Monday, February 11, 2008

The Next Phase of The Mortgage Rip Off/Scam

The Next Phase of the Mortgage Rip Off Scam

“As Fannie Mae and Freddie Mac’s investment portfolios have grown, so too has
the amount of interest-rate risk that these companies retain. The implicit guarantee causes investors to continue to loan to Fannie and Freddie despite these risks because of the expectation that the Treasury would come to their aid in a crisis. This encourages the management at Fannie and Freddie to take on more risk and more debt than they otherwise would. As a result, Fannie and Freddie have a combined outstanding debt that is equal to 39 percent of the total outstanding U.S. public debt, and their combined financial assets are worth 44 percent more than those of Citigroup, the largest bank in the United States.” Problems at Freddie Mac and Fannie Mae: Too Big to Fail? http://rpc.senate.gov/_files/

When the media rails about welfare fraud and taxpayer rip offs they focus on one small time individual or a “round the way” type group in order to hide and obfuscate the scope and pervasiveness of elitist white collar crime and the preferential corporate welfare that permeates this society. The current global economic meltdown is a classic example of massive white collar crime, fraud and class warfare on the part of the ruling plutocrats, their surrogates in government, media and the financial systems. The causes of the current financial crash were conceived in the boardrooms of the Federal Reserve Bank, Wall Street investment houses, insurance companies, mortgage companies, bond rating agencies, the White House, government and quasi government agencies and the corporate media. While most AmeriKKKans won’t admit it, the fact is the federal government has devolved into a criminal syndicate. The administration along with its partners on Wall Street, the media and the police state apparatus make the Mafia, Crips and Bloods look like angelic choir boys.
The current financial unraveling we are experiencing is the result of the deliberate planning and policies of the Federal Reserve Bank. The Federal Reserve Bank despite having the word federal in its title is a privately held banking cartel set up by the ruling elites that sets monetary and credit policies for the US. The Fed has as its number one customer, the US government and by extension US citizens who foot the bill (the humongous interest and principle on the loans they give to the government) with our taxes.
Like the Federal Reserve Bank, Freddie Mac and Fannie Mae are privately owned publicly traded companies that enjoy an extremely cozy and beneficial relationship with the US government. “Freddie Mac and Fannie Mae indirectly assist home buyers by purchasing mortgages from lenders, such as commercial banks, savings and loans and mortgage banks. Freddie and Fannie, in turn, generally get those loans off their books by creating securities that are eventually paid off as the underlying mortgages are paid off. Homeowners are happy because they are aided in borrowing money for a home. Lenders are happy because they don't have to hold mortgages for several years. Investors in the securities are happy because they have a reliable investment, and Freddie Mac and Fannie Mae are happy because they make a handsome profit. Sound like capitalism at its finest? Not exactly. Although Freddie and Fannie are privately owned, they are what is known as government-sponsored enterprises (GSEs). GSEs don't have to follow all the rules that true privately owned companies do: they don't have to register their securities with the government, their securities receive special treatment for investment purposes, they don't have to pay state and local income taxes and--most important--their government sponsorship gives them the aura of a fully guaranteed government entity. That final benefit means they save billions in borrowing costs, just as lenders are willing to offer low-interest student loans that are guaranteed by the government. That savings alone allows the GSEs to pocket about $2 billion per year, according to estimates by the Congressional Budget Office and the Treasury Department.” Freddie Mac and Fannie Mae: Corporate Welfare King & Queen by Vern McKinley http://www.cato.org/pub_display.php?
These two GSE’s profit handsomely from their special relationship with the federal government. Recently they’ve had their problems and their fraudulent activities were revealed for the world to see. They were audited and found to have engaged in deceptive bookkeeping practices very similar to what the heads of Enron did. Of course being big time white collar criminals none of the CEOs went to jail. They merely paid a fine and the beat went on. “Fannie Mae engaged in ‘extensive financial fraud’ over six years by doctoring earnings so executives could collect hundreds of millions of dollars in bonuses, federal officials said yesterday in a report that portrayed a company determined to play by its own rules. Regulators at the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight, in announcing a settlement with Fannie Mae that includes $400 million in penalties, provided the most detailed picture yet of what went wrong at the congressionally chartered firm.” http://www.washingtonpost.com/wp-dyn/content/article/2006/05/23
Not satisfied to live of the billions of US subsidized guarantees, Freddie Mac and Fannie Mae lied about their earnings to boost the compensation of their top executives. But that’s not all. As taxpayers we should be aware of what is going on at these two Congressionally Chartered businesses. Fannie Mae and Freddie Mac set the tone and tenor for the current financial collapse by pioneering in the bundling and sale of collateralized debt packages (mortgages and housing loans). Their success led to others Wall Street investment banks to duplicate their efforts and begin bundling massive amounts of high risk loans and bonds. But unlike regular investors and banks, Freddie Mac and Fannie Mae have what amounts to unlimited lines of credit from the US Treasury due to their status as Congressionally Charted quasi governmental agencies.
