Party of Regulations? lol - Investigate Rahm

[Marcus Bryant]

The government is positioning the country for a larger financial market meltdown in the future. Nothing has changed to rid ourselves of the TBTF public backstop (if anything, it's in the process of being expanded and codified) nor of the private gain/public loss model of the GSEs. The Feds have made it quite clear that they will clean up any mess in the future created by Wall Street, while the executives of Wall Street firms are still free to run their firms with very little personal skin in the game, yet with claims on the upside.

The sum total of the federal government's interventions in banking and more broadly in the financial services industry was supposed to provide stability in the financial markets, temper inflation, smooth the business cycle, and, in general, promote the general welfare. Instead we have even greater instability, a dollar which has lost 95% of its value since the Fed has come into existence, nastier business cycles, and a system which subsidizes the wealthy to capture an even larger part of the national income.

Allegedly left-wing politicians suckle at the teat of Wall Street and provide them the largest handouts while spouting empty rhetoric about their benefactors' greed and what not.

Right-wing politicians sell out their small businessmen clientele, by ensuring they enjoy capitalism while large businessmen enjoy a managed economy.

Yet every two years we pretend that there's a real distinction, and waste time attempting to make that distinction, when it's rather obvious once you step outside the political stadium that the game you've been watching is an intra-squad contest.

[Winehole23]

Like Chumpy said, you can't put that on a bumper sticker. The prevalence of ignorance, stupidity and willful blindness make it totally irrelevant that you're most likely correct.

Knowledge=powerlessness.

[Winehole23]

... the Treasury Department announced that they would uncap their support of Fannie and Freddie for the next three years, which could expose the government to hundreds of billions of dollars in losses. I find plausible the speculation that Treasury could announce a reduction of principal as part of their mortgage modification program, which would result in major losses of mortgage-backed securities, which Fannie and Freddie could absorb. This is part of a pattern of artificially propping up home prices that should otherwise go down to historically appropriate levels.

To help keep this straight, here is a list of the status of a number of programs:
• Housing Tax Credit: Buyer must sign a contract by April 30th and close by June 30, 2010 to qualify [...]
• Federal Reserve MBS Purchase Program: This is scheduled to end March 31, 2010, from the Fed:
[T]he Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010.
• Treasury MBS Purchase Program: This program will end Dec 31, 2009, from the Treasury:
The program that Treasury established under HERA to support the mortgage market by purchasing Government-Sponsored Enterprise (GSE) -guaranteed mortgage-backed securities (MBS) will end on December 31, 2009. By the conclusion of its MBS purchase program, Treasury anticipates that it will have purchased approximately $220 billion of securities across a range of maturities.
• HAMP Trial Programs Extended: The Treasury has extended any expiring trial modification program until at least Jan 31, 2010, from the Treasury:
In order to provide servicers an opportunity to remain focused on converting eligible borrowers to permanent HAMP modifications, effective today and lasting through January 31, 2010, Treasury is implementing a review period for all active HAMP trial modifications scheduled to expire on or before January 31, 2010. Active HAMP trial modifications include trial modifications that have been submitted to the Treasury system of record that have not been cancelled by the servicer.
• Support for Fannie and Freddie: Treasury has uncapped the support for Fannie and Freddie for the next three years.
• Fannie / Freddie Low-Cost Refinancing program. This is the program that allows homeowners with Fannie and Freddie mortgages to refinance loans up to 125 percent LTV. I believe this program expires June 10, 2010.
• FHA Loose Lending Standards: In his Dec 2nd testimony to Congress, HUD Secretary Donovan said the FHA would propose tighter lending standards by the end of January 2010.
• Various Holiday Foreclosure Moratoria: Fannie, Freddie and most of the large banks routinely suspend foreclosure activity over the holidays. This has been true this year too. Fannie and Freddie’s holiday moratoria ends Jan 3, 2010, and Citi’s holiday moratoria ends Jan 17th. The other banks programs end in early January too.

