression.
Indeed, PhD economists John Hussman and Dean Baker, fund manager and financial writer Barry Ritholtz and New York Times’ writer Gretchen Morgenson say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.
And US taxpayers will have to pay for it.
Freddie Mac and Fannie Mae, the mortgage-finance companies operating under U.S. conservatorship, requested another $3.1 billion in Treasury Department aid as they reported quarterly earnings reflecting improving health.
Fannie Mae reported net income of $73 million for the three-month period that ended Dec. 31, the Washington-based company’s first positive results in three years. McLean, Virginia-based Freddie Mac’s quarterly loss narrowed to $113 million from $6.5 billion in the same period a year earlier.
Just another government sponsored looting of the US taxpayer.
– BofA Freddie Mac Putbacks Resolved for 1¢ on $ (The Big Picture):
Bank of America settled numerous claims with Fannie Mae for an astonishingly cheap rate, according to a Bloomberg report.
A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.
Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gottem from Freddie Mac.
B of A also paid $1.52 billion to Fannie Mae to resolve disputes on $3.1 billion in loans (~49 cents on the dollar). They remain liable for $2.1 billion in repurchase requests, as well as any future demands from Fannie Mae.
My biggest complaint about the GSEs post government takeover is that they have been used as a back door bailout of the banks. This latest deal reconfirms that view.
Its a wonder B o A didn’t rally further than the 6.7% it surged yesterday . . .
Source: Bank of America Deal on Loan-Repurchase Demands Sets `Template’ for Banks (Bloomberg)
– Why Bank of America Must Be Thrilled to Pay a $3 Billion Penalty (The Atlantic):
Some people who aren’t familiar with the mortgage market might have gasped as they read the news that Bank of America would pay $3 billion to government-sponsored mortgage companies Fannie Mae and Freddie Mac. After all, $3 billion sounds like a lot of money. “Maybe BOA is finally getting what it deserves,” some naive bank-haters might have exclaimed. In fact, paying this sum is an incredible win for the bank. The penalty is so small that it’s effectively insignificant.
A Drop in the Bucket
For starters, it’s important to remember that Bank of America also means Countrywide. After purchasing the ailing mortgage company in 2008, Countrywide’s problems became BoA’s problems. And according to the press release, this $3 billion loss provision the bank is taking should cover all Countrywide/BoA mortgages sold or guaranteed by Fannie and Freddie during the housing bubble.
How much is that? According to a Washington Post article on the story, it covers a BoA-Countrywide portfolio of about $530 billion held by Fannie and Freddie. That puts the loss rate on these loans that BoA will be responsible for at less than 1%. You don’t need to be a mortgage analyst to know that a 1% loss doesn’t begin to characterize housing’s deterioration.
No Wonder the Market Celebrated
After this revelation struck, financial stocks were broadly up yesterday. This should come as no surprise. BoA-Countrywide together were originating more than to one-quarter of the mortgages created when the housing market was humming along in the middle of the last decade. If the losses imposed by Fannie and Freddie’s put-backs are in the couple billion dollar range for BoA-Countrywide, then you only need to multiply by three to figure out what the rest of the market probably owes.
If this settlement is any indication, then the other banks and probably won’t be responsible for much more than $9 billion of put-backs from the government entities. That’s a loss they would be happy to endure, considering that the downside could have been well into the tens of billions of dollars. No wonder they’re celebrating.
A Backdoor Bailout?
#3: The US will Default on its Debt
… either that or experience hyperinflation. There is simply no other option. We can NEVER pay off our debts. To do so would require every US family to pay $31,000 a year for 75 years.
Bear in mind, I’m completely ignoring the debt we took on with the nationalization of Fannie and Freddie, AIG, and the slew of other garbage we nationalized or shifted onto the Fed’s balance sheet. And yet we’re STILL talking about every US family making $31,000 in debt payments per year for 75 years to pay off our national debt.
Obviously that ain’t going to happen.
The government’s estimate, projected through 2013, represents a worst-case scenario that assumes a double-dip recession. The mortgage giants have received about $148 billion in taxpayer funds.
Reporting from Washington —The cost for the huge government bailouts of housing finance giants Fannie Mae and Freddie Mac will grow — and possibly more than double to $363 billion — over the next three years.
But the final taxpayer loss depends mainly on the health of the economy and the real estate market, a federal regulator said Thursday.
The mounting cost of the Fannie and Freddie bailouts has drawn fire from Republicans. They have blamed the firms for triggering the subprime mortgage problems during the housing boom and have blasted the Obama administration for continuing to prop them up.
“No matter what the final cost, the bailout of Fannie and Freddie will be by far the most expensive component of the federal government’s intervention into the financial system,” Rep. Scott Garrett (R-N.J.) said.