Fanny Mae and Freddy Mac Steal Again

The gang that cannot shoot straight, has come galloping into Washington, D.C., and robbed the Treasury, the People's Bank once again.  Sheriff Obama and his hooligan crew of law enforcers carried the loot out to their horses for them and invited them to a good dinner.  They are still in town, living it up!  Why not?  In the past, Fanny Mae and Freddy Mac always provided the Democrats and Obama in particular with great campaign contributions.  The more money the sheriff lets them steal, the more money they give him to remain sheriff.

Fanny Mae has just asked for another $8.4 billion from the Treasury after First Quarter losses this year of $13.1 billion, including $1.5 billion in dividends paid to the government on its preferred stock.  The government took control of Fanny Mae, a government-sponsored corporation, in September 2008.  Fannie Mae ended the First Quarter with a net worth of -$8.4 billion dollars.  This government-run business lost $15.2 billion in the Fourth Quarter of 2009 and $23.2 billion in the First Quarter of 2009.

Just four days earlier, Freddie Mac asked for a $10.6 billion handout.  Its First Quarter loss was $8 billion.  Freddy Mac had previously received $50.7 billion in bailouts, while Fanny Mae had previously received $76.2 billion.  Fanny Mae had already been given $15.3 billion of taxpayer's money as recently as 31 March 2010.  In December 2009, the Obama administration removed a $400 billion cap on gifts to Fanny Mae and Freddy Mac and promised unlimited support in 2010.  The total taxpayer money given them since they were taken over by the government, including the current requests, is $145.6 billion.

In the First Quarter, Fanny Mae purchased or guaranteed about $191.4 billion in loans.  Its credit losses were $5.1 billion, which was up from $4.1 billion the previous quarter.  The number of loan defaults was up in the first quarter.  5.47% of Fanny Mae mortgages were delinquent in the First Quarter, which is up from 5.38% in the Fourth Quarter of 2009.  The single-family foreclosure rate was up from 1.03% in the previous quarter to 1.36%.

Obama and the Democrats have refused to include Fanny Mae and Freddy Mac in any financial industry reform bill effort, since they are using them to reduce home foreclosures with loan modifications and will not admit their guilt in weakening the entire financial system of the U.S.  In the First Quarter, Fanny Mae made 94,000 mortgage modifications, after making 42,000 in the Fourth Quarter of 2009.  Together, Fanny Mae and Freddy Mac own or guarantee almost 31 million home mortgages worth about $5.5 trillion.  This is more than 40% and close to half of all home mortgages.

It is common to say that the recession began in the United States and was caused by too much easy credit.  Republicans go on to say government-sponsored Fanny Mae and Freddy Mac caused the recession and Democrats say an unregulated Wall Street caused it.  In fact, it was triggered by the sharp increase in oil prices.  After May of 2004, the price of oil went up in real terms, dropped briefly in late 2006, and then spiked upward beginning in early 2007.  By July of 2007, production in Canada had dropped.   It dropped  in Italy in August 2007, in France in October 2007, and the Euro area as a whole in November 2007. Japan's production reached a peak in October 2007, though it had a one-month uptick in February 2008. The decline in the U.S. was in February 2008.  In January 2008, the OECD leading indicators were down from a year before by 4.1 points in Ireland, 2.8 points in Japan, 2.6 points in Korea, 2.3 points in Sweden, but only 0.8 point in the U.S. Stock prices are another leading indicator. Stock prices peaked in Japan and in the Euro area four months before they peaked in the U.S. and the U.K. in October 2007!  In the 4th quarter of 2008, real GDP was lower around the world than it had been 1 year before, but it had dropped by much less in the U.S. than almost anywhere else. The dollar value of imports into the U.S. did not fall until August 2008 and the consumer purchases did not fall in the U.S. until September 2008.  The U.S. was the last economic engine to sputter to a stop and it took the combination of the oil price spike, the recession already underway in the rest of the world, Fanny Mae's and Freddy Mac's vulnerability, and the Wall Street over-extension combined to put us into this severe recession.

While we cannot blame the entire recession on Fanny Mae and Freddy Mac, they were the most egregious weaknesses and the most easily avoided ones in the U.S. economy.  They were following a foolish policy of easy credit for people who could not make their loan payments under almost any condition of strain and they with the easy credit Federal Reserve were the starting point for much of what went wrong in the private sector.  Government regulation of Freddy Mac and Fanny Mae did not keep them out of trouble and there is no reason to believe more federal regulation would have helped on Wall Street.  In fact, some of the problems on Wall Street turned out to be due to too much regulation and too cozy a relationship with the federal government.  The biggest backers of the unwise lending practices through the years were the Democrats.  Obama had contributed once he was in the Senate and he had worked on a lawsuit against Citibank himself to force them to lower their lending standards before that.  Meanwhile, President Bush had warned a number of times that the easy credit policies of Fanny Mae and Freddy Mac were a major risk for the economy.  McCain also joined in with warnings.  These were all ignored by Congress, which in 2007 and 2008 was controlled by the Democrats.

Fanny Mae and Freddy Mac could not be more controlled by the federal government.  We have only to examine how badly run they are to see the looming disaster as the Democrats try to gain more regulatory control over the major financial institutions of America.  We will be turning investment company after bank after insurance company into the next Fanny Maes and Freddy Macs.  This is exactly what the Democrats want to do.  Imagine how easy it will be to extort money from these more regulated companies and how easy it will be to command many of them to self-destruct.  Even as Fannie Mae had collapsed, Obama and the Democrats had been able to milk it mightily for campaign contributions.  This is the fate of the entire financial industry, if they get their way.