The Export-Import Bank, according to far-right Republicans, is corporate welfare. Well, if the Ex-Im Bank really were corporate welfare, would it be turning a profit? Since when does welfare generate income for the government? Ex-Im provides loan guarantees for foreign buyers who purchase American products, and the bank has been managed well enough so that loans very rarely go into default. Hence, the insurance premiums Ex-Im collects always have exceeded payouts.
Eliminating the bank will result in fewer exports, further expanding America's negative balance of trade, and encouraging American companies to move manufacturing to countries that will offer loan guarantees. (Boeing, the Bank's biggest customer, is threatening to do just that.)
Speaking of government enterprises that generate income, those same right-wingnuts who want to end the Export-Import Bank also want to re-privatize Fannie and Freddie, which currently are earning, on average, about $15 billion a year — money that goes straight into the Treasury. As I've said in the past, why in hell should we nationalize all the losers and privatize the winners?
Fannie and Freddie were government enterprises until the Lyndon Johnson administration, and were privatized mostly to generate some fast cash to fight the Vietnam War. During the housing bubble, Fannie and Freddie's shareholders demanded a chunk of the fast cash the banks were scooping in by buying up and securitizing high-risk mortgages, so many of which went unpaid. The good sense Fannie and Freddy had shown in the past was thrown out the window.
Taken over and bailed out by government in response to the crisis of 2008, Fannie and Freddie were returned to responsible management. Continuing under responsible (government) management, there is no reason they should not continue to generate profits and, in the event of another housing collapse, not be hurt so badly as to need another expensive bailout.
Let's see... What else might we like to nationalize? People who hate paying taxes should be happy if their government finds ways to turn a profit.
Showing posts with label freddie mac. Show all posts
Showing posts with label freddie mac. Show all posts
Wednesday, August 5, 2015
Thursday, August 8, 2013
More shorties
"An excess of caution"
Needless to say, Obama didn't want another Benghazi, but how do you get another Benghazi if you're forewarned? Wouldn't it make more sense to wait for the attack and crush it? Some extra security, especially in Sana, should have done the trick.
On the other hand, some idiots might get the idea that the NSA "security" offensive against the American public (and the rest of the world) made "saving" our embassies and consulates possible. It's bullshit, of course. Nobody found out about upcoming events in Yemen by logging American phone data.
Crap. Pure crap.
Iraq
We're out of there, thankfully. What we left behind is a civil war. The real shame is that most of the dead people are just poor suckers, including a lot of children, who never did a bit of harm to anybody. I don't suppose taking out Maliki would help, but it would help me feel happier.
Fannie and Freddie
Let's not forget that Fannie and Freddie weren't privatized until Lyndon Johnson needed some extra cash to blow in Vietnam. Now that they're nationalized again, and starting to turn a profit, why not just keep them nationalized and use the money they're bringing in for, say, infrastructure or education?
I never understood why our government only is allowed to own losers. Hell, let's nationalize the oil and gas companies!
Corruption
Corruption is endemic, worldwide, and the United States certainly is no exception. I think it was Mark Twain who said we have "the best Congress money can buy," and he hadn't even seen the Congress we have now.
Is there a way to get the money out of politics? If there is, I wouldn't even have a clue where to start.
Saturday, February 12, 2011
The Future of Fannie and Freddie
Back in the early 1960s, Fannie Mae was a government agency, and had been so since it was created as part of the New Deal. Lyndon Johnson took it private to raise funds for the Vietnam War. In the intervening years, most commentators seem to have forgotten that history — and that the recent implicit government guarantee of Fannie Mae securities has been a carry-over from the explicit government guarantee that was there pre-privatization.
Today, Fannie Mae and it's near relation Freddie Mac are owned by the government again. Obama, along with most other government leaders who have drunk the Kool-Aid of free market miracle cures, can't wait to take it private again — or, better yet, eliminate Fannie and Freddie altogether. The basic idea, albeit offered as three separate "alternatives," is to make these big mortgage securitization houses less and less competitive until they disappear.
