Architects of Ruin by Peter Schweizer

Author:Peter Schweizer
Language: eng
Format: epub
Publisher: HarperCollins
Published: 2009-06-16T16:00:00+00:00

5

THE GOLDEN TROUGH

How Liberal Politicians Used Fannie and Freddie to Rig the Real Estate Market While Lining Their Own Pockets

Today Fannie and Freddie are behemoths of debt and, as such, prime incubators of the economic crisis. If you add together the mortgages they hold and the mortgages they have sold to investors around the world and on which they have offered a payment guarantee, these two companies hold potential liabilities of some $5 trillion. (This is a global problem: an estimated $1.45 trillion of these debts are held overseas.) In effect, these two government-sponsored entities have liabilities equaling about half the current U.S. national debt. To make matters worse, much of that debt is in the form of mortgage-backed securities (MBSs), and a significant proportion of that is in subprime loans.

This was not a sudden train wreck that took people in Washington by surprise. It has long been known that Fannie and Freddie were teetering on the tracks and possibly ready to go off the rails. Why was nothing done? The short answer is that Fannie and Freddie served the ideological interests of the activists. And politicians in Washington turned the other way because they and their allies could profit handsomely from the scheme.

Fannie and Freddie have been exempt from the normal oversight and regulatory requirements of privately owned financial companies. As William Poole of the Federal Reserve Bank of St. Louis put it, “Capital on the books of Fannie Mae and Freddie Mac is well below the levels required of regulated depository institutions.” Commercial banks, for example, are required to hold equity capital and subordinated debt of a bit under 11 percent of total assets. But for Fannie and Freddie, “The core capital requirement is 2.5 percent of on-balance sheet assets and 0.45 percent of outstanding mortgage-backed securities and other off-balance sheet obligations.” Needless to say, U.S. taxpayers are on the hook for all of it.1

At the same time, members of Congress from both political parties, federal bureaucrats, and financiers on Wall Street served as willing enablers, allowing this to happen and profiting handsomely along the way. The companies’ management positions became a dumping ground for failed candidates and ex-bureaucrats, who typically earned huge salaries. Fannie Mae, for example, pays its twenty-one top executives more than $1 million apiece. Three of these are in-house lobbyists whose main job is to prevent Congress from pushing reforms, threatening its special status, or questioning its financial soundness.2

The activities of Fannie and Freddie, which are little covered by the press, have been shrouded in mystery for years. But the agencies, with their enormous pots of cash, were in effect captured by politicians on Capitol Hill, who turned them into a kind of private piggy bank, using them to finance their campaigns, underwrite their pet causes, and ensure soft landings for a revolving cast of Washington insiders. Beltway elites made large sums of money consulting for, lobbying on behalf of, or simply serving on the boards of these large entities, while doing very little in return.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.