On December 21, 2011,
in Uncategorized,
by magoo1310
It’s Thursday, December 22nd, 2011….and here’s The Gouge!
First up, the WSJ relates….
What Fannie and Freddie Knew
The SEC shows how the toxic twins turbocharged the housing bubble.
Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis.
That’s the story revealed Friday by the SEC’s civil lawsuits against six former Fannie and Freddie executives, including a pair of CEOs. The SEC says the companies defrauded investors because they “knew and approved of misleading statements” about Fan and Fred’s exposure to subprime loans, and it chronicles their push to expand the business.
The executives deny the charges, and we hope they don’t settle. The case deserves to play out in court, so Americans can see in detail how Fan and Fred were central to the bubble. The lawsuits themselves, combined with information admitted as true by Fan and Fred in civil nonprosecution agreements with the SEC, are certainly illuminating.
The Beltway story of the crisis claims that Congress’s affordable housing mandates had nothing to do with it. But the SEC’s lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans. According to the SEC suit, for instance, in 2006 Fannie Mae adjusted its widely used automated underwriting system, “Desktop Underwriter.” Fannie did so as part of its “Say Yes” strategy to “provide more ‘approve’ messages . . . for larger volumes of loans with lower FICO [credit] scores and higher LTVs [loan-to-value] than previously permitted.”
The SEC also shows how Fannie led private lenders into the subprime market. In July 1999, Fannie and Angelo Mozilo’s Countrywide Home Loans entered “an alliance agreement” that included “a reduced documentation loan program called the ‘internet loan,'” later called the “Fast and Easy” loan. As the SEC notes, “by the mid-2000s, other mortgage lenders developed similar reduced documentation loan programs, such as Mortgage Express and PaperSaver—many of which Fannie Mae acquired in ever-increasing volumes.”
Mr. Mozilo and Fannie essentially were business partners in the subprime business. Countrywide found the customers, while Fannie provided the taxpayer-backed capital.And the rest of the industry followed.
As Fannie expanded its subprime loan purchases and guarantees, the SEC alleges that executives hid the risk from investors. Consider Fannie’s Expanded Approval/Timely Payment Rewards (EA) loans, which the company described to regulators as its “most significant initiative to serve credit-impaired borrowers.”
By December 31, 2006, Fannie owned or securitized some $43.3 billion of these loans, which, according to the SEC, had “higher average serious delinquency rates, higher credit losses, and lower average credit scores” than Fannie’s disclosed subprime loans. By June 30, 2008, Fannie had $60 billion in EA loans and $41.7 billion in another risky program called “My Community Mortgage,” but it only publicly reported an $8 billion exposure.
The SEC says Fannie executives also failed to disclose the company’s total exposure to risky “Alt-A” loans, sometimes called “liar loans,” which required less documentation than traditional subprime loans. Fannie created a special category called “Lender Selected” loans and it gave lenders “coding designations” to separate these Alt-A loans from those Fannie had publicly disclosed. By June 30, 2008, Fannie said its Alt-A exposure was 11% of its portfolio, when it was closer to 23%—a $341 billion difference.
All the while, Fannie executives worked to calm growing fears about subprime while receiving internal reports about the company’s risk exposure. In February 2007, Chief Risk Officer Enrico Dallavecchia told investors that Fannie’s subprime exposure was “immaterial.” At a March 2007 Congressional hearing, CEO Daniel Mudd testified that “we see it as part of our mission and our charter to make safe mortgages available to people who don’t have perfect credit,” adding that Fannie’s subprime exposure was “relatively minimal.” The Freddie record is similarly incriminating.
The SEC’s case should embarrass Congress’s Financial Crisis Inquiry Commission, which spent 18 months looking at the evidence and issued a report in January 2011 that whitewashed Fan and Fred’s role. Speaker Nancy Pelosi created the commission to prosecute the Beltway theory of the crisis that private bankers caused it all, and Chairman Phil Angelides delivered what she wanted.
Far from being peripheral to the housing crisis, the SEC lawsuit shows that Fan and Fred were at the very heart of it. Private lenders made many mistakes, but they could never have done as much harm if Fan and Fred weren’t providing tens of billions in taxpayer-subsidized liquidity to lend on easy terms to borrowers who couldn’t pay it back.
