The Washington Post reports:
The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress.The Christmas Eve announcement by the Treasury Department means that it can continue to run the companies, which were seized last year, as arms of the government for the rest of President Obama’s current term.
But even as the administration was making this open-ended financial commitment, Fannie Mae and Freddie Mac disclosed that they had received approval from their federal regulator to pay $42 million in Wall Street-style compensation packages to 12 top executives for 2009.
NickM says:
Pay caps do not apply if your political connections are strong enough.
Nick
December 24, 2009, 10:41 pmHans Bader says:
The Washington Post earlier reported that after Freddie Mac was taken over — in the name of ending its risky practices — the Obama Administration actually ramped up its losses, by forcing it to run up billions in losses to provide mortgage bailouts to delinquent borrowers. The Administration then attempted to make Freddie Mac keep quiet about its Administration-caused losses, in a manner reminiscent of Enron.
(Many of the bailed out borrowers, incidentally, were not poor, and had mortgage payments smaller as a percentage of income than thrifty people frequently manage to pay in expensive housing markets like San Francisco, New York, Boston, and Washington, DC. Their “need” was the product of credit card debt and lack of savings, not low income or excessive mortgage payments).
December 24, 2009, 10:47 pmHans Bader says:
The Obama Administration forced Freddie Mac and Fannie Mae to run up billions in losses promoting mortgage bailouts for delinquent mortgage borrowers, many of whom were not poor, but merely irresponsible. Instead of making them reduce their risky practices — the whole point of having the Federal Housing Finance Agency take them over — it actually made them increase their risky practices, at taxpayer expense.
This may not have been a real morale booster for executives at Freddie Mac.
Freddie Mac’s CFO committed suicide earlier this year.
In conduct reminiscent of Enron, federal regulators tried to prevent Freddie Mac from disclosing to the public and the SEC how Obama’s mortgage bailout was forcing it to lose even more money.
The Washington Post reported that Freddie Mac financial executives estimated
December 24, 2009, 10:56 pm“carrying out the Obama administration’s housing plan would cost $30 billion this year,” but the Administration sought to prevent them from disclosing that to the SEC and the public.
ohiolawdog says:
I don’t have a great sense of the timing of this decision, but it seems like President Obama is trying to hide the ball here. If so, this exactly the type of political maneuvering that I had hoped he would have avoided.
Maybe in his second term (when he doesn’t have to worry about reelection) he will actually govern like he said he would when he was running for office.
December 24, 2009, 11:08 pmohiolawdog says:
I wasn’t sure which thread to post this in. But the past two days have been two of the best days of VC blogging that I’ve seen since I’ve started reading–great posts and great comments.
December 24, 2009, 11:18 pmLarryA says:
Which may be the only thing worse than what we have now.
December 25, 2009, 12:36 am“The bigger the mess government makes, the more power it needs to fix it.”
Kazinski says:
December 25, 2009, 3:12 amJesusObama, I would hate to see what he’ll govern like when he doesn’t care about the political consequences anymore. Right now he is more unpopular (46% vs. 43%), than Bush was at the end of his second term. That is based on the Rasmussen’s “Strongly Disapprove” numbers. The total disapproval numbers are still lower (56% vs. 62%) than Bush’s were.Mogden says:
Was this country always this corrupt and I just never noticed, or is this a new thing?
Merry Christmas!
December 25, 2009, 3:34 amA. Zarkov says:
What incentives do the managers at Fannie and Freddie have to run the organization prudentially? I know the same questions apply to many investment banks on Wall Street, but let’s not get ahead of ourselves. The short answer is “none.” Obama has promised them printed money thanks to a compliant Federal Reserve. Print money, hand it to the Treasury, who in turns give it to Fannie and Freddie.
