Tag Archives: freddie mac

The End of Capitalism as We Know It?

Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, Speaker of the House Nancy Pelosi, Majority Leader Harry Reid and other Congressional and Administration officials are meeting in Washington this weekend to administer what American socialists hope will be the final coup de grace to the American Capitalist system.  Participants in the Socialist movement have been working tirelessly generation after generation over the past hundred years to bring about this day.

Beginning with the “Trust Busting” of Theodore Roosevelt, the first “progressive” President, and the stock market collapse of 1929, a couple of decades later, socialist have made steady progress toward their Karl Marx inspired goal of destroying our capitalist system and building a socialist utopia on the rubble.

Socialist policies have all but destroyed our industrial base, our educational system, our healthcare system, our social structure, and are on the verge of destroying our economic system.  Each time government encroachment on the private sector creates a disaster, the solution offered is always more government involvement.  The current financial disaster is no exception.

The hallmark of the socialist movement is to create chaos and then point to their opposition and declare, “They did it!”  It seems to work more often than not.  The meltdown of our financial markets demonstrates this tactic with a clarity that cannot be denied.  An analysis of the development of the crisis shows without question that the root cause is socialist policies, not the capitalist system nor the policies of the Bush Administration.

There is widespread agreement among economists and politicians that sub-prime lending practices, prevalent among mortgage companies, is the primary culprit.  A number of circumstances converged during an election year that virtually guaranteed the collapse of major segments of the financial markets.  That they occurred during an election year made any sane thought-out remedies unattainable.  Facts, mixed with and distorted by political rhetoric, rendered an objective evaluation of the problems all but impossible.

The rapid rise in energy prices, soaring home values with the corresponding rise in real estate taxes, the vagaries of adjustable-rate mortgages, and the stagnation of lower and middle class incomes stretched family budgets to the point they could no longer be sustained.  Mortgage payments, the largest item in the average budget, simply had to be postponed or cut back in favor of survival.  All of these, when objectively judged by the facts, are revealed to be the result of socialist policies.

The populist view of history as promulgated by the Democratic Party, the mainstream media and even, somewhat, by the McCain camp, is that the crisis caused by sub-prime lending was brought about by corporate greed and “eight years of failed policies by the Bush Administration”. The truth is somewhat different.  An article in World Net Daily on September 20 is quite revealing in that it links to two articles written before Bush took office in 2001.  One is in the Los Angeles Times, the other The New York Times, neither of which are conservative publications.

Both articles were written to praise Bill Clinton during the final years of his Administration.  The first was an article in the Los Angeles Times dated May 31, 1999 titled “Minorities’ Home Ownership Booms Under Clinton But Still Lags Whites’”.  The opening paragraph begins with,

“It’s one of the hidden success stories of the Clinton era.  In the great housing boom of the 1990s, black and latino homeownership has surged to the highest level ever recorded.”

By itself, that would indeed be good news, but the article then goes on to explain the factors that gave rise to this phenomenon.  By indulging in an obligatory swipe at the Reagan-Bush administrations, the writer undermined what could have been the best alternative explanation, the booming economy.

“But the economy isn’t the whole story. As HUD Secretary Andrew Cuomo says: ‘There have been points in the past when the economy has done well but minority homeownership has not increased proportionally.’ Case in point: Despite generally good times in the 1980s, homeownership among blacks and Latinos actually declined slightly, while rising slightly among whites.” He writes.

He then returns to his theme of praising the leadership of Bill Clinton.

“All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities.”

“The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.

“Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system…”

“…In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. …It [Fannie Mae] has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income….”

“…But with discrimination in the banking system not yet eradicated, maintaining the momentum of the 1990s will also require a continuing nudge from Washington. One key is to defend the Community Reinvestment Act…The top priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42% of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer“….