I cannot disagree that the mortgage giants' standards became entirely too lax when it came to deciding which loans would be purchased for securitization. The reason for that laxity, though, was that they were private companies, and had slipped the harness of government regulation thanks to free-market deregulatory fever. Their executives collected vast bonuses based on the amount of business they were able to churn, so riskier loans helped pad their pockets. Shareholders pressured those executives to increase earnings enough to remain "competitive" with finance houses like Lehman Brothers. There was nobody to say "no" when Fannie and Freddie took on vast amounts of irrational risk.
To me, the best thing to do from this point on is for the government to keep Fannie and Freddie, as federal agencies, with the goal of eventually earning back the money spent on their bailout. As federal agencies — better yet, as a single combined Agency — Fannie/Freddie could be operated according to succinct rules, with no need to pander to the greed of Wall Street oriented directors or the pressures applied by shareholders. Think about it:
If mortgages are difficult or impossible to obtain or afford, demand for existing housing stock will plummet, and so will real estate prices. For the many middle class families whose homes are their most significant reservoir of wealth, the effect will be devastating.
Yes, Fannie and Freddie are seriously flawed — but the flaws emerge from their "hybrid" status. As purely government entities, they can operate successfully and continue to fulfill their original purpose. They can be designed to be moderately profitable or just to break even, depending on will of (a mostly imaginary) Congress. The only reasons to end their existence by complete privatization are ideological rather than practical. Our economy already has been hamstrung by the ideology of the so-called "free market." It's time to take a new look at the true successes of the New Deal.
Today, Fannie Mae and it's near relation Freddie Mac are owned by the government again. Obama, along with most other government leaders who have drunk the Kool-Aid of free market miracle cures, can't wait to take it private again — or, better yet, eliminate Fannie and Freddie altogether. The basic idea, albeit offered as three separate "alternatives," is to make these big mortgage securitization houses less and less competitive until they disappear.
I cannot disagree that the mortgage giants' standards became entirely too lax when it came to deciding which loans would be purchased for securitization. The reason for that laxity, though, was that they were private companies, and had slipped the harness of government regulation thanks to free-market deregulatory fever. Their executives collected vast bonuses based on the amount of business they were able to churn, so riskier loans helped pad their pockets. Shareholders pressured those executives to increase earnings enough to remain "competitive" with finance houses like Lehman Brothers. There was nobody to say "no" when Fannie and Freddie took on vast amounts of irrational risk.
To me, the best thing to do from this point on is for the government to keep Fannie and Freddie, as federal agencies, with the goal of eventually earning back the money spent on their bailout. As federal agencies — better yet, as a single combined Agency — Fannie/Freddie could be operated according to succinct rules, with no need to pander to the greed of Wall Street oriented directors or the pressures applied by shareholders. Think about it:
- A specific rule could limit the size of a mortgage the Agency could purchase. Reducing the maximum amount to $400,000 seems in line with the goal of helping the middle and working classes afford housing.
- A specific rule could specify the percentages that must be paid in down payments to qualify a loan for purchase by the Agency, with lower interest rates available for those paying 20% or more, and a minimum down payment of 10% limited to smaller loans designed for the less affluent. Such a rule would reduce and offset possible defaults.
- If the rules are clearly and precisely defined, "talent" is not necessary among the agency's directors. Bureaucrats, on specific salaries with no bonuses, would fill the bill.
- The Agency would remain competitive with the private sector because an explicit government guarantee of the securities it issued would allow it to offer lower interest rates than the banking industry. Agency profits usually would not be as great as those generated by private financial firms, but they would be far less volatile.
If mortgages are difficult or impossible to obtain or afford, demand for existing housing stock will plummet, and so will real estate prices. For the many middle class families whose homes are their most significant reservoir of wealth, the effect will be devastating.
Yes, Fannie and Freddie are seriously flawed — but the flaws emerge from their "hybrid" status. As purely government entities, they can operate successfully and continue to fulfill their original purpose. They can be designed to be moderately profitable or just to break even, depending on will of (a mostly imaginary) Congress. The only reasons to end their existence by complete privatization are ideological rather than practical. Our economy already has been hamstrung by the ideology of the so-called "free market." It's time to take a new look at the true successes of the New Deal.
Tuesday, September 9, 2008
Fannie, Freddie, and (incidentally) the election
Yes, the conservatorship of Fannie and Freddie was necessary. The only entity in the world that owes more money than Fannie and Freddie combined is -- as you can easily guess -- the government of the United States of America. If Fannie and Freddie defaulted on their debts, it would cause worldwide economic meltdown as credit dried up completely.
