It is an open secret that Fannie Mae and Freddie Mac are creatures of the democrats … originally formed to provide liquidity in the mortgage markets and morphing into the democrat’s political piggybank. A place to provide multi-million dollar jobs for the party faithful and to secure political advantage, district by district, by purchasing loans with relaxed underwriting standards. Not to mention their associated foundations which ostensibly were for “charitable” purposes.

Both companies born of a inherent conflict of interest. Quasi-governmental agencies known as Government-Sponsored Enterprises, these partly-private corporations managed to shift the risk of poorly-underwritten loans to the public taxpayer while siphoning off the profits for the executives, investors and selected special interests.

Both companies resisting any attempt at reform – championed by democrats such as House Financial Services Chairman Barney Frank and such luminaries as Maxine Waters. Both companies lobbying Congress prodigiously.

Even after the top executives were found to have cooked the books for the sole purpose of portraying their organizations is a positive light for Wall Street and earning multi-million dollar bonuses for their troubles, the democrats did little or nothing.

Listen to the democrats …

Do you want these Congressional asshats to continue to control Fannie Mae and Freddie Mac?

Thoroughly politicized, it is believed that the impetus for the mortgage meltdown was led by Fannie Mae and Freddie Mac who relaxed their loan underwriting standards – albeit under extreme political pressure – to the point where those who could not afford a new car were purchasing and flipping homes worth $300,000 – 400,000 or more. NINJA loans where there was no income, no job and no asset verifications. Known in the trade as liar’s loans, these loans were the spark that started the meltdown when they failed to perform in investment pools which were sold to investors all over the globe as being of “investment grade.”

Yes, there were other large financial institutions involved, but they were going along with the relaxation of underwriting standards promoted by the industry’s two largest players: Fannie Mae and Freddie Mac.

Obama’s “wise guys” to attempt reform …

Truth be told, there are relatively few ideas in creative finance that would allow one to salvage these entities. However, as with the Obama Administration, there are plenty of misleading Orwellian words to disguise recycled, and perhaps previously failed, ideas.

The Geithner Plan?

 According to the Washington Post …

“U.S. Considers Remaking Mortgage Giants:
'Bad Bank' Would Wipe the Slate Clean for Fannie Mae, Freddie Mac by Taking Their Toxic Loans”

“The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said.”

“The bad debts the firms own would be placed in new government-backed financial institutions -- so-called bad banks -- that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.”

They way it will really work …

I have taken the liberty of illustrating the democrat process of corporate turnaround.

Basically the good loans would be placed in institutions that would allow the valuable loans to be placed with democrat-friendly financial institutions. The bad loans would be guaranteed by taxpayer funds and sold for a deeply discounted amount to democrat-friendly financial institutions. The institutions with the good loans will have a continuing income stream which they can securitize as more derivative securities (mortgage backed securities) to be sold to investors through Wall Street; thus bringing profits to the financial institution and hefty commissions to the brokerage houses – with fantastic executive bonuses. Ditto for the bad mortgages now guaranteed by taxpayer funds.

In the end, the taxpayer will take it in the shorts. The executives will continue their multi-million dollar bonuses. Suitable campaign funds will be raised for the 2010/2012 election cycle – and nothing will have changed. The taxpayers will receive a token amount to satisfy the public relations needs of the Administration and Congress and everybody will begin the cycle of corruption and complacency anew.

I have always wondered …

Why is it that these agencies which have lost billions of dollars and must be propped up by taxpayer funds, don’t pay their executives the same amount as the President of the United States – it’s not like they are doing something that is critical to the defense of the United States and considering their abysmal performance, unlikely that they deserve much more.

A democrat example – linked to the Obama Administration …

How many people know that Obama’s Chief of Staff, Rahm Emanuel oversaw the loss of billions of dollars when he sat on the Freddie Mac Board of Directors?

That Emanuel was paid $31,060 in 2000 and $231,655 in 2001 as a Clinton-appointed Board member charged with overseeing the operations of the mortgage giant.

Fraud and mismanagement …

“The SEC’s complaint for fraud alleges that Freddie Mac engaged in a fraudulent scheme that deceived investors about its true performance, profitability, and growth trends. According to the complaint, Freddie Mac misreported its net income in 2000, 2001 and 2002 by 30.5 percent, 23.9 percent and 42.9 percent, respectively.”

But it was the taxpayers and shareholders who paid the fine …

The SEC “charged the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud in connection with improper earnings management beginning as early as 1998 and lasting into 2002. To settle the SEC’s charges, Freddie Mac agreed to pay a $50 million penalty, which is expected to be distributed to injured investors through a Fair Fund.”

The Board, Emanuel included, failed to exert proper oversight …

In a report investigating the $5 billion forced restatement of Freddie Mac’s finances, OFHEO (Office of Federal Housing Enterprise Oversight) Freddie Mac’s regulator said of the Board of Directors  … “The Board of Directors was apprised of control weaknesses, the efforts of management to shift income into future periods and other issues that led to the restatement, but did not recognize red flags, failed to make reasonable inquiries of management, or otherwise failed in its duty to follow up on matters brought to its attention.”

Perhaps, Emanuel, a former ballet dancer/politician, did not understand the complexities of derivatives, the political coercion and lobbying or even the perfidy of politicians who were subverting reforms? So where were the regulators? If this had occurred under Sarbanes-Oxley rules, Emanuel would have had to sign-off on the financial statements under the penalty of perjury. Is it any wonder that politicos are being besieged by industry to scrap Sarbox as it is colloquially known. Emanuel now runs the White House and is considered the most important decision-maker outside of Michelle Obama.

And by no means was Rahm Emanuel alone in serving at Fannie Mae and Freddie Mac … it was an incestuous bed of democrat political operatives and cohorts.

And these are the people now running our country and the recovery …

Considering we, the people, are being offered solutions by the very same people who precipitated and participated in the financial crisis, should we not severely reduce their salaries and bonuses in exchange for letting them remain out of jail – where they truly belong considering the magnitude of the losses incurred by ordinary citizens who believed that financial institutions were operating in a sound and prudent manner and that our regulatory agencies were protecting our backs. On second thought, throw the bastards in jail, confiscate their holdings and place in in a trust fund to distribute to the tax-paying citizens as a bonus.

So before we listen to the democrats about financial reform …

We should consider that many of them were complicit or complacent when it came to the actions which led to one of the worst financial crises since the Jimmy Carter Administration (12% unemployment, 24% interest rates, gas rationing) and the so-called 1929 Great Depression – also said to be prolonged and exacerbated by democrat political actions.

I still have trouble believing that Treasury Secretary Timothy “Turbo Tax” Geithner or Ben “Helicopter Ben” Bernanke are the right people to lead us out of the wilderness into prosperity. Mainly because the policies of both folks is highly political, involves the considerations of Wall Street’s special interests over the American public and is not, to use an Obama catchphrase, open, transparent  -- and they are certainly not accountable to the public for their actions.

Be well, be safe and take care of yourself and your family first.

-- steve

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OneCitizenSpeaking: Saying out loud what you may be thinking …

Reference links … 

U.S. Considers Remaking Mortgage Giants

SEC complaint

Office of Federal Housing Enterprise Oversight (OFHEO) Report 

Rahm Emanuel disagreeing with the Bush Administration on Housing issues|House Financial Services Committee