The facts presented by Ronald Brownstein in this article are indisputable and clearly point to Congress and the Clinton Administration as the primary causes of the eventual mortgage market meltdown.  A later article in the New York Times dated September 30, 1999 was less slanted toward praise of Clinton and gives us a few additional insights.

“… [A new Fannie Mae program] will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — [it] will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

“…Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people

“…In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called sub-prime borrowers.

“…In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

“…said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Keep in mind both of these articles were written well before George Bush moved into the White House.  No one can honestly deny that the problem was inherited by Bush from the Clinton administration.  It is also true that both Bush and McCain attempted to rein in the excessiveness of Fannie Mae and Freddie Mac but were prevented from doing so by socialist Democrats and their socialist leaning Republican allies in Congress.

It is imperative that McCain and Palin focus on these facts over the next few weeks instead of going along with the MSM version in courting independents and “moderates”.  This will not help in changing the results of decisions made in Washington this weekend or the follow-up actions by Congress next week.  It may, however, wake up some of the American voters encouraging them to vote some of the socialists in Congress out of office and give us a chance to begin returning the government back into the constitutional republic it was intended to be.
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Enough is Enough!

It’s time for a good old-fashioned, stress-relieving rant.

The battle for votes between the two political camps threatens to leave the winner with a country in shambles.  Some comfort can be found in the fact that neither candidate intends to try to keep all their outlandish and impossible promises.  More comfort may be found in the fact that most of them could never find their way into law.  Even if we ignore those promises, that still leaves us with trillions of dollars in additional spending that will drive the debt for future generations to astronomical proportions while making the money they have left to pay it with practically worthless.

I am tired of paying three dollars for a loaf of bread, four dollars for a gallon of milk and four-fifty for a gallon of gasoline while some empty headed politician on TV tells me that inflation is under control.  I am tired of not being able to learn what is really going on because of the claims and counter-claims from the candidates as they attempt to shift blame to their political opponents.  I am tired of Congress using our tax money for social engineering and economic manipulation.  The Constitution only authorizes them to use it for the expenses of running the government.

I am tired of a Congress that is run by party bosses for the good of the party, instead of for the good of the country.  I am tired of politicians who put party loyalty and a quest for power before loyalty to their constituents and the welfare of the country.  There is something drastically wrong and definitely unconstitutional when the performance of our government and our culture is dictated by the Speaker of the House, the Majority Leader in the Senate and five left-leaning Supreme Court Justices.

I am tired of a Congress that treats the Constitution as a suggestion of how the government might be run—if it’s convenient—instead of as a contract that specifies how it must be run.  I am tired of political correctness that prevents public figures from correctly identifying the problems we face and how we got here.  Most of all I am tired of a whining, sniveling populace that seems incapable of distinguishing between government and Santa Claus.

I was born at the beginning of the socialist epoch and since the life span of socialism seems to be about seventy years, I will probably check out while it is in the process of collapsing.  My formative years, which probably affected my worldview, was lived during the great depression and World War Two.  I have watched the country move into socialism starting with the New Deal and progress through the Great Society and the War on Poverty.  We are currently moving faster into total socialism than at any time in my memory, while many of my fellow citizens watch it happen and cheer its progress.

It is often difficult to see the pitfalls of socialism until it has been in place for a period of time and its true nature begins to emerge.  The majority of my generation and almost all of my parent’s generation saw Franklin Roosevelt as one of the greatest Presidents in American history.  I was almost thirty years old before I began to see him in a true light and started to understand the damage he did to our country and our Constitution.

There are two economic models available to modern societies, capitalism and socialism.  When they are mixed socialism almost always crowds out capitalism because capitalism requires individual effort and responsibility, while socialism depends on the efforts of others and responsibility is shifted to the government.  The biggest difference, however, between the two is in it’s administration.

