Matt Taibbi tonight has an important story that is likely to be lost in reporting on the New York primary: an unheard-of effort to keep 11,000 government documents hidden. They aren’t terrorism or surveillance state related; they are instead about the state secret of what the government has done and intends to do with the the government sponsored enterprises Fannie and Freddie now that they’ve gone from being walking wounded to cash machines.
As Taibbi recaps, the basis for the row is minority shareholder suits over how the rescues were handled. The original rescue had the government taking an 80% stake and the right to future dividends. The GSE overseer, the Federal Housing Finance Agency, changed the deal willy-nilly in 2012, after Fannie and Freddie were generating tons of profits, to keep all of the dividends. The excuse was that the housing giants were still basket cases facing a “death spiral”. But that’s clearly nonsense, since the funds were hoovered up by Treasury rather than retained by Fannie and Freddie to strengthen their capital bases. As Taibbi writes:
It got weirder. Despite the fact that the GSEs went on to pay the government $228 billion over the next three years, or $40 billion more than they owed, none of that money went to paying off Fannie and Freddie’s debt. When Sen. Chuck Grassley asked aloud how it was that the company and its shareholders were not yet square with the government, the Treasury Department testily answered, in essence, that the bailout had not been a loan, but an investment…
Remember, the other bailout recipients after 2008 were mostly all allowed to pay off their debts as quickly as possible, to get out from under restrictions imposed upon them by the government. Firms that took bailout money were allowed to pay far earlier than expected, in less than a year in some cases, allowing companies like JP Morgan Chase, Goldman Sachs and Morgan Stanley to get out from under executive compensation restrictions and other temporary reforms.
Unhappy investors sued, and the Administration asserted that 11,000 documents must, must be kept out of the public’s view or the Market Gods would rise up in anger and eat the economy. Taibbi noted: “The sheer breadth of the effort to keep this material secret may not have a precedent in modern presidential times.”
Judge Margaret Sweeny didn’t buy it, and conclude the Feds are trying only to escape embarrassment. Nevertheless, a mere seven documents were unsealed last week. Even so, they bear out her contention, demonstrating that the “death spiral” story was a complete fabrication, and they were certain the mortgage giants would continue to be cash machines. Mortgage finance expert Josh Rosner provided a link to the unsealed documents here and concluded:
The documents unsealed by Judge Sweeney demonstrate that the UST [US Treasury] and FHFA knew, before implementing the 3rd Amendment to the PSPA which swept all future profits of Fannie Mae & Freddie Mac, the GSEs were:
1- On the verge of resumed profitability;
2- Were close to being able to use their deferred tax asset (DTA);
3- The DTA was worth close to $50 billion; and
4- The profit sweep likely was driven by the budget battle;
5- The FHFA violated key sections of the 2008 Housing and Economic Recovery Act by:a) choosing to rely on new legislation rather than requiring the GSEs to submit a capital plan and rebuild capital;
b) violating HERA’s requirement that FHFA act independently and without interference by any other government agency or department;
c) forcing the dissipation of GSE assets.
However, it’s not clear how much of the rest will be unsealed, and Taibbi and other observers are scratching their heads as to what other dirty might be in the now-secret records. Taibbi’s best guess:
Likely also buried in the still-sealed documents is a wealth of information about the government’s plans for future reorganization of Fannie and Freddie, a huge looming event in the history of American finance.
Many of the government officials who were involved in the decisions surrounding the GSE conservatorship are now in the private sector, working on proposals for much-anticipated GSE reform.
Without getting too deeply into the weeds of this even more complicated tale, government officials have been working with Wall Street lobbyists for years on a plan to have a consortium of private banking interests step into the shoes of Fannie and Freddie.
If this concept actually goes through, it would be the unlikeliest of coups for Wall Street. Having nearly triggered a global depression eight years ago, the usual-suspect, too-big-to-fail banks would essentially be put in control of the same housing markets they all but wrecked last time around.
Do read Taibbi’s article and circulate it widely. One of the things that the Administration is counting on is lack of interest. Don’t let the fact that Fannie and Freddie aren’t in the headlines let them get away with past and probable planned looting.
