Archive for the ‘Fannie Mae’ Category

Obama’s Economic “Rescue;” “The plan is very, very clever. Maybe too clever.”

March 27, 2009

“The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction.”

By Michael Kinsley
The Washington Post

Got that? It’s a sentence, chosen more or less at random, from the most recent (2002) Master Agreement of the International Swap and Derivatives Association. These are the people who brought you the “credit default swap,” the mysterious financial transaction that almost destroyed the world, and might yet do so if the Obama administration’s rescue plan doesn’t work. The Master Agreement is used for credit default swaps the way a standard real estate broker’s lease is used for renting a one-bedroom apartment.

Except that we all know what a one-bedroom apartment is. How many of us know what a credit-default swap is? The media do their best to explain it, often using attractive drawings with arrows showing money going hither and thither. Or sometimes they throw up their hands, as I’m doing, and simply describe them as “exotic financial instruments,” and leave it at that. Part of the hostility that banks and Wall Street now enjoy comes from a popular suspicion that the mystery and complexity are part of the point — that these things are made impossible to explain on purpose, as a way of avoiding scrutiny. “Don’t criticize what you can’t understand,” as the financier Bob Dylan once put it in another context.

One problem with the Obama financial rescue plan is that it is almost as complicated and obscure as the problem it is designed to solve. Treasury Secretary Tim Geithner, testifying yesterday on Capitol Hill, called for greater simplicity in financial regulation. Good luck with that. Here is a sample passage from one of the explanatory documents released by Treasury this week. “Private investors may be given voluntary withdrawal rights at the level of a Private Vehicle, subject to limitations to be agreed with Treasury including that no private investor may have the right to voluntarily withdraw from a Private Vehicle prior to the third anniversary of the first investment by such Private Vehicle.” All this talk of getting into and out of private vehicles may be a sly reference to the car and driver that did in Tom Daschle. Otherwise, who knows?

The government’s most urgent goal is to cleanse the financial system of “toxic assets.” These used to be known as “bad debts” until somebody decided that a more hysterical term was needed to reflect the gravity of the situation. Nobody gives a hoot about bad debts anymore. The government could have just swallowed hard and bought up these toxic assets itself. Then it could have buried them at Yucca Mountain in Nevada, where it has almost completed a $13.5 billion nuclear waste dump, just in time to promise never to use it, at least not for nuclear waste. Unlike nuclear waste, credit default swaps are unlikely to leach into the groundwater. And even if they do, there is no detectable difference between trading in derivatives such as credit default swaps and Nevada’s principal industry anyway. Except that the amounts involved in Nevada-style recreational gambling are much smaller. Oh, and the government doesn’t bail out petty gamblers. Yet.

But the administration decided that it would be more exciting to let private financiers in on the fun. This is an odd echo of what created the mess in the first place. Government-chartered entities such as Fannie Mae and Freddie Mac operated with an implicit government guarantee, whereas firms we all thought were private, like AIG and Citicorp, were deemed “too big to fail.” One way or another, the government got sucked in against its will. It felt it had no choice. The private firms now pondering whether to join the party do have a choice, so they will have to be subsidized.

The plan is very, very clever. Maybe too clever. It depends on convincing smart financiers that there is a killing to be made investing, with government help, in toxic assets. Inevitably, when the dust settles, it will turn out that some private firms and individuals actually have made a killing, which will cause another eruption of populist resentment like the one over the AIG bonuses. Fear of such an eruption, and any retrospective mischief coming out of Congress as a result, is going to make private money harder to entice, which means the subsidies will have to be larger, which means the killings will even be greater.

Read the rest:
http://www.washingtonpost.com/wp-dyn
/content/article/2009/03/26/AR20090
32603113.html?hpid=opinionsbox1

Obama plan to prevent foreclosures won’t help many California homeowners

March 6, 2009
Nearly a third of the state’s mortgage holders are underwater on their loans, many of them by amounts that would disqualify them for government-sponsored refinancing.
By E. Scott Reckard and Peter Hong
Los Angeles Times
10:38 PM PST, March 5, 2009
The Obama administration’s plan to stave off foreclosures could fall flat in California, where nearly one-third of mortgage holders are underwater on their loans — many of them by amounts that would disqualify them for government-sponsored refinancing.

The problem is likely to be especially acute in areas like the Inland Empire, where homes have lost more than 40% of their value in the last year and nearly half the homeowners owe more on their loans than the properties are worth.

Read the rest:
http://www.latimes.com/business/la-f
i-housing6-2009mar06,0,2516760.story

Foreclosed home auction A sign in front of a house in Palmdale announces an auction of foreclosed homes.  David McNew / Getty Images

Does the bailout spree signal the end of democracy?

December 22, 2008

“A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship….

“Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.”

These words – the author is unknown – are particularly sobering today. In the past few months, Uncle Sam has bailed out Wall Street, Fannie Mae and Freddie Mac, home-owners, banks, and US automakers, while the incoming administration promises a massive infrastructure investment.

Thomas Jefferson
Thomas Jefferson

Is it any surprise that cities, counties, and states are jostling for space at the federal trough? Who’s next? Big Media? Big Sports? Agribusiness?

By Randy Salzman
Christian Science Monitor

With the bailout “mother of all precedents,” it’s become difficult for Washington politicians to say “no” to any special interest that’s too massive, too economically important, or too well connected to fail.

Nor can politicians forget the poor. Or the crucial swing voters in the “struggling middle class.” And they can’t ignore seniors – AARP members are very vocal.

Virtually every group today is trying to meet with the Obama transition team to convey the urgency of its “crucial” spending requests. My local paper recently informed me that our area university is preparing its wish list for infrastructure dollars. Even the National Council for the Social Studies and the American Sportfishing Association have sent pitches to President-elect Obama.

Have we gone from “rugged individualism” to the complacency or even dependency of the national trajectory quoted above?

At the time of America’s founding, the Federalist Papers discussed the dangers of democratic politicians being forced to count on the votes and support of citizens or organizations too self-involved or uneducated to realize that short-term individual or group gain often precludes long-term prosperity.

And Thomas Jefferson sought to deal with politicians’ catering to their constituents’ convenience by founding the University of Virginia (UVA). He wanted an informed, intelligent, and thoughtful population in hopes of helping democracy survive. Today, sadly, UVA is the area university I read about in the paper seeking funds for its infrastructure wish list.

Read the rest:
http://news.yahoo.com/s/csm/20081222/cm_csm/ysalzman