Capitalism is self-administering and self-correcting.  When engaged in properly it rewards its participants with prosperity and comfort.  When engaged in improperly it punishes offenders with economic failure and the censure of society at large.  Those who do not participate, either through ignorance of its workings or slothfulness, often fall prey to the siren song of socialism.  Capitalism works independent of government because, at its core, it rests on an arrangement between those with a need and those who are willing to fulfill that need for a profit.  The only oversight it requires from government is to police its honesty to insure the gullible are not taken unfair advantage of by the greedy.

Socialism, on the other hand, cannot function without an administrator.  Someone must assume the role of taking from those who produce wealth and redistributing it to those who do not.  Invariably that role is left to the government, with the acquiescence of enough citizens to make it possible.  The administration of socialism is always presided over by a ruling elite, preaching equality and considering themselves more equal than most.  The hallmark of socialism is corruption.  The elites in charge line their pockets from the labors of the populace who are kept in a state of equal deprivation.

In the last month we have take some major steps toward complete socialism.  The economic crisis, caused primarily by government policies intended to manage the economy, is creating an excuse for the government to take over major parts of the economy.  The mortgage crisis, brought on by congressional demands for cheaper loans to homebuyers with inadequate means for repayment has led to a virtual takeover by government of the mortgage industry.  These government induced, substandard loans increased the demand for houses which increased home prices to the point where the market collapsed.

The most culpable participants were the two quasi-government institutions, Fannie Mae and Freddie Mac who were buying up these loans enabling banking institutions to issue even more.  Both Freddie and Fannie also served as piggy banks to finance the opulent lifestyles of their executives and campaign cash for congressional leaders.  The contagion spread to other financial institutions causing investment banks to begin falling like dominoes.

That coupled by a shortage of energy—also caused by government regulations—in a nutshell, explains our current economic crisis.

We are told, however, that the cause of the crisis is not enough regulation by government and the only solution is for the government to have even more control.  In the past month the government has, in effect, nationalized the major portion of our housing industry and financial institutions.  Within the past twenty-four hours it has nationalized AIG, a major player in our insurance industry, taking a seventy-nine percent equity interest in the company in exchange for an eighty five billion dollar loan.

Next in line is the automobile industry asking for fifty billion dollars to help with government demands to transform their manufacturing processes in order to meet the demands of radical environmentalists.  The price for the companies, if their request is granted, will be more government control over their operations and even more expensive and more stringent regulations that they will be required to implement.

We now have the government telling us what kind of car we should drive, what type of lighting we must have in our homes, the type of TV sets we have to watch, what appliances to buy, how to discipline our kids; the list goes on ad infinitum.

Socialism cannot co-exist with our form of constitutional government.  We have to choose between a government with limited constitutional powers and a socialist government with unlimited powers—while it lasts.  I say, “It’s time to say ‘enough‘; throw all the bums out and start over“.

Fannie Mae, Freddie Mac and Your Constitution

The American people are getting a crash course this month in government economics and the wisdom of the Founding Fathers. As they watch their energy and food costs skyrocket and their home value plummet, many are in a daze wondering, Wha‘ Hap’n? Unfortunately, this is likely only the beginning. When the economy of scale meets the law of diminishing returns with the genetic incompetence of government thrown in, you have a formula for disaster.

The Founding Fathers knew from the experiences of governments that had gone before that government is limited in the things it can do well. They also knew that government, while necessary for matters of security, is paid for with the liberties of its people. Therefore they gave us a carefully crafted government, enshrined in the Constitution, that promised maximum security for the people with a minimum sacrifice of liberty.

The national government was given the responsibility for those things which the state governments could not do for themselves, such as national defense, foreign relations and the promotion of international and interstate trade. Everything else was left pretty much up to the state governments. The intention of the founders was for the state governments to be the primary governments affecting the lives of individual citizens.

Their greatest fear was that they would create a government that would expand over time and eventually abolish state sovereignty, in the process, taking away the liberties of the people. This concern is the predominant theme of the writers of both the Federalist Papers and the Anti-Federalist Papers. To prevent this from happening they clearly spelled out the powers delegated to the Federal Government in Article 1, Section 8 of the Constitution.