It’s clear to anybody paying attention that the government is employing a variety of strategies to keep housing prices stable, which by turn improves the position of the banks. This latest move to use Fannie and Freddie to buy up large numbers of bad mortgages is just another example. I don’t have a problem with reducing principal payments if that is indeed the strategy, but we really have no idea, and there is literally no oversight of these agencies held in 80% by the taxpayers – they fired their own Inspector General, after all.


Let’s just say I’m troubled by an unlimited bailout – seen by the markets as such – of these agencies without the ability to understand why. That’s especially true given the crowing about how the government is getting most of its TARP money back, while failing to discuss this and other larger vehicles to aid banks with taxpayer dollars.

There is a danger associated with lumping in this particular action with the long-held myth on the right that the economy crashed because Fannie and Freddie used the Community Reinvestment Act to lend to poor (black?) people. But that’s not a good enough reason not to demand to know just what the government is up to in giving two GSEs what amounts to an unlimited slush fund, undergirding close to the entire mortgage market in the US. And what Tim Geithner is saying in public about this (”we are going to focus the bulk of the financial force on bringing interest rates and mortgage rates down to cushion the fall in housing prices and help stabilize home values”) shouldn’t reassure anyone.

http://news.firedoglake.com/2009/12/...uestioning-it/

[Winehole23]

Face it, this message about Rahm is important: if he’s created a giant slush fund in the center of the housing market to suck up the losses as his buddies on Wall Street are forced to finally mark-to-market, will we be surprised by his immense reward afterwards? What’s the reason for making the decision ahead of when Congressional oversight would kick in? And why are progressives suddenly citing the Christopher Cox SEC (which missed Madoff despite being led right to it) as the final word in investigations?


Principles over personalities, please.

[Winehole23]

I don’t know if anything illegal HAS occurred, which is why I want an investigation.


Moreover, even without thinking something illegal has occurred, I, as a goddamned taxpayer, think I have the right to know where INFINITY DOLLARS of my taxes might be going.


Yet, as of today, not a clue. That irritates me. The fact that a man who screwed up once as a board member, once again as a Congressman, is now chief of staff shepherding this mess of a bailout, that infuriates me. Even if it’s all honest stupidity, how far can Rahm fail upward on ONE issue?

[Winehole23]

Rahm Emanuel was appointed to the board of Freddie Mac in February of 2000 by Bill Clinton. It was a patronage job, as these board appointments are, where the director gets a big salary for doing little work as a payoff to political allies.


According to the Chicago Tribune, during his tenure the board was notified by executives of their plans to misstate the earnings of Freddie Mac: “On Emanuel’s watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.” (3/5/2009)


The Tribune further reported that “during his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.”


In December 2003, a report (PDF) was written by Armando Falcon Jr., head of the en y charged with oversight of Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO). The report asserts that company executives “demanded whatever level of earnings management was necessary to achieve steady rapid growth in Enterprise profits.” It also “provided evidence that non-executive members of the Board were aware, and supportive of, management in this regard, including the use of derivatives to improperly manage the earnings of Freddie Mac,” citing notes from a June 2, 2000 meeting of the Board of Directors (p. 24).


Attending board meetings was one of the things Rahm had to do. The minutes indicate he was made aware by the executives of their plans to misstate earnings and deceive shareholders. When they had to restate earnings, $7 billion in shareholder worth just disappeared. Numerous civil suits were filed, including one on behalf of the Ohio Public Employees Retirement System, who suffered losses of up to $27.2 million as a result of the fraud:


http://www.reuters.com/article/idUSN2362909020080123


The OFHEO report concluded that board had “failed in its duty to follow up on matters brought to its attention.” The SEC filed a complaint (PDF) saying that Freddie Mac had “misreported profits by billions of dollars in order to deceive investors between the years of 2000 and 2002,” per ABC News.


I spoke to Bill Black about it, and he said it was “shocking” that in 10 years, nobody from Fannie/Freddie had been indicted. He was appalled.


The only problem with singling Rahm out is that everyone who has been on the Fannie/Freddie boards for the past 20 years needs to be investigated, from Dennis DeCancini to Jamie Gorelick. It’s only Rahm’s current role in determining what happens to Fannie and Freddie now that makes him more worthy of distinction.