Freddie Mac and Fannie Mae used these governmental guarantees and backing to engage in risky transactions, buying mortgages and selling them as securities all over the world. As the Federal Reserve Bank opened the credit and insurance spigots the housing bubble inflated. The lower the interest rates went and the higher housing prices went the bigger the bubble grew. But sooner or later all bubbles burst. That popping sound you hear are the mortgage and credit bubbles bursting. Freddie Mac and Fannie Mae are right in the thick of things, up to their necks in debt over their limited capital reserves. “The recent media attention on the management and accounting scandal at Freddie Mac has exposed a more pressing concern: Fannie Mae and Freddie Mac have grown so large and are counter-parties to so many transactions that if unforeseen interest rate volatility caused either or both companies to fail, the potential cost to U.S. taxpayers could range into the hundreds of billions of dollars. Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) are Government Sponsored Enterprises (GSEs), whose federal charters confer certain benefits – most notably an implicit guarantee that the Treasury stands behind their securities. The basic problem at Freddie Mac and Fannie Mae – from the taxpayers’ perspective – is their aggressive investment strategy that attempts to leverage their implicit guarantee to accumulate vastly increasing amounts of mortgage investments with a huge amount of debt. As Fannie Mae and Freddie Mac’s investment portfolios have grown, so too has the amount of interest-rate risk that these companies retain. The implicit guarantee causes investors to continue to loan to Fannie and Freddie despite these risks because of the expectation that the Treasury would come to their aid in a crisis. This encourages the management at Fannie and Freddie to take on more risk and more debt than they otherwise would. As a result, Fannie and Freddie have a combined outstanding debt that is equal to 39 percent of the total outstanding U.S. public debt, and their combined financial assets are worth 44 percent more than those of Citigroup, the largest bank in the United States.” Problems at Freddie Mac and Fannie Mae: Too Big to Fail? http://rpc.senate.gov/_files/bk090903.pdf (My emphasis)
What this means is Freddie Mac and Fannie Mae have incurred more debt than thirty-nine per cent of all private debt in the US! Remember unlike their competitors, Freddie Mac and Fannie Mae enjoy government backing and guarantees. This means if anything goes wrong and the loans default or the industry collapses, the US taxpayers will pick up the tab. Connect the dots, the US is in the midst of a mortgage (credit) and liquidity crisis that is about to send AmeriKKKa into a major recession (depression?). Will mortgage and lending giants Freddie Mac and Fannie Mae suffer? No, because you and I will be the ones who bail them out with guaranteed tax dollars. “Although – as the management of both Fannie and Freddie is quick to note – the charters of both GSEs explicitly disavow any federal (i.e., taxpayer) responsibility for their securities, the reality is that investors do not believe the government would abandon their financial obligations. This was made obvious in 1981 when a dramatic rise in interest rates left Fannie Mae insolvent on a mark-to- market basis.5 Were it not for Fannie Mae’s special relationship with the federal government – between 1978 and 1985, the federal government provided Fannie with implied annual credit support estimated to range between $600 million and $11 billion – the firm likely would have failed that year or the next. Thankfully, interest rates subsided the following years, and no direct bailout was necessary; but it is clear that the markets continued to loan to Fannie Mae with the expectation that the government would have come to its assistance if necessary.” Problems at Freddie Mac and Fannie Mae: Too Big to Fail? Executive Summary http://rpc.senate.gov/_files/bk090903.pdf
Corporate media lapdogs, think tankers and industry taking heads have called for Freddie Mac and Fannie Mae to take on even more of the toxic loans and mortgages. The new bipartisan “economic stimulous package” recently passed by Congress provides for a larger role for Fannie Mae and Freddie Mac. But there is a hidden agenda here. The white collar criminals are setting the stage for an even bigger taxpayer rip off. Of course the investment bankers, commercial banks and corporate media would call for this type of program. It would get all the bad loans and toxic investment vehicles the Wall Street investment firms and banks, hedge funds and derivatives have on their off balance sheet books (the ones losing money as we speak) off their hands via a taxpayer bailout! It would mean Freddie Mac and Fannie Mae will take the hit on all the defaulting loans they purchased and pass them off on us instead of their stockholders. In other words you and I will be left holding the bag due to the implicit governmental guarantees to Freddie Mac and Fannie Mae to back their securities.
“Unfortunately, in the world of leveraged finance there can be no rewards without risk. And the financial rewards Fannie and Freddie have been generating for their shareholders in recent years are a direct consequence of both firms’ increased tolerance for risk, which is largely borne by taxpayers. Not only does every mortgage investment in their portfolio come with the interest-rate risk discussed above, but purchasing MBS with debt also exposes the purchaser to other significant interest-rate and liquidity risks that could result in collapse.” Problems at Freddie Mac and Fannie Mae:Too Big to Fail? Executive Summary http://rpc.senate.gov/_files/bk090903.pdf
Unfortunately the above warning issued by the US Senate Republican Policy Committee in 2003 went unheeded.(Go to the Website and read the whole document.) Today we stand on the precipice of major financial collapse. If and when it happens (more when than if), the beleaguered taxpayers will be the ones bailing Freddie Mac and Fannie Mae out. The criminal cabal that controls the banking system is manipulating things for a taxpayer bailout like they did with the Savings and Loan fiasco. Scrutinize the wording in the new stimulous package or any future mortgage relief “bail out” legislation; because more than likely we will be the ones footing the bills.

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