Economist Barry Ritholtz reminds us in the video above of the continuing importance of watching Fannie Mae and Freddie Mac. The housing and economic crisis continues and in its wake, Fannie and Freddie are shoveling cash directly into Wall Street in what Ritholtz calls the “perfect bailout.”
The Treasury gave Fannie/Freddie a “blank check” allowing them autonomy with finances (even if it means losing money), at the expense of the taxpayer.
According to Ritholtz, Fannie/Freddie use this blank check to buy mortgages from Wall Street at inflated prices and the banks get to “unload” their bad loans at a price that avoids any loss. Does Fannie/Freddie care? Nope… blank check, remember? Do taxpayers care? They should…
Fannie/Freddie appear to be acting in the shadows, no one really knows what they’re doing, but this looks eerily like the TARP scheme (use taxes to clean toxic bank assets). Remember how well that went over with the public?
Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.
Dave Kinkade
February 5, 2011 at 11:06 am
The collusion between Fannie/Freddie and Wall Street is breathtaking … and Washington D.C. sleeps. The bubble disaster was imminent and easily observable as early as 2001-2002 when all the insane interest-only and pick-a-payment Option ARM programs became so popular. All of this chicanery has benefited a few and left the overburdened taxpayers to pick up the check. How are these people any different than Madoff?
kenezen
February 7, 2011 at 12:28 pm
Fannie Mae is the Government. The Government is Wall St. The Federal Government owns with stock and warrants controlling interest in these entities. Compensation to these participant groups is higher now than anytime in history.( See Wall St compensation 2010). Government ownership control of government over our financial industry and a major industry is real and provable. The newer markets, Derivatives (approx. $600 trillion & Credit default Swaps(CDS) approx. $55 Trillion), are the largest on Earth. CDS is a closed private market without any formal Exchange, margin calls, and daily public mark to market. The CDS market used to protect tranches (or pieces) of derivatives. These “Tranches” were made up of poorly constructed loans pushed by previous administrations that wanted loans and houses for all.
The Mortgage Companies hungry for profit created loans that would allow unqualified people to get a loan and pay for it for a short interim period because of below market interest. Wall St insured CDS deals at cut rate prices thinking premiums were free money because housing would continue to inflate. No one understood the amounts of risk. The Crash of 2008 was caused by abuse of these two markets little understood by citizens
Now we are in “recovery” because of Fiat currency being issued at record rates under a Keynesian philosophy that money is a government chit and can be almost endless in its creation. Our Federal Reserve has now even began issuing treasury notes, which is debt and buying them back at record rates! That’s called monetization or Quantitative Easing. That practice has created the real inflation of food and fuel we are currently experiencing.
It has also caused the Stock Market to go higher because of the decrease international value of the dollar and betterment of exports. The rich have gotten much richer and the poor much poorer and middle class beginning to dwindle in numbers.
A war brought us out of the last period somewhat related to this. But wars unless world wide are not effective today.
WE are currently far too susceptible to energy needs because of stupid rules that prohibit oil drilling in Alaska and on the Shelf of the Continent as well as not allowing immediate nuclear energy production.
If the Middle East continues to become more extreme, we may lose our energy necessary and become poor. Green Energy is ten to twenty years down the road for any real commercial quantity.
The good news is property is back to reasonable prices and some realization by Government that there are limits to debt has in part happened.
I