Buyers Beware: Taxpayer-Funded US Govt Now Owns Fannie & Freddie

Think about it, folks. We just re-hired, just 4 years ago, a couple of guys to run the "World Superpower" we call home (but they call "Homeland", which is totally different, as we've found out) after they effectively gutted the economy, started War Without End Amen based on patent lies - covering up by betraying the cover of one of their own government's CIA operatives - and institutionalized torture, the abuse of power and human rights, and bled the country's treasury by supersizing the Pentagon while simultaneously outsourcing half of its business to private industry and starting to outsource basic services the same way. All this while these 2 hacks profited big on the misery of the general population in every way imaginable. Oh, I mean them and their cronies.

Now, after allowing some of those cronies to get rich quick by bloating up on houses as if the housing market was based on Perpetual Motion (and in case that was wrong, they stocked up the Plan B Solution Warehouse with snake oil), we are being told - I repeat, just being told (as in "read only memory" - you can only receive, not input) that your government has just decided to suddenly "buy", and in effect, "be", Fannie Mae and Freddie Mac, both of whom have become wildly bankrupt and in hopeless debt.

Where is Lyndon Larouche, Jr., now that we need him?

Right on cue, out of the mouths of ... conspiracy theorists.. sometimes come words to think about:

The government has already spent trillions of dollars in the attempt to save the banks, in schemes ranging from the economic stimulus program to the ongoing and accelerating loan programs to the banks from the Fed. None of this has worked, but rather than realize the folly of their ways, the idiots in Washington and Wall Street are cranking the spigots wide open.

Some estimate that the bailout will cost $20-$30 billion, but these estimates are meaningless, since the government is effectively committing itself to an unlimited bailout. Essentially, the government is bailing out the debt by doubling it, creating a even bigger pile of debt that will have to be bailed out, doubling again in a geometric progression. Since there isn't enough money in the world to make this scheme work, it cannot succeed, and the attempt to do it will trigger a hyperinflationary explosion reminiscent of Weimar Germany, such that the very value of the dollar itself will vaporize.

His solution, however, was unclearly described as "the American system" and I couldn't in my economic ignorance figure out how he determined that "essentially, the government is bailing out the debt by doubling it". However, there's not doubt that something terrible has just happened and nobody really quite grasps what will come of it.

One opinion:

There are voices of reason out there in the what would seem to be a forest of insanity. Jim Rogers argues that we don’t need to bail out Fannie Mae Freddie Mac. I agree with Jim Rogers on this. Let the courts handle it and let the taxpayers move on. This isn’t the end of the world, and if we allow these people to get away with it by bailing them out then we we have learned nothing. It is about time we face the truth and move on, not throw good money after bad.

Again, how would "the courts handle it"?? How does he know for sure that "this isn't the end of the world"? Or at least, the world as we know it?

Besides, the issue may be worse than we think. How come the actual, not simply the promissory, bailout occurred immediately after discovering that the books were cooked?

This is no joke: the NYT headline reads "Mortgage Giant Overstated the Size of Its Capital Base" ...

The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced as early as this weekend, came together hurriedly after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

This is journalistic, safe prose for "cooking the books", fudging the finances, lying, playing with the accounting to look better than reality.

The details of the deal have not fully emerged, but it appears that investors who own the companies’ common stock will be virtually wiped out; preferred shareholders, who have priority over other shareholders, may also wind up with little. Holders of debt, including many foreign central banks, are expected to receive government backing. Top executives at both companies will be pushed out, according to those briefed on the plan.

Taxpayer alert: You're paying to save "many foreign central banks". Does this mean we were holding the purse-strings for unknown Other Countries in our little home-owning dream? The network of the global economy gets weirder by the moment. Now we are the financiers for who knows who? We now are paying to "back" those "many foreign central banks" and we don't even yet know who they are.

While it is not yet possible to calculate the cost of the government’s intervention, it could rise into tens of billions of dollars and will probably be among the most expensive rescues ever financed by taxpayers. The takeover comes on the heels of a rescue of the investment bank Bear Stearns, which was sold to JPMorgan in a deal backed by taxpayer dollars. Already, the housing crisis has cost investors hundreds of billions of dollars.

Will somebody tell us who is being saved and at the expense of whom? Why don't we just send all those foreign banks to court, as suggested above? Well, I don't know what court... maybe ... a military tribunal? After all, aren't we all interrelated? Well, maybe not that interrelated, not just yet...

