Relief Without Limits: Fannie Mae, Freddie Mac Get Blank Checks; NYT Provides Blank Coverage
On Thursday, the Treasury Department issued a press release, called "Update on Status of Support for Housing Programs." Its fourth paragraph reads as follows:
At the time the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship in September 2008, Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth. Treasury is now amending the PSPAs to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. At the conclusion of the three year period, the remaining commitment will then be fully available to be drawn per the terms of the agreements.
Translation: No matter how badly things further deteriorate at these former government sponsored enterprises, both of which since last year in essence have become government-controlled enterprises, Uncle Sam (i.e., current and future generations of taxpayers) will cover their losses.
Here is how three different news outlets headlined this Treasury/Obama administration move:
- Wall Street Journal, Dec. 26 -- "U.S. Move to Cover Fannie, Freddie Losses Stirs Controversy."
- Associated Press, Dec. 25 -- "Treasury removes cap for Fannie and Freddie aid."
- New York Times, Dec. 24 (in Christmas print edition on Page B1) -- "New Aid for Fannie and Freddie."
It really is difficult to take the Times seriously any more.
James R. Hagerty and Jessica Holzer at the Journal and the AP's J.W. Elphingstone identified why the move was made just before year-end, and noted the attention-avoiding Christmas Eve timing of the announcement:
(WSJ, 4th and 8th paragraphs) "The timing of this executive order giving Fannie and Freddie a blank check is no coincidence," said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed "to prevent the general public from taking note."
.... The Treasury removed the cap on the size of available bailout funds by amending agreements it reached with the companies in September 2008, when the government seized control of the agencies under a legal process called conservatorship. The agreement allowed the Treasury to make amendments through the end of the year, without the consent of Congress. Changes made after Dec. 31 would likely involve a struggle with lawmakers over the terms.
(AP, 4th and 5th paragraphs) By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.
While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government's commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows.
Elphingstone's first sentence deserves special props: "The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac."
The Times article by Louise Story did not cite the December 31 deadline's existence.
The Journal and the AP stuck to the story itself, and also went into the realm of the quite generous pay packages the entities' execs are receiving. Neither chose to provide any background about how the two entities got to where they are. But Times's Story gave us this pitiful rendition of the true story:
The housing giants stumbled badly in the financial crisis after backing too many troubled loans. Late last year, the government put them into conservatorship, and since then they have provided most of the liquidity in the mortgage market, allowing homeowners to refinance and buy new homes. Now, announcing new long-term support for the companies, the Obama administration has effectively transformed them into arms of the government, using them to help carry out its mortgage modification programs.
I'm not buying what Story is selling in the second sentence of the excerpted paragraph about the two firms providing "most of the liquidity in the mortgage market." Instead, they represent a significant component of the pervasive administration-induced atmosphere of uncertainty that permeates and holds back the entire economy.
Story's story never tells us that it is the government, backed by Community Reinvestment Act requirements, that demanded that banks make these "troubled" (i.e., most subprime) loans, and that Fred and Fan buy them up. Some were kept on the entities' books; others were dumped (oh, I'm sorry, "securitized and issued to gullible investors"). All of this led to the systemwide mortgage-lending and housing messes.
It should also not be forgotten that Democratic cronies too numerous to mention made millions -- make that tens of millions -- as executives and board members while running these entities into the ground and deliberately keeping fraudulent books while they were in charge (Fred, Fan). Sadly, all three stories did.
Cross-posted at BizzyBlog.com.