Congress created the two mortgage giants as well as their “affordable housing” mandates, and neither the financial system nor taxpayers will be safe until Congress shrinks the toxic twins and ultimately puts them out of business.
The Dimocrats were dead-wrong then….
….and now, thanks to them, the rest of us, along with the entire economy, are just dead.
And if you needed two more reasons to begin backing the most conservative Republican that can beat The Obamao, here they are, courtesy of the WSJ, Politico.com and Team Tick-Tock:
Lisa Jackson’s Power Play
Harming the economy, degrading the U.S. grid: another day at the EPA.
….The so-called utility rule requires power plants to install “maximum achievable control technology” to reduce mercury emissions and other trace gases. But the true goal of the rule’s 1,117 pages is to harm coal-fired power plants and force large parts of the fleet—the U.S. power system workhorse—to shut down in the name of climate change. The EPA figures the rule will cost $9.6 billion, which is a gross, deliberate underestimate…..
Agriculture Secretary Tom Vilsack wants to spread the message to anyone who’ll listen: The U.S. Department of Agriculture isn’t just about farming anymore.
“This department is not appreciated,” the former Iowa governor told POLITICO in a recent interview. “We are engaged in virtually every issue and always can provide some support and some meaningful solution to a problem that is vexing folks.”
To prove the point, he challenges anyone to name an issue that doesn’t touch the department’s portfolio, from bolstering national security by helping wean Afghan farmers from growing opium — a cash crop that funds Islamic insurgents fighting U.S. troops — to providing USDA-backed home loans as a way to repopulate the sparse countryside.It’s also why Vilsack is promoting USDA as an overlooked success story, a strong argument for President Barack Obama’s smart-government, spend-less-invest-more agenda — and, Vilsack argues, the chief reason why Obama deserves a second term.
“The president’s vision of the entire economy is reflected in the success of agriculture,” he said. “This is basically the vision at work.”
Here’s the juice: we know there’s systemic cancers within the GOP that require major surgery. But considering the following:
(1). The Tea Party is but two years old, and has already transformed Republican politics. Rome wasn’t built in a day, and neither will the necessary overhaul of the GOP.
(2). The only interest a third-party protest candidate or vote will serve is B. Hussein Obama’s. Remember, the vast majority of the pain and economic devastation inherent in Obamascare, the EPA’s environmental regulations and every other Dimocratic policy initiative will not be felt by voters until well-past the 2012 election….when any opposition will be too little, too late.
The man has to go, and he has to go NOW! Let’s worry about fine-tuning the Right side of the aisle once we’ve defeated the Left.
Meanwhile, the aim of The Gang That Couldn’t Shoot Straight hasn’t improved with time, as the WSJ details:
The GOP’s Payroll Tax Fiasco
How did Republicans manage to lose the tax issue to Obama?
GOP Senate leader Mitch McConnell famously said a year ago that his main task in the 112th Congress was to make sure that President Obama would not be re-elected. Given how he and House Speaker John Boehner have handled the payroll tax debate, we wonder if they might end up re-electing the President before the 2012 campaign even begins in earnest.
The GOP leaders have somehow managed the remarkable feat of being blamed for opposing a one-year extension of a tax holiday that they are surely going to pass. This is no easy double play.
Republicans have also achieved the small miracle of letting Mr. Obama position himself as an election-year tax cutter, although he’s spent most of his Presidency promoting tax increases and he would hit the economy with one of the largest tax increases ever in 2013. This should be impossible.
House Republicans yesterday voted down the Senate’s two-month extension of the two-percentage-point payroll tax holiday to 4.2% from 6.2%. They say the short extension makes no economic sense, but then neither does a one-year extension. No employer is going to hire a worker based on such a small and temporary decrease in employment costs, as this year’s tax holiday has demonstrated. The entire exercise is political, but Republicans have thoroughly botched the politics.
The face says it all: DOH!
Their first mistake was adopting the President’s language that he is proposing a tax cut rather than calling it a temporary tax holiday. People will understand the difference—and discount the benefit.
Republicans also failed to put together a unified House and Senate strategy. The House passed a one-year extension last week that included spending cuts to offset the $120 billion or so in lost revenue, such as a one-year freeze on raises for federal employees. Then Mr. McConnell agreed with Senate Majority Leader Harry Reid on the two-month extension financed by higher fees on Fannie Mae and Freddie Mac (meaning on mortgage borrowers), among other things. It passed with 89 votes and all but seven Republicans.
