September 11, 2008

Fredron and Fanron

Fredron and Fanron

Fannie Mae and Freddie Mac (Fan and Fred) contributed mightily to the mortgage and housing messes, which have now come back to bite them — and taxpayers — hard.

Given the week’s news, this USA Today item from 2006 drips with irony:

As Enron’s former top executives face criminal trial in Houston Monday, the legacy of Enron — the most sensational corporate fraud scandal in recent history — still ripples through the business world.

The company remains a symbol of corporate greed and hubris and one of the costliest U.S. bankruptcy reorganizations ever.

Gee, I wonder what that makes the government bailout of Fan and Fred?

Let there be no doubt: Enron was a fraud of massive proportions. Investor losses amounted to $60 billion or more. It rightly dominated the headlines for months.

But as this is being written early Tuesday morning in the US, it’s less than 72 hours after the government takeover of Fan and Fred. Incredibly, the story, with the exception of hosannas about the markets’ response, is virtually out of the headlines.

Yet Fan and Fred “hold or back more than $5 trillion in mortgage debt,” and “Taxpayers are now on the hook for as much as $200 billion.”

The ultimate taxpayer exposure can’t be estimated. Interest-rate increases of even a point or two would radically reduce the mortgage portfolios’ value, and the full extent of their exposure to troubled and foreclosed loans is unclear. Further, the agony will be prolonged if the workout moves at the typical snails-pace speed of government.

The contrast between the treatment of Enron, compare to how the two “government-sponsored enterprises” (GSEs) have been handled thus far, is stark.

Many Enron executives who inflated reported earnings and hid the company’s problems received prison sentences and had to forfeit assets. Previous Fan and Fred executives inflated earnings, paid themselves massive bonuses, and presided over historic accounting meltdowns — and got off nearly scot-free. The last batches of execs were given golden parachutes when they were removed over the weekend. Nice non-work, if you can get it.

Enron, like other US companies listed on the major stock exchanges, was subject to the scrutiny, such as it was, of the Securities and Exchange Commission. Fan and Fred were specifically exempted from SEC registration and filing requirements (Fran registered voluntarily in 2004; Fred did so just a couple of months ago).

Enron led to the passage of Sarbanes Oxley (Sarbox), which imposed onerous compliance and reporting requirements at publicly-traded companies, along with potential personal liabilities on their executives. Sarbox may cause Fan and Fred’s board members to conclude that they can no longer serve without special exemption.

Is anyone surprised at how cynical so many are about their government and our governing elite?

The temptation to assign partisan blame will be irresistible. But for virtually every valid argument that Democrat-dominated Fan and Fred committed illegal or unethical acts, there will usually be a counterargument that a 12-year Republican congressional majority stood by and effectively enabled them — especially during the earlier part of this decade.

How the two GSEs acted to keep their perpetual-motion machines running probably did more than anything else anyone did to bring on the explosive increase in foreclosures.

During the heyday of the home-price runup several years ago, I had a conversation with a mortgage broker I have known for many years. I questioned how aggressive mortgage lending practices were, and how ridiculously easy it had become to get approved.

His response was that Fan and Fred had significantly lowered the standards built into the loan-approval programs lenders used to ensure that their mortgages would be bought by the two GSEs. Specifically:

  • The credit-score threshold for conventional mortgages, which had generally been 670 or more, dropped to about 630. In the real world, a score of 630 indicates that you’re having trouble with your debt load, paying your bills on time, or a little of both.
  • More ominously, the credit-score threshold for subprime mortgages, which had generally been 630 or more, fell to about 590. A score of 590 is the credit-scoring equivalent of barely having a pulse.

A quick primer on credit scores is here.

You can seen the huge impact of those moves by looking at the graphic at this myfico.com page:

  • About 10% – 12% of the population, people who formerly would have only qualified for subprime mortgage consideration, suddenly became eligible for conventional treatment.
  • Far worse, another roughly 7% – 9% of the population with awful credit records, most of whom had no business taking on a mortgage, now received subprime treatment.

No wonder loan activity boomed, followed by unprecedented defaults. In hindsight, the results we’re seeing today were an almost foregone conclusion. The way out will be a long, hard slog.

When will Washington ever learn that governments, and their “clever” offshoots, only make things much worse?

We Must Remember September 11

This is excerpted from today’s Erie Times-News:

We must remember September 11

A veteran says he’s willing to go back to the front lines, but please, don’t send his son into war.