The economic woes we are experiencing today are the direct result of the Federal Government attempting to do that which it was not designed to do. Both the energy crisis and the mortgage crisis are government created and exacerbated. Both are the results of attempting to blend socialism with free market capitalism, and overreaching in both. Furthermore, they both are the consequence of Congress’ ignoring the restrictions of the Constitution on their powers.

During the housing boom of the late forties and early fifties, brought about by the returning veterans of World War II and their growing families, the number one focus of the American Dream shifted from liberty and freedom to home ownership. By the seventies, the utopian aspirations of the “Great Society” had transformed home ownership from an earned reward for individual thrift and labor, to a “right“ fostered by government.

Congress, in order to “make it happen” decided to go into the mortgage business. They chartered two shareholder owned businesses known as “Fannie Mae” and “Freddie Mac”. Their purpose was to provide money to the mortgage industry by purchasing mortgages and repackaging them into securities which they would than resell to investors. The cost to the government was intended to be minimal since the actual funds would be provided by investors.

These two government sponsored enterprises (GSEs) enjoyed several advantages over their privately managed competitors in the mortgage banking industry. One was their unique relationship to wielders of power in the government. As privately financed enterprises the government is not technically responsible for their success or failure. However, the perception was permitted to develop that mortgages financed by these GSEs were underwritten and therefore guaranteed by the Federal Government.

Furthermore, due to their close relationship with Congress they were not subjected to the same regulatory oversight private banking firms were. Private financial institutions are required to keep a certain level of cash reserves on hand in case of a business downturn. Fannie and Freddie were exempted from this requirement, at least to the same extent private investment firms are, and they were not held to the same stringent accounting practices private firms are held to.

So then, what we have, are two government sponsored financial enterprises, undercapitalized and under regulated competing in the market place for mortgage backed securities. Their investors are led to believe that investments are guaranteed by the “full faith and credit” of the U.S. Government. Furthermore they have access to cheaper money at more lenient rates than their competitors. As a result, Fannie Mae and Freddie Mac soon became the nation’s largest holders of mortgages in the secondary mortgage market.

Together they hold over five trillion of the twelve trillion dollars in mortgage debt currently outstanding in the U.S. Their position as the “lender of last resort” for many mortgage brokers results in a larger than normal inventory of mortgages to homeowners who are bad credit risks. Since their investments are almost exclusively in the home mortgage market, the rising rate of mortgage defaults and falling home prices places them in serious jeopardy.

On Friday, the Federal Deposit Insurance Corporation took over IndyMac, a California based mortgage bank, in the second largest banking failure in U.S. history. IndyMac is the largest casualty thus far in the subprime mortgage crisis, more or less created by the federal government in its rules concerning “equal opportunity lending practices“.

To further complicate the situation Senator Chuck Schumer (D-NY) made public—presumably for political publicity—a letter he had written to the Office of Thrift Management June 26, questioning the soundness of IndyMac. The result was a run on the bank. Over the next two weeks investors withdrew over $1.3 billion from their accounts necessitating the take over by the FDIC.

At the same time shareholders in Fannie Mae and Freddie Mac began dumping their shares in those two GSEs. Many in the Treasury Department are privately worried that Fannie Mae and Freddie Mac may follow IndyMac into insolvency necessitating a bail-out by the government. If that happens the taxpayer is on the hook for $5 trillion dollars in outstanding mortgages.

Look for the socialist/democrats in Congress to begin floating the idea of nationalizing the home mortgage industry should Fannie Mae and Freddie Mac continue their downward slide.

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Reference Sources:
The IndyMac Takeover Wall Street Journal
Fed Can Lend to Just About Anyone WSJ
Critics of the Firm Sadly Say “Told You” WSJ
The Doc Is In
The American Energy Crisis