The $700 billion that Treasury Secretary Hank Paulson is requesting from Congress to restore liquidity in the financial markets is a breathtaking sum of money. But it is also important to remember Paulson has already committed $200 billion to recapitalize Fannie Mae and Freddie Mac. The size of their bailout should tip Americans off: Fannie and Freddie were the key enablers of the mortgage crisis.
Fannie and Freddie’s implicit government stamp of approval on these risky investments fueled Wall Street’s appetite for subprime securities. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. In 2004 alone, Fannie and Freddie bought 44% of all subprime securities. Fannie and Freddie were created to pump more money into the real estate market. Without Fannie and Freddie, it is impossible to see the bubble growing as large as it did.
There were early warning signs. In 2004, a whistle blower revealed Fannie had engaged in Enron-like accounting practices in order to meet profit targets that meant bonuses for CEOs. When conservatives on Capitol Hill moved to rein in Fannie and Freddie, liberals in Congress pushed back, and won as little oversight as possible for their political allies. Key to Fannie and Freddie’s defense was the development of “Partnership Offices” that funneled money into various housing projects in districts of key members of Congress. These efforts were coordinated with corrupt leftist housing advocacy allies like the Association of Community Organizations for Reform Now (ACORN), which has been indicted multiple times across the country for vote fraud.
One would hope now that Freddie and Fannie have exploded that the left learned its lesson about mixing private and public interests. No such luck. Just last week, Senate Banking Chairman Chris Dodd (D-CT), who has taken more money from Fannie and Freddie than any other politician, again defended Fannie and Freddie and advocated for their resurrection.
Now the left has let Dodd author its financial bailout proposal. And again, Dodd is alarmingly eager to funnel taxpayer money to corrupt leftist housing allies. Dodd proposes to direct one fifth of all taxpayer profits from the sale of any assets bought by the Treasury into two trust funds: 65% would go to the Housing Trust Fund and 35% to the Capital Magnet Fund. Both funds are designed to “support a variety of affordable housing initiatives.”
Enron’s financial lies destroyed more than $63 billion in assets. Freddie and Fannie’s financial lies are going to cost the entire world much, much more. When the Senate went to write new accounting legislation after Enron’s collapse, it did not invite disgraced Enron chief executive Ken Lay to draft the legislation. Why on earth is the Senate letting Chris Dodd, both Freddie and Fannie’s biggest defender and benefactor, write this legislation? The integrity of the Senate is at stake. Again.
Quick Hits:
- The dollar’s steep decline contributed to the biggest-ever one-day surge in oil prices.
- Mayor Michael Bloomberg says he is considering imposing a 7% property tax increase on homeowners in January.
- Joseph Stiglitz and Iranian President Mahmoud Ahmadinejad agree that the turmoil on Wall Street is rooted in U.S. military intervention abroad.
- North Korea asked the International Atomic Energy Agency to remove surveillance cameras at the North’s nuclear reprocessing facility.
- According to Rasmussen Reports, 28% of Americans support the Bush Administration’s federal bailout plan, 37% oppose, and 35% are undecided.