May 21, 2010
In a slap to taxpayers present and future, the Senate recently voted down Sen. John McCain’s amendment to the financial reform bill passed yesterday that would have capped the cost of the Fannie Mae and Freddie Mac bailout. It would also have put them in the federal budget in the near term and then wound down their operations. All Republicans voted for it, while all Democrats except Senators Russ Feingold (WI) and Evan Bayh (IN) voted against it.
Fannie and Freddie have both recently requested another bailout from the Treasury for a combined $19 billion. That will bring the total Fannie/Freddie bailout figure to almost $150 billion. The price tag is only going to increase as the failed housing entities now under government conservatorship continue to be used by the Obama administration to prop up the housing market.
From the Wall Street Journal:
The losses are unlimited because the companies are now run by the government not to make money, by deliberately subsidizing housing. In yesterday's press release, [Fannie Mae] CEO Mike Williams didn't even pretend that he's running a profit-making business. "In the first quarter we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes," he said. These efforts to support the Obama anti-foreclosure program resulted in a doubling of loan modifications compared to the previous quarter.
Ramping up modifications makes perfect sense in the upside-down world of Fannie Mae. The company also announced that most of the loans it modified in the first three quarters of 2009 had gone delinquent again within six months. Talk about an exciting business opportunity! In case anyone still hasn't gotten the joke, the company also clarified yesterday that its directors "are not obligated to consider the interests of the company" unless the government tells them to do so.
The Obama administration is not taking into account the interests of taxpayers in its policies on Fannie and Freddie. Sadly, that is not surprising given that the president and his key advisors have been shilling for Fannie and Freddie for years.
Meanwhile in the Senate, Chris Dodd (D-CT) shepherded the financial “reform” legislation through that ignores the chief perpetrators of the financial meltdown—Fannie and Freddie. As Mark Calabria explains, Dodd made it perfectly clear whose interests he has at heart:
While it was not surprising that Dodd lead the opposition to the McCain amendment (it is not the first time he’s protected Fannie and Freddie), what was surprising was his repeated explanation that the National Association of Realtors and National Association of Home Builders opposed the amendment. With all of Obama’s talk about taking on special interests, I was starting to think the Senate might be serious. But what’s a few $100 billion of taxpayer dollars to insure that real estate agents can get a few more fat commissions.
The only good news, as the Wall Street Journal points out, is that “thanks to his own sweetheart mortgage from Countrywide Financial—a leading Fannie business partner—Mr. Dodd isn't running for re-election.”
Republicans helped create the fiscal mess in Washington, but this vote demonstrated that the Democrats aren’t remotely serious about cleaning it up.
See this essay for more on government interventions in the housing market.