Skip the middlemen at the Washington Post and read the Treasury announcements here. Treasury also provides links to the Amendments to Terms of Preferred Stock Purchase Agreements for Fannie and Freddie. Treasury says,
which leaves little doubt Treasury will keep handing them money. The Market Ticker has some commentary on this very issue here. Both the Fed and Treasury are holding a lot of Fannie and Freddie junk which could turn out to be largely worthless. In other words, the Fed is replacing risky and defective credit money with newly created base money. Currently we have a debate as to whether we will get deflation or inflation over the next several years. No one has a really compelling argument. But it would seem that at some point the Fed will have to run the printing press backwards to avoid inflation. How can they do that if they are holding mostly junk? Who will buy it? The Chinese?
December 25, 2009, 5:40 amDoug says:
This should not be a surprise. Freddie and Fannie have been cozy with Congress for years. This really, though, should sound alarms with the media, but it won’t. Instead they will focus on how poorly GM was run and castigating the huge pay raises of the banks and ignore the huge pay raises the dems are giving their buddies. No, I am not particularly interested in seeing how Obama’s second term will go. If he is governing like this now, I can only believe it will be worse. I remember the old Groucho song from Duck Soup, “If you think this place is bad off now, wait ’till I get though with it.”
December 25, 2009, 9:22 amSome dude says:
Very generous of them! I’m glad the Obama administration is giving financial assistance and not the taxpayers. Is it coming out of their salary?
December 25, 2009, 9:48 ambailey says:
What part of what Obama said about taking from producers to give to his voting base didn’t you folks understand. He wants the government to control everything. He told us that. What’s the surprise.
December 25, 2009, 10:48 ammark says:
My real estate attorney had this gem; “I get back from vacation, have a small contract for land to look over valued at 100k. Looked like the buyers were putting 20% down. Great, people have some money for down payments…Oh no. Not so fast. The broker immediately turned the mortgage over and was able to pull the 20% as a home equity loan to provide the downstroke…”
This is Michigan. In 4 months, all of us will own this property. Thanks FHA…enjoy your bonus…repeat thousands of times/week…
December 25, 2009, 10:50 amSome dude says:
Maybe it is just me, but I don’t understand what you just said.
December 25, 2009, 11:13 amA. Zarkov says:
The purchasers borrowed 20% down payment, instead of putting up cash. The real estate broker was initially happy to see there was money out there and a property purchaser would have some skin in the game. Instead he finds out the whole purchase is debt, and could go into default because the borrower having no skin in the game will walk away from the property should its market value decline. After all this is Michigan where property values are falling.
That’s how I read the post. Someone please correct me if I’m wrong.
December 25, 2009, 12:43 pmGaius Obvious says:
How is this constitutional?
Article I, Section 9: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law”
Did Congress make such a law? “The Obama Administration” cannot just dole out money at will without Congress appropriating a stated amount for a stated purpose.
December 25, 2009, 12:50 pmA. Zarkov says:
It might not be. But let’s face it, pretty much everything that Obama and Democrats do is constitutional in their own minds. Question them and you get responses like “Are you serious– are you serious?” With the idea of a “living constitution” almost anything is possible. Part of the problem is the imbecilic political opposition we have to those trying to grab more and more power. Moreover, if academia were not so saturated with leftists, many economists would be objecting to this profligate use of public funds and public trust.
December 25, 2009, 1:12 pmMrJustice says:
Of course, it’s constitutional. The Constitution plainly says, “The Federal Government shall have the power to make good laws, or laws ‘because it is the right thing to do,’ notwithstanding the Constitution.”
December 25, 2009, 2:20 pmA. Zarkov says:
Benjamin Franklyn said “He who goes borrowing, goes sorrowing.” Americans seem to have forgotten this piece of folk wisdom, but the Chinese have picked up on it. Cheng Siwei, former vice-chairman of the Standing Committee, said
Of course our economists believe in the fallacy of composition, so Franklyn’s dictum on thrift does not apply to the government or the economy as a whole. So print baby print, just call it “quantitative easing” so the public doesn’t know what’s happening. Also be sure to announce bold new moves on late on Friday or near Christmas when fewer people are paying attention.
December 25, 2009, 6:56 pmInstapundit » Blog Archive » PAY CAPS DON’T APPLY, if your political connections are strong enough…. says:
[...] PAY CAPS DON’T APPLY, if your political connections are strong enough. [...]