Senate Republicans say Mr. Boehner had signed off on the two-month extension, but House Members revolted over the weekend and so the Speaker flipped within 24 hours. Mr. Boehner is now demanding that Mr. Reid name conferees for a House-Senate conference on the payroll tax bills. But Mr. Reid and the White House are having too much fun blaming Republicans for “raising taxes on the middle class” as of January 1. Don’t be surprised if they stretch this out to the State of the Union, when Mr. Obama will have a national audience to capture the tax issue.
If Republicans didn’t want to extend the payroll tax cut on the merits, then they should have put together a strategy and the arguments for defeating it and explained why.
But if they knew they would eventually pass it, as most of them surely believed, then they had one of two choices. Either pass it quickly and at least take some political credit for it.
Or agree on a strategy to get something in return for passing it, which would mean focusing on a couple of popular policies that would put Mr. Obama and Democrats on the political spot. They finally did that last week by attaching a provision that requires Mr. Obama to make a decision on the Keystone XL pipeline within 60 days, and the President grumbled but has agreed to sign it.
But now Republicans are drowning out that victory in the sounds of their circular firing squad. Already four GOP Senators have rejected the House position, and the political rout will only get worse.
One reason for the revolt of House backbenchers is the accumulated frustration over a year of political disappointment. Their high point was the Paul Ryan budget in the spring that set the terms of debate and forced Mr. Obama to adopt at least the rhetoric of budget reform and spending cuts.
But then Messrs. Boehner and McConnell were gulled into going behind closed doors with the President, who dragged out negotiations and later emerged to sandbag them with his blame-the-GOP and soak-the-rich re-election strategy.Any difference between the parties on taxes and spending has been blurred in the interim.
After a year of the tea party House, Mr. Obama and Senate Democrats have had to make no major policy concessions beyond extending the Bush tax rates for two years. Mr. Obama is in a stronger re-election position today than he was a year ago, and the chances of Mr. McConnell becoming Majority Leader in 2013 are declining.
At this stage, Republicans would do best to cut their losses and find a way to extend the payroll holiday quickly. Then go home and return in January with a united House-Senate strategy that forces Democrats to make specific policy choices that highlight the differences between the parties on spending, taxes and regulation. Wisconsin freshman Senator Ron Johnson has been floating a useful agenda for such a strategy. The alternative is more chaotic retreat and the return of all-Democratic rule.
As we wrote on Tuesday, Republicans in general, Boehner and McConnell in particular, have forgotten they can win the battle and still lose the war. After all, does a one-year continuation of the payroll tax cut really allow American business the ability to plan and hire any more than a two-month extension? No.
And meanwhile, forcing The Obamao to make a decision on the Keystone XL, an incredibly important achievement, may well fall victim to what can only be a Pyrrhic victory at best.
Yet the fact remains, when the everything was on the line, the intestinal and intellectual fortitude of the Republican contingent in the Senate was found wanting.
For more on the ineptitude inherent in the Republican leadership, we turn to Erick Erickson writing in RedState.com:
The Strategic Incompetence of Mitch McConnell
Mitch McConnell’s minion are in full on spin mode trying to blame Speaker of the House John Boehner for botching the payroll tax cut extension. The only person who deserves any blame is Mitch McConnell.In this, the first deal he pretty much single handedly negotiated with the Democrats, he not only screwed up, but proved he has no freaking clue how to get the economy growing again.
The House has postponed a vote on the matter but members of the House are in open rebellion about it. In exchange for the Keystone Pipeline, which would probably make the President veto the whole thing anyway, the GOP would go for a two month extension of the payroll tax cut and raise fees on mortgages permanently.
Note the last bit. McConnell was okay raising fees on the American people permanently to offset a two-month payroll tax cut.And it would not just raise fees on mortgages, it would, in effect, perpetuate the sad, sick cycle of Fannie Mae and Freddie Mac controlling the mortgage industry with no reforms to either.
McConnell now wants us to know this is all John Boehner’s fault and John Boehner had intended to go along with it. Except that comes as news to plenty of people in the House. There is a larger point, though, that is being ignored.