The vast majority of Americans have no clue what the crisis is all about, and explaining it to them is next to impossible. Most people are economic illiterates. Use words like "securitization" or "derivative" and watch their eyes glaze over.
Barack Obama and Joseph Biden understand what's happening at Fannie and Freddie. John McCain and Sarah Palin do not. The unfortunate outcome is that McCain and Palin find it much easier to talk to America about Fannie and Freddie than Obama and Biden do. The Republican candidates can spout sound bites that really have no bearing on the severity of the problem, while the Democrats seem to feel obliged to say things that make economic sense -- and then watch the eyes glaze over.
Please! Can't some speechwriter compose a few populist sounding platitudes for them to produce when the cameras are running? How about, "When we reorganize Fannie and Freddie, we'll make sure that taxpayer money is safe again, and not being used to bail out rich investors and overpaid executives; we'll make sure that middle-class families can realize the dream of home ownership without fear of finding themselves out on the streets; and we'll end the irresponsible Republican policies that caused the mess we're in today."
Okay, that's just a statement of goals -- not even policy, much less a plan for policy implementation. So what. The hard stuff can go into the interviews by the New York Times and the Wall Street Journal -- it doesn't have to be on the evening news.
Speaking of the hard stuff -- the take-over of Fannie and Freddie got me to thinking, again, about those not-too-serious ideas I was playing with last month for putting real pressure on Russia. Well, this time, I might be just a little more serious.
One of the biggest problems with Fannie and Freddie is their enormous size -- too large to fail. The obvious solution to that problem is to split the monsters into a number of smaller companies, similar to the way AT&T was split into the "Baby Bells" back in the 1980s. The problem with that solution, though, is figuring out how to divide the immense debt Fannie and Freddie have incurred.
Well, here's my "little idea." Just as AT&T was divided regionally, why not divide the mortgage giants' debts regionally? One large company might inherit all the debt owed to China; another could inherit all the debt owed to investors in the European Union. Debts owed to Russia's sovereign wealth fund and other Russian investors could be assigned to yet another company; perhaps the debts owed to the various sovereign wealth funds of the Persian Gulf area could be grouped together, and assigned to yet another spin-off.
I'm sure that there are quite a few economists and bankers with the appropriate qualifications (including sense of humor) to enjoy slotting Japan, Indonesia, Mexico, Brazil, Venezuela, and all the others into amusing and entertaining categories that might make sense. As for American investors, I'd hope that the pension funds might be kept separate from the hedge funds, and that taxpayer bailout money be reserved for the former.
Make sense?
Well, let's see. Although we couldn't keep the debts incurred by the various companies sorted so neatly, initially, at least, the sorting could be useful -- especially when all of them are depending on a government safety net to keep them solvent. Unlike Fannie and Freddie, though, none of the new companies would be "too big to fail." If some foreign country were being especially uncooperative, the Fannie/Freddie successor company that owed that country's sovereign wealth fund a ton of money just might find widening holes in its safety net.
Okay, it's just a "little idea," and probably not feasible. Just the same, the greatest debtor in the history of the world ought to be able to find some way to leverage that great distinction for its own good.
The vast majority of Americans have no clue what the crisis is all about, and explaining it to them is next to impossible. Most people are economic illiterates. Use words like "securitization" or "derivative" and watch their eyes glaze over.
Barack Obama and Joseph Biden understand what's happening at Fannie and Freddie. John McCain and Sarah Palin do not. The unfortunate outcome is that McCain and Palin find it much easier to talk to America about Fannie and Freddie than Obama and Biden do. The Republican candidates can spout sound bites that really have no bearing on the severity of the problem, while the Democrats seem to feel obliged to say things that make economic sense -- and then watch the eyes glaze over.
Please! Can't some speechwriter compose a few populist sounding platitudes for them to produce when the cameras are running? How about, "When we reorganize Fannie and Freddie, we'll make sure that taxpayer money is safe again, and not being used to bail out rich investors and overpaid executives; we'll make sure that middle-class families can realize the dream of home ownership without fear of finding themselves out on the streets; and we'll end the irresponsible Republican policies that caused the mess we're in today."