December 26, 2009, 8:15 amBanjo says:
As for Obama “second term,” what could possibly bring that about? His administration’s generalized incompetence will ensure further stumbles, a few of which likely will turn out to be catastrophic. All right, more catastrophic. It took his crowd three hours to inform President Wise and Mighty of the latest terrorist attack. Even the Daley Machine in Chicago is sounding worried. Amazingly, each passing day seems to burnish Dubya’s soiled reputation. It will gleam like gold after another year passes.
December 26, 2009, 8:48 ammark says:
Sorry, didn’t make it clear as to what the broker had done. A. Zarkov is correct.
My lawyer relayed the story to me. He was thrilled that FINALLY someone was using cash as a down payment for property. Only to find out,the brokers are able to move the mortgage in such a manner that they were able to pull 20% as a home equity loan out of the newly acquired property, resulting in no money down.
I don’t see any problems here…
Mark
December 26, 2009, 9:08 amMarkJ says:
“Maybe in [Obama's] second term (when he doesn’t have to worry about reelection) he will actually govern like he said he would when he was running for office.”
Maybe, maybe, maybe. Could, woulda, shoulda. If, if, if. Sorry, what you see in Obama are not bugs: they’re features. The obvious way to get Obama’s attention would be to beat the Democrats at the polls next November like old Persian rugs. However, I’m not even sure that would do the trick: we’re dealing with a Prez who can never accept the possibility that he’s wrong–to do so would be to demolish his entire Weltanschauung.
December 26, 2009, 9:36 amJohn Skookum says:
I just don’t get this. I bought a piece of bare land in 2004 at the height of the boom and because there were no improvments the lenders insisted on 20% down. After all we’ve been through, people can now get second mortgages on bare lots? Are the bankers crazy?
December 26, 2009, 9:42 amwillis says:
They can do it the same way they took the collateral from the bondholders of GM and gave it to the unions. In short the law does not constrain them in any way. To put it another way, just what do you think you are going to do about. Correct, nothing.
December 26, 2009, 10:12 amThe Fannies Get It Again « Daniel McAndrew for U.S. Senate says:
[...] 26, 2009 · Leave a Comment Meet the New Administration, Same as the Old [...]
December 26, 2009, 10:27 amPay caps are for the unconnected « Internet Scofflaw says:
[...] Volokh.) (Related [...]
December 26, 2009, 11:30 amDrew Kelley says:
Thank Heaven that with the demonstrated transparancy of this Administration, and the fact that FM2 are now wholly-owned subsidiaries of the U.S.Government, we’ll have a complete list of the officers of these two entities that are receiving these bonuses, and the amounts they are receiving.
December 26, 2009, 1:59 pmBanjo says:
JAL raises interesting questions. As a thought experiment, consider what terrier-like behavior would have been seen by the MSM if someone like, oh, let’s say GWB, had been involved. The sad thing is Dubya and his crowd would have been helpless before the onslaught. That fat, sweating press secretary — his name already mercifully escapes me — would have done his robotic thing with the usual effectiveness and the MSM would line up the next target.
December 26, 2009, 2:21 pmObama provides unlimited loss coverage to Fannie Mae and Freddie Mac | Radio Vice Online says:
[...] writing include Volokh Conspiracy and Gateway Pundit, who adds… So, will Obama lecture these execs in his weekly YouTube [...]
December 26, 2009, 2:24 pmMike K says:
25 years ago, before “the boom” you could not buy bare land with 20% down. It usually took 50% down.
December 26, 2009, 2:54 pmbyomtov says:
Hans Bader,
How many times are you going to link to the exact same item?
December 26, 2009, 7:03 pmdave from woodstock says:
A Christmas Eve news release show that even the Administration knew this was disgraceful.
December 27, 2009, 4:09 pmGovernment Expands Fannie and Freddie Bailout and Lavishes Money on their CEOs | OpenMarket.org says:
[...] mortgage giants Fannie Mae and Freddie Mac, and showered their executives with $42 million at taxpayer expense. (Earlier, Freddie Mac’s CFO received $5.5 [...]
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