December 27, 2009

Relief Without Limits: Fannie Mae, Freddie Mac Get Blank Checks; NYT Provides Blank Coverage

FredAndFanLogos1209On Thursday, the Treasury Department issued a press release, called “Update on Status of Support for Housing Programs.” Its fourth paragraph reads as follows:

At the time the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship in September 2008, Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth. Treasury is now amending the PSPAs to allow the cap on Treasury’s funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. At the conclusion of the three year period, the remaining commitment will then be fully available to be drawn per the terms of the agreements.

Translation: No matter how badly things further deteriorate at these former government sponsored enterprises, both of which since last year in essence have become government-controlled enterprises, Uncle Sam (i.e., current and future generations of taxpayers) will cover their losses.

Here is how three different news outlets headlined this Treasury/Obama administration move:

  • Wall Street Journal, Dec. 26 — “U.S. Move to Cover Fannie, Freddie Losses Stirs Controversy.”
  • Associated Press, Dec. 25 — “Treasury removes cap for Fannie and Freddie aid.”
  • New York Times, Dec. 24 (in Christmas print edition on Page B1) — “New Aid for Fannie and Freddie.”

It really is difficult to take the Times seriously any more.

James R. Hagerty and Jessica Holzer at the Journal and the AP’s J.W. Elphingstone identified why the move was made just before year-end, and noted the attention-avoiding Christmas Eve timing of the announcement:

(WSJ, 4th and 8th paragraphs) “The timing of this executive order giving Fannie and Freddie a blank check is no coincidence,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed “to prevent the general public from taking note.”

…. The Treasury removed the cap on the size of available bailout funds by amending agreements it reached with the companies in September 2008, when the government seized control of the agencies under a legal process called conservatorship. The agreement allowed the Treasury to make amendments through the end of the year, without the consent of Congress. Changes made after Dec. 31 would likely involve a struggle with lawmakers over the terms.

(AP, 4th and 5th paragraphs) By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.

While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government’s commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows.

The Times article by Louise Story did not cite the December 31 deadline’s existence.

Elphingstone’s first sentence deserves special props: “The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.”

The Journal and the AP stuck to the story itself, and also went into the realm of the quite generous pay packages the entities’ execs are receiving. Neither chose to provide any background about how the two entities got to where they are. But Times’s Story gave us this pitiful rendition of the true story:

The housing giants stumbled badly in the financial crisis after backing too many troubled loans. Late last year, the government put them into conservatorship, and since then they have provided most of the liquidity in the mortgage market, allowing homeowners to refinance and buy new homes. Now, announcing new long-term support for the companies, the Obama administration has effectively transformed them into arms of the government, using them to help carry out its mortgage modification programs.

I’m not buying what Story is selling in the second sentence of the excerpted paragraph about the two firms providing “most of the liquidity in the mortgage market.” Instead, they represent a significant component of the pervasive administration-induced atmosphere of uncertainty that permeates and holds back the entire economy.

Story’s story never tells us that it is the government, backed by Community Reinvestment Act requirements, that demanded that banks make these “troubled” (i.e., most subprime) loans, and that Fred and Fan buy them up. Some were kept on the entities’ books; others were dumped (oh, I’m sorry, “securitized and issued to gullible investors”). All of this led to the systemwide mortgage-lending and housing messes.

It should also not be forgotten that Democratic cronies too numerous to mention made millions — make that tens of millions — as executives and board members while running these entities into the ground and deliberately keeping fraudulent books while they were in charge (Fred, Fan). Sadly, all three stories did.

Cross-posted at



  1. Annoying. The justification for micro-managing certain TARP bailed out private companies is that they received tax payer money. Fair enough, I suppose, but I do see how further interference in the running of those companies is going to help get them back up on their feet *on their own.* But Fannie and Freddie Mae not only received TARP funds, but they are essentially part of the government itself, yet their executives pay is completely untouchable and reductions are not even on the table????? Is this administration really that cynical and/or stupid?

    Comment by zf — December 27, 2009 @ 5:16 pm

  2. #1, actually they didn’t receive TARP funds which is technically why they’re untouchable. They ran it by the pay czar anyway, and he declined to touch it.

