Dirty Rotten Scoundrels
filed in Can You believe this? on Sep.08, 2008
Wouldn’t it be great if someone would relieve you from all your mounting debt? Even if most of the debt was created because you made some really stupid and questionable decisions? Wouldn’t it be great if you weren’t even held accountable for those decisions?
And wouldn’t it even be greater, if, after the debt was covered, they gave YOU a few million dollars to play with? Just for you?!?
Wow that would be super duper !
So the US government is now in control of Freddie Mac & Fannie Mae, bailing out the largest broker of mortgages in the US. (They guarantee about 1/2 the mortgages in the US) The government will now pump billions into the two companies and assume TRILLIONS of their debt, in an effort to help our ailing economy and financial systems here and abroad.
Who is this ‘couple’? Fannie Mae is like a nickname for Federal National Mortgage Association. Likewise, Freddie Mac for Federal Home Mortgage Corp.
Regulated by HUD, they are government sponsored (they were chartered by Congress as secondary market for residential mortgages in 1968) and are exempt from SEC oversight, exempt from taxes, and….wait for it…do not have to disclose and financial problems publicly.
What do they do? They provide the means to finance home mortgages to local banks and mortgage companies. Mortgages that can bought and sold over and over again. With all the sweet deals out there (no money down etc etc) it made it easier for many people who otherwise couldn’t afford to own a home, to do so. But when the borrower couldn’t handle the terms, the loan could be ‘repackaged’…..or just sluffed off on some other schmuck.
How did we get to this point? Who was keeping an eye on this? Well….
Freddie and Fannie combined paid over $200 Million to lobbyists in the last 10 years. They had their little tentacles all over our lawmakers attempting to losen oversite. Obviously this was successful until now.
If you own stock, the dividends to shareholders are suspended. (Shares have already dropped 90% this year) In fact, they could even find out that their stock is pretty much worth nothing under a government bail-out.
But, the fat cats who head up these two disasterous companies, Daniel Mudd (Fannie Mae) and Richard Syron (Freddie Mac) are walking away scott free. Not only that…but get this…Mudd is guaranteed a severance package of over $9 Million! And, hold on to your seats…Syron will get at least $14 Million! (In July just as his company was in serious… serious trouble, a clause was added to his contract that enabled this large payout)
This even after the companies reported $14 BILLION in losses during the last year (combined). Who will pay for all this? Uh….that would be us.
September 8th, 2008 on 10:17 am
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey
September 30th, 2008 on 12:40 am
I don’t necessarily disagree with your post. I’m not sure whether you support or oppose the bail out, but anyone opposing it should consider the following.
The failure to pass legislation in favor of the bail out today, 9/29, led to a drop in the DJIA of 777 points. Investors, average ordinary Americans, lost over a trillion dollars today. Today! Over a trillion dollars in one day. These are the same people that would be footing the bill for the $700 billion bail out. Investors = taxpayers. Wall Street = Main Street. And this could be just the beginning… Continued lack of support (in the form of bail out legislation) could lead to continued losses in wealth for average ordinary American investors / taxpayers.
So, how would you like to pay for the mess? Afterall, it will be us that pay for it one way or another. A bail out? Or, continued losses in the stock market? With both, there are reasons to believe we will be re-paid (or re-gain our stock market loss).
For what it’s worth, we’ve bailed out other companies – Chrysler comes to mind. Chrysler paid us (the US taxpayer back). Heck, Mexico paid back the loan we gave them in the 1990’s. So, hopefully we’ll get paid back on the current proposed bail out. Hopefully.
My man, John Stossel, opposes the bail out. An informative read: http://www.creators.com/opinion/john-stossel/what-happened-to-market-discipline.html
I understand the argument he poses. Sometimes we must let people and businesses fail. It’s a free market argument. I just think this is one of those times where we don’t let the market fail. The pain could be far harsher than a $700 billion loan. Letting the market fail (rejecting the bail out) could / will cause further downturns in the stock market…leading to large losses in wealth to invetors / taxpayers… leading to wider spread economic downturns… leading to higher unemployment, lower tax revenue to the gov’t, rinse, repeat, etc. etc. See the economic downturn in 2000 – 2002 for an example.
Investors = taxpayers. Wall Street = Main Street.
So, I’m 51% in favor of the bail out, 49% against. A hanging chad could sway my position.
September 30th, 2008 on 6:59 am
I do not support the bailout as presented by Paulson. I’m glad it failed and I’m glad they will take some time to think about it.
I think both sides are doing themselves great injustice for making it a political thing. It just shows the true colors of all of those morons sitting there making decisions for the rest of us.
I’m not in support of bailing out a company that gives an executive 20 million after working 3 weeks. (When their company has failed)
I don’t think that taking the needed time will, in fact, crash the market. In fact, I believe that the fall in the market yesterday was a little shot in the arm to congress from Wall Street to sway their vote.
We all may have it hard for a time, but those of us who have had it hard the last year or so are tough enough to weather it out. I can remember just a few months ago, ‘some people’ saying….”The economy is strong If you know anything about economics…yadda yadda yadda!”. And I can remember myself telling ‘that person’ that they were crazy. As I said then, I feel the effects. As most Americans do.
So I say, let all the companies who made incredibly stupid bets and managed their risk in incredibly stupid ways to find their own way out.
The scare tactic of the sky is falling will clear soon. Maybe we should let it happen so that we can address the real issues of corruption in the market. Maybe if it gets bad enough we’ll finally do it.
I also think we should get a list of everyone in congress who has taken lobby money and see how their votes have been on those issues. But I don’t think there are enough trees for that list. Maybe if the market crashes it will expose Wall Street for what it has become.