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I wonder if, amongst the sealed documentation, there’s any juicy inside analysis on the likelihood — or not — of a return to private label securitisation and the limiting factors (such as crappy underwriting and conflict-of-interest servicing) that prevent it returning on the required scale.
I’d certainly like to have a laugh at the revelation that, as with healthcare, governments make the best “market” and as for capitalism, it is incapable of competing with what a government can provide given a level playing field.
Of course, in (grudgingly) fairness to capitalism, in housing, it hasn’t been presented with a level playing field since the FHFA determined that 30 year fixed rate only-adjustable-downwards (usually) products were the norm. Which also makes me wonder if the “housing dream” might be shown to be in the documents a complete fairy story absent those market distorting constraints.
A dozen years ago when Fannie and Freddie were still trading as “Congressionally sponsored entities,” they were operating with absurdly low levels of capital, on the order of 1 to 2 percent.
In principle, the highly complex math of mortgages and their payoff optionality should require more capital than plain-vanilla lending, not less. Mortgages are nightmarish to hedge. Fannie and Freddie both fluffed it on an epic scale.
Leadership of the GSEs was politicized. Franklin Raines, former CEO of Fannie Mae, was an African-American Democrat. In Congressional oversight hearings, Raines would get the unconditional support of Democratic members, while the Republicans threw brickbats at him.
At one point, Fannie Mae had an army of 1,200 auditors going through its books, attempting to restate its earnings for several prior years. Meanwhile, the NYSE allowed Fannie to stay listed, despite its inability to provide accurate financial statements.
Is this any way to run a company? Obviously not. Either an all-public or an all-private approach could work, but the public-private approach with ambiguous capital guarantees from the Treasury crashed and burned in spectacular fashion.
Meanwhile, the inability to chart a future for these companies is an indication of deep Congressional dysfunction. Smile — these are the same folks who oversee Social Security! :-0
Yep, Fannie and Freddie — all the disadvantages of private sector management with none of the advantages of public ownership. They are indeed a masterpiece of failure. Combining “because markets” with gerrymandering and pork barrel in the same entities, I’m still struggling to get my head around how they achieved this feat. Perhaps they are the illegitimate love children of Ayn Rand and Karl Marx.
I’m interested to find out what the impact would be of having those private banking interests take over Fannie and Freddie. This whole thing is extremely sleazy, so I’m sure that the public would get screwed over somehow.
Amen
Hey, kids! Let’s put on a show in the barn. The money we get can go to hiring lawyers to sue the government and force it to be honest, open, and fair!
Lol!
sorry, Yves, but there is just one solution for Washington and Wall Street, and it involves giving the Tree of Democracy a really good soaking.
One would hope that with Greenspand and Bernanke gone, the Fed at least would be willing to acknowledge that those two incompetent clowns destroyed America. But, no. Yellen proves that this refusal to admit incompetence or face embarrassment is institutional, not personal. As for government, well it’s the same bunch of depraved kleptomaniacs running things since 1980, so no hope there.
But, yeah, let’s get 11000 documents. Taibi should also ask for a copy of the Constitution under the Freedom of Information Act. “Request Denied for National Security Reasons”!
But, keep up the good fight…I need to vent my cynicism.
Greenspan is of course low-hanging fruit. Yellen is probably too new for any generalization to be made.
But Bernanke was almost constantly including in his remarks to Congress that Congress had to step up with fiscal policy before anything was going to get better. Could he have said this stronger? Should he have come right out and said the Fed was out of bullets? Perhaps in an ideal would, but in this one, such a comment would simply have gotten his replaced by someone with an inferred mandate to come out shooting wildly.
Bernanke failed in many more ways than simply not shouting loudly enough about fiscal policy. He aided and abetted the entire fraudulent run-up, bail-out and cover-up of the greatest theft in history. He made no efforts to push for reform. He made no effort to suggest that criminal investigations were necessary.
Bernanke et al created and promoted the myth that the banks were too big to fail. I fail to see how the overnight disappearance of Goldman Sachs would undermine the US economy, let alone the world. Goldman (and many others) probably don’t add anything positive to the economy other than the wealth effect wherever they have offices.
Bernanke gets no waiver from me.