Okay, that's just a statement of goals -- not even policy, much less a plan for policy implementation. So what. The hard stuff can go into the interviews by the New York Times and the Wall Street Journal -- it doesn't have to be on the evening news.
Speaking of the hard stuff -- the take-over of Fannie and Freddie got me to thinking, again, about those not-too-serious ideas I was playing with last month for putting real pressure on Russia. Well, this time, I might be just a little more serious.
One of the biggest problems with Fannie and Freddie is their enormous size -- too large to fail. The obvious solution to that problem is to split the monsters into a number of smaller companies, similar to the way AT&T was split into the "Baby Bells" back in the 1980s. The problem with that solution, though, is figuring out how to divide the immense debt Fannie and Freddie have incurred.
Well, here's my "little idea." Just as AT&T was divided regionally, why not divide the mortgage giants' debts regionally? One large company might inherit all the debt owed to China; another could inherit all the debt owed to investors in the European Union. Debts owed to Russia's sovereign wealth fund and other Russian investors could be assigned to yet another company; perhaps the debts owed to the various sovereign wealth funds of the Persian Gulf area could be grouped together, and assigned to yet another spin-off.
I'm sure that there are quite a few economists and bankers with the appropriate qualifications (including sense of humor) to enjoy slotting Japan, Indonesia, Mexico, Brazil, Venezuela, and all the others into amusing and entertaining categories that might make sense. As for American investors, I'd hope that the pension funds might be kept separate from the hedge funds, and that taxpayer bailout money be reserved for the former.
Make sense?
Well, let's see. Although we couldn't keep the debts incurred by the various companies sorted so neatly, initially, at least, the sorting could be useful -- especially when all of them are depending on a government safety net to keep them solvent. Unlike Fannie and Freddie, though, none of the new companies would be "too big to fail." If some foreign country were being especially uncooperative, the Fannie/Freddie successor company that owed that country's sovereign wealth fund a ton of money just might find widening holes in its safety net.
Okay, it's just a "little idea," and probably not feasible. Just the same, the greatest debtor in the history of the world ought to be able to find some way to leverage that great distinction for its own good.
Monday, July 14, 2008
Fannie & Freddie: to bail or not to bail
Wall Street apparently didn't think much of the government's plan to prop up Fannie Mae and Freddie Mac. As for me, I'm not too pleased with it either -- needless to say, for completely different reasons.
Investors in the two companies raked in enormous profits all through the housing bubble, and the companies' executives did even better. Thanks to the pervasive anti-regulatory ideology of the past few decades and the powerful influence of Fannie and Freddie's lobbyists, those profiteering executives were able to indulge in all the greed-driven maneuvers that created the current economic crisis.
What portions of the mortgages Fannie and Freddie either hold or insure are less than secure? Given the lack of oversight, nobody knows, of course. Oversight, after all, is an insult to the miracle of the free market. Yes, Bernanke and the Fed drew up some new rules today -- truly onerous regulations like "before it lends a guy half a million dollars, a bank really ought to check whether or not he has a job paying more than minimum wage." So as not to upset the mortgage industry too much, though, that regulation won't take effect until October of next year.
In the meanwhile, the Treasury will be expanding Fannie and Freddie's lines of credit, and the Fed will open the discount window to the two privately held companies. To wit: in keeping with the rules of modern capitalism, the risks are socialized while the profits remain private. The profiteers get to keep everything they raked in while the housing bubble was still inflating -- but now that the bubble has burst, taxpayers get to absorb the losses.
Fannie Mae and Freddie Mac, if they can't make it on their own, don't deserve government bailouts beyond the relatively small two-and-a-half billion already written into law. It's true, though, that the housing market depends on the two huge companies, so they can't be allowed to die -- but government and the taxpayers it represents should not be taking on more risk and more debt without getting something in return.
Government should not "bail out" Sallie and Freddie. If share prices continue to drop, it would make more sense to use the bailout funds to buy one or both companies outright. Yes, that's right -- a total government takeover. Nationalization. With proper regulation and oversight, both companies will be profitable again someday, and the government of the United States can apply those profits to affordable housing for the poor, or universal health care, or maybe just balancing the budget. Why send the country deeper into debt just so the private sector eventually can reap the rewards?
