Speaking to a crowd of 1,500 supporters in Costa Mesa, California, about the bonuses given to employees of 80% taxpayer owned AIG, President Barack Obama said: “I know a lot of you are outraged about this. I’m outraged, too.” We’ll leave for others to decide the level of Obama’s outrage, especially considering reports this morning that the Obama Administration found out about the bonuses on February 28, not March 10, as they originally claimed. But what we would like to see some genuine outrage over are the millions of taxpayer dollars going to executives at the taxpayer owned companies Freddie Mac and Fannie Mae.
Fannie and Freddie reported combined losses of about $108 billion last year. But the damage they caused the entire economy goes far beyond the losses on their balance sheets. Fannie and Freddie are at the core of the current economic meltdown. Although they were only recently fully taken over by the government; for much of their existence Fannie and Freddie were quasi-governmental agencies that made no actual home loans. Instead they buy loans from banks, and then bundle and repackage them as securities. For years Fannie and Freddie leveraged their government-sponsored advantages — including exemptions from state and federal taxes, lower capital requirements, and the ability to borrow at rates well below those paid by private companies — to create a co-monopoly in the housing finance sector.
Contrary to what the left claims, Fannie and Freddie were integral to the creation and expansion of the subprime loan industry. With Fannie and Freddie as their largest customer, subprime king Countrywide Financial grew from a tiny institution to the largest mortgage lender in the country. Fannie and Freddie’s subprime business was not isolated to Countrywide. Fannie and Freddie both bought subprime securities since 1995, and by 2004 they were purchasing $175 billion worth of such securities a year, or 44% of the entire market. From 2003 through 2006 Fannie and Freddie bought more than a half trillion dollars in subprime securities. That is more than any other purchaser in the entire world.
In 1991, following the Savings and Loan disaster, Heritage pushed for the full privatization of Fannie and Freddie, predicting that “maintaining secondary mortgage firms in a twilight zone between the public and private sectors … may be a recipe for an eventual taxpayer bailout.” We just didn’t realize how huge that bailout would be.
Back in California, Obama told his audience: “We’re going to do everything we can to fix it. So for everybody in Washington who’s busy scrambling, trying to figure out how to blame somebody else, just go ahead and talk to me, because it’s my job to make sure that we fix these messes, even if I don’t make them.” President Obama did not create the Fannie and Freddie disaster, but he is not fixing it either. Instead of learning from the disastrous consequences of Fannie and Freddie’s market distorting housing interventions, the Obama Administration is doubling down by making Fannie and Freddie a center piece of their housing plan. Now that is something to be outraged over.
- For the first time in Gallup’s 25-year history of asking Americans about the trade-off between environmental protection and economic growth, a majority of Americans say economic growth should be given the priority.
- Births to unwed mothers reached an all-time high of about 40 percent last year, with more than three-quarters of these women were 20 or older.
- Some of the Guantanamo Bay prisoners could be released into the United States while others could be put on trial in the American court system, Attorney General Eric Holder said on Wednesday.
- Holder also said the Justice Department has no plans to prosecute pot dispensaries that are operating under state laws in California and a dozen other states.
- President Obama said yesterday it’s important for longtime illegal immigrants to have a path to citizenship so they can join unions.