The Washington Post reports that Fannie Mae and Freddie Mac, the govt/private sector partnership that worked so well for so many years getting low income folks hooked up with their own homes (before Bush came along), are going into the dumper on the stock market, and that their future is in danger.
Investors dumped shares of Fannie Mae and Freddie Mac yesterday based on worries that the two pillars of the housing market could be forced to raise $75 billion of capital, potentially confronting them with an overwhelming burden and crippling already struggling financial markets.
Fannie Mae's stock price plunged 16.2 percent, to $15.74, and Freddie Mac's fell 17.9 percent, to $11.91 -- their lowest since 1995.
***
At issue are trillions of dollars in mortgage guarantees that Fannie Mae and Freddie Mac made but are not included on their balance sheets as assets or liabilities. FASB's proposed rule would require the companies to move the guarantees to the balance sheets, forcing them to hold additional capital to cover those obligations.
The two agencies would have to have $$$BIL$$$ more in their bank accounts than they have to carry now, the money provided by the Congress. With Bush's War taking us into double-digit inflation and quadruple digit deficits, a new housing appropriation that large is...unlikely. The hope is that, as quasi-public, non-profit institutions, the FASB will exempt the FM's from a rule made to prevent for-profit banks from swindling people, but if it doesn't thier stock becomes worth less and the money it can borrow, especially against the stringent new rules, will be significantly less, weakening the housing market even further.
It's not entirely accidental that the fallout comes because banks and mortgage-lending institutions decided they could compete with the two FM's and steal their low-income customers using deceit and trickery. The investor class has never liked the FM's for a variety of reasons, so if they go down because of the mortgage scamming business the for-profit banks invented and then ran off the end of the goddamn Earth with, that would be a plus for the commercial sector - a competitor destroyed. Never mind that they don't really want the FM's customers which is the reason they were created in the first place.
But if the problems of the FM's are Good News for commercial banks, other parts of the fallout aren't. For instance the news today that the Fed and the SEC have agreed to "share information".
Two top regulators reached a formal agreement to coordinate their oversight of Wall Street yesterday, as the government attempts to build a new system to guard against a meltdown of the financial system.
Leaders of the Federal Reserve and the Securities and Exchange Commission signed a memorandum of understanding that explicitly allows for the two agencies to share information about the inner workings of investment banks. The move formalizes what has been a reality since the rescue of Bear Stearns in March and marks an end to an era in which the two agencies held information close to their vests.
"It requires consultation between the SEC and the Fed in areas that the SEC had thought previously were its exclusive business. But the world has changed," said David Becker, a partner at law firm Cleary, Gottlieb, Steen & Hamilton and former general counsel at the SEC. "This mostly ratifies facts on the ground."
It's a fairly obvious move and one wonders, after almost a decade of corporations involved in phony accounting, corruption, theft, profits reported that didn't exist, shell companies, etc etc etc, why they didn't get around to it sooner, but - and I seem to be saying this a lot lately - BETTER LATE THAN NEVER, I GUESS.
Not that that helps the victims much. Treasury Sec Henry Paulson said today that despite the best efforts of govt, acres of foreclosures are inevitable.
Faced with record-high foreclosure rates, the Bush administration has been scrambling to keep people from losing their homes, but many are beyond help, Treasury Secretary Henry Paulson said Tuesday.
Lax lending standards that accompanied the once high-flying housing market allowed people to buy homes they could not afford, Paulson said.
"Many of today's unusually high number of foreclosures are not preventable," he said in prepared remarks to a mortgage-lending forum meeting in Arlington, Va. "There is little public policymakers can, or should, do to compensate for untenable financial decisions."
Paulson said 1.5 million home foreclosures started in 2007, and some economists estimate there will be about 2.5 million foreclosures begun this year.
(emphasis added)
I want somebody to show me proof that the bolded section is true because the only sector I see the Bush Admin "scrambling" to help is the investor class. In fact, Bush has threatened to veto the Housing Bill despite the "compromise" worked out with the Dem DLC leadership that gave him everything he wanted.
The problem is, of course, that everything, as bad as it looks, is really a lot worse. Kevin Phillips, in a new Harper's article titled "Numbers Racket: Why the economy is worse than we know", confirms much of what I've been saying for years - that the Bush Administration has been regularly and systematically fudging govt stats, first to support his neoconservative ideology and then to cover up the fact that those ideological policies not only weren't working but were actively counter-productive. (via TMiss)
The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.
The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?
Indeed we might do more than just "ponder". We might be willing to break a few heads, especially those of conservatives in both parties who have not just enabled this vast deception but counted on it to cover up their economic and political crimes. Worse, they may have actually believed this shit because, again as I've been saying for years, economic "optimism" has become so rigidly demanded in this country that it has made many of us absolutely blind to truths right under our noses.
A short history of “pollyanna creep”
This apt phrase originated with John Williams, a California-based economic analyst and statistician who “shadows,” as he puts it, the official Washington numbers. In a 2006 interview, Williams noted that although few Americans ever see the fine print, the government “always footnotes the changes and provides all the fine detail. Nonetheless, some of the changes are nothing short of remarkable, and the pattern over time is what I call Pollyanna Creep.” Williams is one of the small group of economists and analysts who have paid any attention to the phenomenon. A few have pointed out the understatement of the Consumer Price Index—the billionaire bond manager Bill Gross has described it as an “haute con job,” and Bloomberg columnist John Wasik has dismissed it as “a testament to the art of spin.” In 2003, a University of Chicago economist named Austan Goolsbee (now a senior economic adviser to Barack Obama’s presidential campaign) published an op-ed in the New York Times pointing out how the government had minimized the depth of the 2001–2002 U.S. recession, having “cooked the books” to misstate and minimize the unemployment numbers. Unfortunately, the critics have tended to train their axes on a single abuse, missing the broad forest of statistical misinformation that has grown up over the past four decades.
(emphasis added)
Between the rosy forecasts we've demanded and the manipulation of statistics to make it look like we've been getting it - which we haven't - we've been fluffed with the idea that our economy is strong and flexible when in fact it's built on the sand of exploitation and lies. When the truth bubbles up to the surface, as it did during the Enron/WorldCom/Adelphia/etc messes, we deny the implications and insist that they're just "isolated incidents" when in fact they're symbols of an underlying rot.
As the stock action around the FM's shows, we're beginning to pierce the veil of spin and Good News, mainly because the roof is caving in and we don't have much choice. There are ways out of this swamp but none of them are pretty and all of them would require sacrifice, especially on the part of an investor class that doesn't intend to make any, even if that means the global economy becomes a sinkhole.
No single presence can fix this, but even if one could, we don't have one available. McCain is an idiot, Obama is a corporate DLC stooge, and the Congress - which has some good, smart people in it who understand the consequences of inaction - is being stymied by a handful of silver-spoon conservative Democrats allied with ideological Republican nincompoops who are determined to save the asses of their corporate bosses by sacrificing us.
Our time is running out, I'm afraid.
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