Once again, I ask my eternal economic question: why is it that no government enterprise ever is allowed to turn a profit? Why is it that everything that earns money is privatized, and everything that loses money is socialized? If people really want more government services and lower taxes, the only way to do it is to give government a chance to turn a profit once in a while. A buyout of Sallie and Freddie at bargain basement prices presents an excellent opportunity to do just that.
Yes, I know that not every investor in Sallie and Freddie is a fat cat -- I'm pretty sure that both my pension fund and my mutual fund hold shares of one or both companies, but I'm also pretty sure that both funds are selling out as fast as they can. Just like most other Fannie/Freddie stockholders, I presume they recognize that companies which buy, insure, and repackage mortgage debt can't possibly be doing too well right now -- and that the finance sector as a whole is in a downward spiral worse than any it's encountered since the Great Depression.
Along with crisis, though, comes opportunity. The opportunity I see is for a basic reorganization of American government and economics. Mind you, I don't expect any of our short-sighted, ideologically blinded leaders to take advantage of that opportunity -- at least not in the short term -- but if things get bad enough, who knows? Maybe if the tunnel gets really dark, there could be some really bright light at its end.
Investors in the two companies raked in enormous profits all through the housing bubble, and the companies' executives did even better. Thanks to the pervasive anti-regulatory ideology of the past few decades and the powerful influence of Fannie and Freddie's lobbyists, those profiteering executives were able to indulge in all the greed-driven maneuvers that created the current economic crisis.
What portions of the mortgages Fannie and Freddie either hold or insure are less than secure? Given the lack of oversight, nobody knows, of course. Oversight, after all, is an insult to the miracle of the free market. Yes, Bernanke and the Fed drew up some new rules today -- truly onerous regulations like "before it lends a guy half a million dollars, a bank really ought to check whether or not he has a job paying more than minimum wage." So as not to upset the mortgage industry too much, though, that regulation won't take effect until October of next year.
In the meanwhile, the Treasury will be expanding Fannie and Freddie's lines of credit, and the Fed will open the discount window to the two privately held companies. To wit: in keeping with the rules of modern capitalism, the risks are socialized while the profits remain private. The profiteers get to keep everything they raked in while the housing bubble was still inflating -- but now that the bubble has burst, taxpayers get to absorb the losses.
Fannie Mae and Freddie Mac, if they can't make it on their own, don't deserve government bailouts beyond the relatively small two-and-a-half billion already written into law. It's true, though, that the housing market depends on the two huge companies, so they can't be allowed to die -- but government and the taxpayers it represents should not be taking on more risk and more debt without getting something in return.
Government should not "bail out" Sallie and Freddie. If share prices continue to drop, it would make more sense to use the bailout funds to buy one or both companies outright. Yes, that's right -- a total government takeover. Nationalization. With proper regulation and oversight, both companies will be profitable again someday, and the government of the United States can apply those profits to affordable housing for the poor, or universal health care, or maybe just balancing the budget. Why send the country deeper into debt just so the private sector eventually can reap the rewards?
Once again, I ask my eternal economic question: why is it that no government enterprise ever is allowed to turn a profit? Why is it that everything that earns money is privatized, and everything that loses money is socialized? If people really want more government services and lower taxes, the only way to do it is to give government a chance to turn a profit once in a while. A buyout of Sallie and Freddie at bargain basement prices presents an excellent opportunity to do just that.
Yes, I know that not every investor in Sallie and Freddie is a fat cat -- I'm pretty sure that both my pension fund and my mutual fund hold shares of one or both companies, but I'm also pretty sure that both funds are selling out as fast as they can. Just like most other Fannie/Freddie stockholders, I presume they recognize that companies which buy, insure, and repackage mortgage debt can't possibly be doing too well right now -- and that the finance sector as a whole is in a downward spiral worse than any it's encountered since the Great Depression.
Along with crisis, though, comes opportunity. The opportunity I see is for a basic reorganization of American government and economics. Mind you, I don't expect any of our short-sighted, ideologically blinded leaders to take advantage of that opportunity -- at least not in the short term -- but if things get bad enough, who knows? Maybe if the tunnel gets really dark, there could be some really bright light at its end.
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