More Bailouts for Corrupt Mortgage Giants: “More Aid Expected for Fannie, Freddie”
The bailouts are getting even bigger, for the most undeserving recipients. “More Aid Expected for Fannie, Freddie,” reports The Washington Post.
The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs). It was just the beginning: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.
At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.)
Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk. “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.
The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do. Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.
The financial “reform” bills recently passed by the House and Senate do nothing to reform Fannie Mae and Freddie Mac. But they would wipe out jobs, increase pressure on banks to make risky loans in depressed neighborhoods, and increase credit card costs. Fuller coverage of the financial “reform” bills can be found here. How CEI worked to make the bill less awful than it otherwise would have been is discussed here.