But would you have thought buying out a companies that are essentially dishonest to be a good idea for the government?

Accusations of improper accounting are not new for either company. Earlier this decade, both companies paid large fines and ousted their top executives after accounting scandals.

One of the odd accounting blips was using "deferred tax assets" as credits, a sort of theoretical asset based on past "successes", to offset present and future losses.

One analyst estimates the companies, in the future, would have to collect roughly double the profits of the past five years for the credits to become usable. Most financial institutions are not allowed to count such credits as assets in the manner used by Fannie and Freddie.

Maybe that's where Mr. Larouche got his "double the debt" thing. And it certainly doesn't seem a good idea for such a gigantic pair of lenders to be allowed to do voodoo accounting while other businesses have to be held accountable for actual profit and loss, the old-fashioned, non-theoretical way.

Whatever the facts are, one fact remains irrefutable. The housing market is plummeting, the greedy have triumphed, the honest are getting screwed, and the taxpayer is paying. So much for Repuglicanomics. So much for taxpayers' rights from the GOP. They've gutted the economy, cleaned up profits at the people's expense, and are draining us in a war based on lies, draped in flags and flag pins, and are on the verge of turning what's left of America into a third world dumpsite.

For all his faults (he supports the bailout), Barack Obama would at least give us a chance to be free of Republican authoritarianism and supply-side unregulated economic catastrophe. To vote for anyone else would give it back to the GOP to finish the job.

The 'Mortgage Meltdown' Was No Accident

You gotta read this!
Subtitle: How the mortgage industry stole black America's hard-won wealth.

Small excerpt:

But the disaster is depressingly man-made. And this neighborhood reveals a deeply troubling dimension of it, one that will echo long past the recovery everyone hopes will soon come: for black America, the "mortgage meltdown" looks less like a market hiccup than a massive strip mining of hard-won wealth, a devastating loss that will betray the promise of class mobility for tens of thousands of black families.

And get this:

First-time homebuyers have originated less than a tenth of all subprime loans since 1998, according to a 2007 Center for Responsible Lending analysis. As recently as 2006, just over half of all subprime loans were refinances of existing home loans. The expected foreclosure toll from these loans will outpace the ownership gains by nearly a million families, the center estimates.

That's particularly true in established black neighborhoods like Westwood, where banks and brokers targeted vulnerable longtime homeowners and lured them into needless and rapidly recurring mortgages they clearly couldn't afford and from which they never stood to gain. More than half of all refinance loans made to African-Americans in 2006 were subprime, according to an analysis by the advocacy group ACORN. That's nearly twice the rate among white borrowers. Among low-income black borrowers, 62 percent of refinance loans were subprime, more than twice the rate among low-income whites.

And it gets worse:

It's a loss black America can scarcely afford, because black wealth has long been enormously dependent on home equity. In 1967, the year before the Mitchells bought their house, homes accounted for 67 percent of black wealth, compared with 40 percent of white wealth. The disparity has only grown, pushed by the turn-of-the-millennium stock market boom. Without counting home equity, black net worth in 2004 was just 1 percent of that for whites, according to research by New York University economics professor Edward Wolff.

Now with the current tragic situation, the all-important home base for many families, people who lived in these homes for years, is being taken from them by predatory lenders. One might argue that this is not racist, that they are just victims of a housing/lending crisis that hit all lower-income people. But a look at the history of home ownership and lending in America tells us that's letting them off the hook.

The nation's first homeownership boom came after World War II, when the government used the Federal Housing Administration's (FHA) mortgage insurance to lower the cost of buying. Banks extended credit lines to middle-class borrowers in ways that encouraged long-term ownership -- thirty-year mortgages covering 80 percent to 90 percent of the buyer's costs with interest rates of about 6 percent. By 1960, the American homeownership rate had shot up from less than half before the war to nearly 65 percent, where it remained until the modern housing market took off.

Black communities were excluded from this rising tide. The FHA's underwriting manual guaranteed insurance for segregated white neighborhoods only, until a series of court cases between 1948 and 1953 struck down the rule. Even then, the policy changed in word alone: 98 percent of the 10 million homes federal money had backed by 1965 went to whites, and banks' redlining of black neighborhoods went on for years thereafter. As a result, the black-white disparity in homeownership hasn't dropped below 20 percentage points since 1940; it was at 25 percentage points in 2007.

Read more to see exactly how predatory, and I mean predatory, those lenders became after lifting the usury laws so they could open up their shady business to everyone and even force loans on people who didn't understand what they were doing.