It’s long been my suspicion that the Bush administration issued the “Buy” directive on subprime bonds back in 2005-6 once they were discovered to be so toxic as a way of delaying the inevitable crash that these would cause. Prior to this time, neither Fannie nor Freddie were active in this market, and it was at this time that these bond began to experience high default rates. This could not have gone unnoticed at F&F, and so their entry into this market at this particular time seems to have been made as a political and not financial decision.
Who’d have thought Barney Frank and his boyfriend would have gotten that much cover from Obama?
Remember, kids: The Obama Administration is remarkably scandal-free!
What strikes me at this point is the fact that over the years, over and over, we’ve been witness to this sort of evidence that “they’re up to something” and over and over they do exactly what we suspect they are going to do, but we stand around with our hands in our pockets, kick at the ground and murmur a bit at the cops when instructed to move along.
1973 Sallie Mae is created by government to provide student loans is later privatized
Oh, oh, looks like they intend to make a big profit on our hunger for education…
…1976, student loans are exempted from discharge via bankruptcy.
The Social Security Reform Act of 1983;
Oh oh, it looks as if they’ve got their eyes on our Social Security money.
Sure enough, they’ve loaned themselves our funds and have made it clear they have no intention of paying us back.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996;
Oh oh, it looks as if they have a plan. Austerity for thee and tax-cuts for me.
1999 Financial Services Modernization Act, commonly known as Gramm-Leach-Bliley
Oh oh, it looks as if they intend to allow the big banks to gamble with our money again! That doesn’t sound like a good idea.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Oh oh, it looks as if they think this whole thing is going to blow up in their faces and they intend to head us off at the pass by denying us the option of bankruptcy.
Get used to it.
They’ve done all this damage, right out in the open, in our faces, so to speak. There is murmuring at every juncture, but the looting goes on and on.
Right now, we’re faced with the imminent election of yet another, probably more vicious kleptocrat, if you think that’s possible, and about half the people in this country somehow believe that what we’re witnessing is progress in that we might finally elect a woman president.
Meanwhile, the collective fear/anger of the American people, as usual, is being re-directed at innocent people in far away places.
And they’ve pretty much convinced us that nothing can ever change unless one party can somehow gain control of the White House, the House, and the Senate, with more than 60 votes of course.
The past is prologue…
…The beatings will continue until morale improves.
Or maybe until we elect Bernie?
I think it’s time to explain to the American people, that the Walking Dead is a metaphorical story of the relentless efforts made by the .01% to drain the life out of us.
Face the facts folks, it’s more zombies, or Bernie, that’s our choice today.
Well, as long as Americans are fine with watching TV rather than being with the “radicals” out in the streets, you’d better get used to taking it in the shorts.
Occupy could have stopped the looting, but many Americans stayed home. So, here’s a big middle finger to all Americans who stayed home.
Bwahaha, what streets, we have no public squares. But really if Bernie can’t even get elected I wonder if there is really any support for a radical movement. (no he’s not that radical, that’s also what I mean)
The Financial Services Modernization Act and the Gramm-Leach-Bliley Act are separate laws. The former has to do with exempting derivatives from being addressed through agency oversight. (They were already so, thanks to Wendy Gramm (yes, wife of Phil). The act just provided “financial certainty” of this, as it was referred to at the time.) The latter act removed the wall between investment and commercial bank cross-ownership. Both acts are associated with the eventual financial crisis in 2008.
You’re confusing The Commodity Futures Modernization Act of 2000, which effectively deregulated derivatives, with The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999 which effectively repealed The Glass-Steagall Act of 1933.
I know it’s hard to keep track of the details of our descent into the abyss of criminality via deregulation.
+ 1000%. Bravo! Couldn’t have said it better. Thanks for the rant. Well done sir.
First of all, and agreeing with everything you say in substance, I don’t see electing Bernie (should that actually come to pass) as a one-stop solution. In fact, I think we’d be much better off, strategically, with Bernie narrowly losing the delegate count, and failing to overcome the hurdles at the convention. That leaves us with Hillary in the hot seat, and us with a shot at holding her feet to the fire. Which, taking the example of the Tea Party, means stuffing and flipping Congress in 2-4 years. And let’s not forget State legislatures, key pieces especially with an upcoming 2020 Census and the accompanying electoral redistricting. And those last two things will have to be done anyway, even if Bernie wins.