Another G.I. worries about how inflation is eating away at his chance for the American dream.

There is an underlying unease that an enemy might infiltrate this country, destroying our democracy and smashing our economic system.

This was the local mood for the seventh anniversary date of a horrific event that changed history — Pearl Harbor. We gleaned the anecdotes from the Erie Daily Times archives.

Today is Sept. 11, the seventh anniversary of the terrorist attacks on the World Trade Center and the Pentagon. It’s also the day that Flight 93 crashed in Shanksville, Pa. The coordinated attacks claimed 2,973 lives.

Commentators and ordinary people predicted that Sept. 11 would be remembered the way Pearl Harbor is — as an earth-shattering attack that damaged the U.S. in the short term but strengthened our resolve and reinforced our ideals in the long run.

Is that analogy still valid?

On Dec. 7, 1948, syndicated columnist Bob Considine wrote: “The first bomb that fell on Pearl Harbor seven years ago fell, too, on your grandchildren to the nth generation.”

Families of September 11, a support group, has compiled a list of commemorative events across the country — concerts, interfaith prayer services, moments of silence, memorial walks and runs.

In New York City, the names of victims will be read aloud, and members of the World Trade Center Survivors’ Network will walk together to the site for the official ceremony.

But local observances about this awful moment in American history are low-key.

….. Today is a good time to remember all of the brave souls fighting the war on terror, and to make sure they have the resources to readjust to civilian life.

On Dec. 7, 1948, Harold R. Lindstrom, a U.S. Navy storekeeper who survived Pearl Harbor, was quoted in a wire story as saying that he’d gladly fight again, this time against the Russians.

But he worried about his family’s future. “I’d sooner fight than have my son fight,” Lindstrom said.

Today is a good time to remember that you can be a patriotic fighter, and still hope, pray and work for peace for this generation and those that follow.

We remember Pearl Harbor.

Today is the day to remember 9/11.

As is every day.

Positivity: After 4 decades, veteran receives his Purple Heart

Filed under: Positivity,US & Allied Military — Tom @ 5:59 am

From Salisbury, MD:

September 11, 2008

A military uniform, with its campaign ribbons and medals, tells the story of the person wearing it.

For years, Gerald “Jerry” Elliott’s story had holes, as clerical errors hampered him from receiving several citations and awards, including two Purple Hearts for being wounded in Vietnam.

Those errors were finally rectified this month, as the Salisbury resident officially became one of the more than 800,000 Purple Heart recipients during a ceremony in Baltimore. The award, which dates back to World War I, is designed to honor people in the military who were wounded or killed in combat.

While a lot later than he wanted, Elliott said he was happy to finally have his citations and hopes other people will be inspired to get any decoration or award they deserve.

“It felt good,” he said. “It’s something I always wanted.”

A Wattsville native, Elliott shipped off to Vietnam as a U.S. Marine in 1966. On Oct. 16, 1967, Elliott was on patrol when they were attacked by Vietcong.

“I guess I was in the wrong place at the wrong time when they threw that grenade,” he said.

Grenade fragments in Elliott’s chin and right elbow hospitalized him for 10 days.

Months later, on March 7, 1968, a mine sent shrapnel through Elliott’s legs and arms.

Not wanting to press his luck, the Marine Corps sent Elliott home.

“I was done,” he said.

After his discharge from the service in 1969, Elliott settled down with his new bride, June, in Salisbury. His career odyssey took him from Coca-Cola to the convenience stores and finally, Jerry Elliott’s Bar-B-Que, where he’s been selling North Carolina-style pulled pork at his Old Ocean City Road store.

When he left the Marines nearly four decades ago, he asked about any ribbons or citations he was due.

“They said they sent them out to me, even though I knew they didn’t,” he said.

So Elliott let it go. He asked about them on and off, but in the last year, the request became more serious.

Soon the family started asking for help, and thanks to Vernon Mitchell from the Order of the Purple Heart in Baltimore and Dick Meyer from U.S. Sen. Barbara Mikulski’s office, the last of the red tape was finally snipped.

On Saturday, the 61-year-old Elliott and his family drove up to the Marine Corps Reserve Center in northeast Baltimore to collect his decorations.

“It brings back a lot of memories, good and bad,” he said. “I was nervous (about the ceremony). I thought I was going to choke up there. It was worse when I left than when I was there.” …..

Go here for the rest of the story.