    They should have built the same constraints into the Fan and Fred agreements, and didn’t.

    The Fan and Fred disbursements are part of general spending, and I think they’re included in “Treasury-Other, which was a figure above $100 bil as of year end.

    Comment by TBlumer — December 27, 2009 @ 5:33 pm

  3. Okay, so what I meant is that Fan and Fred received bailout (taxpayer) money, if not necessarily through TARP. But what people are using as the logic is that private companies ‘received taxpayer money’ not that the problem being they received TARP money, just that they got taxpayer money so that anything the Federals do to them is okey dokey. If that’s the case, then Fan and Freddie execs should definitely not be exempt since not only did they receive taxpayer bailouts but they are GSE’s (in other words taxpayer-funded) entities to begin with! That would be like the Postmaster General saying that anyone who receives taxpayer money should not have a six figure salary and then voting to raise postal workers salaries to $200,000. I’m just tired of the double standard, when a private entity makes a lot of money they are derided as fat cats, but when public entities do the same they get their you know whats kissed and the media and dems cover for them. But it’s typical of Dem hypocrisy in general and Obama admin hypocrisy in particular.

    Comment by zf — December 27, 2009 @ 7:52 pm

  4. Sorry, for comment #1 it should say, “but I *DON’T* see how further interference in the running of those companies is going to help them get back up on their feet *on their own.*”

    And no, in case someone tries to make the point, I don’t consider Fan and Fred “companies.” They themselves are part of the instruments of interference.

    Comment by zf — December 27, 2009 @ 8:29 pm

  5. #3 and #4, point well-taken. They attached strings to TARP and attached nothing to open-ended Fan/Fred bailouts.

    It is my belief that Fan and Fred were always intended ultimately to be instruments of interference as you call them. It just took a long time, starting with CRA, for the statists to orchestrate and carry out the strategy.

    I also believe that it was not an accident that BOTH entities’ books became unauditable in the late 1990s (absent having it happen on purpose, what are the chances that it happens at two outfits in the same industry at the same time?), and it wasn’t an accident that it took several years to put Humpty Dumpty back together again. By the time they were reassembled, shazam, they were now “too big to fail.”

    Comment by TBlumer — December 28, 2009 @ 6:04 am

  6. [...] Cross-posted at [...]

    Pingback by Relief Without Limits: Fannie Mae, Freddie Mac Get Blank Checks; NYT Provides Blank Coverage — December 28, 2009 @ 8:00 am

  7. [...] First, as I noted earlier this year, the government began retroactively accounting for the costs of bank, car company, and other bailouts under the Troubled Asset Relief Program (TARP) on a “Net Present Value” basis, thus treating related outlays as “investments” that are not included in current spending. Two non-TARP exceptions to this are Fannie Mae and Freddie Mac, whose bailout costs thus far have exceeded $100 billion. On Christmas Eve, while much of the rest of the nation was engaged in last-minute holiday preparations and enduring weather-related airport delays, the Obama administration said it would provide the two government wards relief without limits. [...]

    Pingback by BizzyBlog — January 2, 2010 @ 8:26 am

  8. I think that the Obama Administration’s action in response to the losses of Fannie and Freddie is a good intervention. It will really be a big help for the mortgage of everybody in this time of financial difficulty.

    Comment by Jeff Green — January 2, 2010 @ 11:21 am

  9. #8, the problem is there’s no exit strategy. In fact they want it to grow.

    Comment by TBlumer — January 2, 2010 @ 2:24 pm

  10. [...] The government has given up even trying to guess how deep the hole is. On Christmas Eve, the Treasury Department, which had previously “limited” its financial commitment to $400 billion ($200 billion for each entity), issued a cleverly worded press release. Blandly titled “Update on Status of Support for Housing Programs,” it tells us that Treasury’s financial commitment to keep the two entities afloat will “increase as necessary to accommodate any cumulative reduction in net worth over the next three years.” In other words, Fan and Fred will receive relief without limits. [...]

    Pingback by Pajamas Media » Fan and Fred: Frauds by Design? — January 8, 2010 @ 10:20 am

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