Consider the alternative, Bernie takes the primary and the presidency. Now every entrenched Dem/DINO tacitly joins with the Reps, not just to obstruct but to actively sabotage his every effort. The DNC tries to smother the Bernie grassroots from the inside, which is a lot easier than trying to do it from the outside. Any DNC 50-state strategy would be prone to adulteration (even when it worked, Dean’s 50-state program struggled against constant undermining from within, at State and National levels).
So I see a Bernie win+win as a recipie for further complacency; too easy, and the real battle comes in the aftermath. I’d rather lose this one (as narrowly as possible!) and come back with a concerted and long-term ground attack, than think I can rely on any great benefit from having a seat (cardboard folding chair) at the establishment table, without any significant buy-in from them. In other words, I specifically disagree with Jamelle Bouie (There Is No Bernie Sanders Movement), a seat at the table is not an advantage (much less a win in itself) without an independent power base (i.e., organizing and voting outside of DNC… and otherwise great respect for J.Bouie).
The Tea Party, in its second phase, benefited from generous astro-turfing (KochBros, et al). In its second phase, Bernie-roots would havce to contiinue self-funding, but would benefit from a B. Sanders who is not caught up in (and co-opted by) the mechanics of being a President (and as such, permanently besieged), but can instead devote greater effort towards continued articulation and engaged leadership.
A Bernie win would be very gratifying to me. But gratification before success is an illusion, without substance, purest poison.
How is a Democrat nobody likes (Hillary) supposed to get more Democrats elected to flip congress? If anything people disgusted with the Democrat in office will vote Republican.
I suppose we could be surprised and she could be wildly popular in office, I have my doubts and a recession is coming in the next four years as well (probably next year). If anything this is a better argument for voting Republican in the general than being ok with a Hillary win.
That’s another way of looking at it, assuming that people vote for whatever their party nominates. But if that’s the case we’re pretty well screwed regardless.
One of the key roles for a Sanders grassroots movement would be to identify, promote and help finance candidates (Dem or otherwise) that better represent an alternative agenda to big-money politics, finance industry concessions, climate-oblivious policies, etc.
It seems that both profits and losses now goes to the government while private investors would like to have the profits while passing on the losses to the government. Do we really prefer the ‘heads I win, tails you lose’ situation?
This will further delegitimize government — indeed, accelerate the process of unraveling.
Having read most of ‘Reckless Endangerment’ (Josh Rosner and Gretchen Morgenstern), Fannie and Freddie are one of the crime stories of the century.
“Unhappy investors sued, and the Administration asserted that 11,000 documents must, must be kept out of the public’s view or the Market Gods would rise up in anger and eat the economy.”
Nearly spewed coffee! Thanks so much for this.
Dear matt…dont be led down the rabbit hole…sure there might be some documents in the gse files anout the future privatisation but start from the beginning…fm watch and fm policy focus popped champagne corks at podesta group when they got barney fife…I mean frank…barney frank to pass hr 1427…whose real and only purpose was to shut down fannie and freddie so that bankers could then become more like their hero…henry f potter…the crash came as the isda declared only three derivative collateral call events…fannie freddie and some canadian operation of a singapore company if my recollection serves me…the paperwork they might be hidding is the phony collateral mark down used by wall street to try to force fannie and freddie out of business as obviously and magically after the new overlord took over the gse mae/mac the “accounting” error was corrected but too late…conservatorship in place …
Tadah…
Fm watch…fm policy focus…tony podesta…jc watts…Elisabeth Rutledge…beneva schulte…et al
Not easy to find the volumes of reports and press conferences etc from fm watch and fm policy focus…seems the do no evil company algos dont want the little people to easily find and track the podesta slight of hand…
Hold on another call is coming in…hello…yes…so who are you with…yeah yeah yadda yadda…threaten…blah blah…what number are you…yeah yeah but what number…you dont have a number…well you gotta get in line…dude there are at least a couple of dozen people in front of you…no you cant jump the line…how do you get a number…well there is some darknet pyrate site that seems to be coordinating the list…but they only take bitcoin…ok hold on let me get that for you…
Sorry nc land…gotta go…
To this end, could NC set up a semi-permanent placeholder in Links or the Water Cooler to keep track? “Update on the Pilfering of Fannie and Freddie?” Maybe with reference links to this Taibbi piece and relevant NC material to complement new developments? A vast continent of corrupt and desperate “stimulus” policy lies before us, temporarily shrouded in mist.
Think the secrecy around the future of Fannie Mae might be related to their recent actives related to big Wall Street deals. The Blackstone Group (a Private Equity Firm) is in the process of purchasing Stuyvesant Town-Peter Cooper Village for $5.3 billion, with a $3 billion credit guarantee from Fannie Mae:
https://commercialobserver.com/2015/12/fannie-mae-to-back-2-7b-wells-fargo-loan-on-stuy-town/
It was reported in 2009, shortly after an investor group led by Blackrock (the Fund Manager), Tishman Speyer, Appaloosa Investment, and Fannie Mae purchased Stuyvesant Town for $5.4 billion, that “Much, if not all, of these investments could be vaporized. Industry analysts estimate Stuy Town is currently worth around $2 billion—a 65 percent loss from the purchase price”:
http://nymag.com/realestate/features/62880/
So basically a highly overvalued real estate investment made by Wall Street goes from a 65 percent loss to near break-even when Fannie Mae ( the U.S. government ) agrees to cover investor losses at the new purchase price. This does not sound like Fannies Mae’s mandate to provide stable and affordable financing for middle-class homeowners. It sounds more like taxpayers subsidizing big Wall Street deals, while privatizing profits and socializing losses.
I’d look for future Fannie Mae ‘guarantees’ of large Real Estate loans Wall Street is looking to unload after the recent Real Estate buying binge by Private Equity and Hedge Funds.
Think the secrecy around the future of Fannie Mae might be related to some recent big Wall Street deals. The Blackstone Group (a Private Equity Firm) is in the process of purchasing Stuyvesant Town-Peter Cooper Village for $5.3 billion, with a $3 billion credit guarantee from Fannie Mae:
https://commercialobserver.com/2015/12/fannie-mae-to-back-2-7b-wells-fargo-loan-on-stuy-town/
It was reported in 2009, shortly after an investor group led by Blackrock (the Fund Manager), Tishman Speyer, Appaloosa Investment, and Fannie Mae purchased Stuyvesant Town for $5.4 billion, that “Much, if not all, of these investments could be vaporized. Industry analysts estimate Stuy Town is currently worth around $2 billion—a 65 percent loss from the purchase price”:
http://nymag.com/realestate/features/62880/
So basically a highly overvalued real estate investment made by Wall Street goes from a 65 percent loss to near break-even when Fannie Mae ( the U.S. government ) agrees to cover investor losses at the new purchase price. This does not sound like Fannies Mae’s mandate to provide stable and affordable financing for middle-class homeowners. It sounds more like taxpayers subsidizing big Wall Street deals, while privatizing profits and socializing losses.
I’d look for future Fannie Mae ‘guarantees’ of large Real Estate loans Wall Street is looking to unload after the recent Real Estate buying binge by Private Equity and Hedge Funds.
The diversion, obfuscation and illusion efforts by this Administration continue as they operate in the shadows while public interest is channeled elsewhere. From the ACA to the TPP/TTIP “trade agreements to looting and/or organized efforts at the future privatization of Freddie and Fannie, etc. Case studies in the methods of neoliberal governance.
Thank you, Judge Margaret Sweeny, and to Matt Taibbi and Yves for covering these developments about which I would otherwise have been unaware.
Not sure it’s related, but I’ll add it here-
The $ amounts TARP lent to mid to smaller banks were, in a few cases I looked up at the time, exactly equal the the banks holding in F&F perf stock.
That preferred stock was able to be held as Tier 1 capital, IIRC.
When they ‘took’ F&F they made giant holes in the balance sheets to lots of those small to medium sized banks.
Then, TARP lent them the money to cover the holes.
Many, many, many moving parts to this mess.
If you would like to see the history of the collapse of Fannie Mae from July 29, 2003 until now visit http://www.GreatDepression2.com