Mitch McConnell negotiated a two month extension of the payroll tax cut and businesses in America, particularly small businesses, need to plan for a full year. The GOP has blamed Obama and the Democrats for “uncertainty” in the economy and Mitch McConnell sought to exacerbate that uncertainty playing political games with a payroll tax cut.
To compound the stupidity of it all the deal cannot even be implemented by most businesses in America. Mitch McConnell, who supposedly is on the side of job creators, seemingly has no clue how this payroll tax cut would affect businesses and clearly did not understand its implications enough to know just how wholly unworkable it is.
In other words, the leader of the Republicans in the Senate has become such a creature of Washington, he like the Democrats we fight, knows not a darn thing about how to get Washington out of the way of the job creators or, worse, he does not care.
Wethinks Mitch just ain’t the sharpest tack in the box….be that box in Kentucky or anywhere else in the country.
Then there’s this quote from economist Alan Reynolds writing Dec. 19 in Forbes.com, courtesy again of the WSJ:
A proposal by House Republicans to roll back the maximum duration of unemployment benefits from 99 weeks to 59 passed the House by 234 to 193. If such a plan also passes the Senate, that would be politically ideal for President Obama.
Reducing the amount of time people can collect unemployment benefits would clearly cut the unemployment rate below 8 percent by election time, greatly improving the President’s chances for re-election. Yet the President could nevertheless pretend not to appreciate this generous gift and instead castigate Republicans for being as cheap as Scrooge and as mean as the Grinch. From Obama’s point of view, that’s an ideal combination.
The link between longer benefits and a higher unemployment rate has long been well known to economists thanks to international experience and economic research. Germany, for example, cut the maximum duration of unemployment benefits to 52 weeks a decade ago. The result? Germany had an unemployment rate of 6.9 percent in November despite economic growth no faster than in the U.S.
Turning to the Environmental Moment, courtesy today of Jeff Foutch, Tom Gantert and MichiganCapitolConfidential.com, we learn the….
Chevy Volt Costing Taxpayers Up to $250K Per Vehicle
Analyst: ‘This might be the most government-supported car since the Trabant*’
* The pride….
….of East Germany!
Each Chevy Volt sold thus far may have as much as $250,000 in state and federal dollars in incentives behind it – a total of $3 billion altogether, according to an analysis by James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy.
Hohman looked at total state and federal assistance offered for the development and production of the Chevy Volt, General Motors’ plug-in hybrid electric vehicle. His analysis included 18 government deals that included loans, rebates, grants and tax credits. The amount of government assistance does not include the fact that General Motors is currently 26% owned by the federal government.
The Volt subsidies flow through multiple companies involved in production. The analysis includes adding up the amount of government subsidies via tax credits and direct funding for not only General Motors, but other companies supplying parts for the vehicle. For example, the Department of Energy awarded a $105.9 million grant to the GM Brownstown plant that assembles the batteries. The company was also awarded approximately $106 million for its Hamtramck assembly plant in state credits to retain jobs. The company that supplies the Volt’s batteries, Compact Power, was awarded up to $100 million in refundable battery credits (combination tax breaks and cash subsidies). These are among many of the subsidies and tax credits for the vehicle.
It’s unlikely that all the companies involved in Volt production will ever receive all the $3 billion in incentives, Hohman said, because many of them are linked to meeting various employment and other milestones. But the analysis looks at the total value that has been offered to the Volt in different aspects of production – from the assembly line to the dealerships to the battery manufacturers. Some tax credits and subsidies are offered for periods up to 20 years, though most have a much shorter time frame.
GM has estimated they’ve sold 6,000 Voltsso far. That would mean each of the 6,000 Volts sold would be subsidized between $50,000 and $250,000, depending on how many government subsidy milestones are realized.
In a related item detailing additional government waste, courtesy of Bill Meisen….
Tom Coburn Releases “Wastebook 2011”
Examples of wasteful spending highlighted in “Wastebook 2011” include:
• $75,000 to promote awareness about the role Michigan plays in producing Christmas trees & poinsettias.
• $15.3 million for one of the infamous Bridges to Nowhere in Alaska.
• $113,227 for video game preservation center in New York.
• $550,000 for a documentary about how rock music contributed to the collapse of the Soviet Union.
• $48,700 for 2nd annual Hawaii Chocolate Festival, to promote Hawaii’s chocolate industry.
• $350,000 to support an International Art Exhibition in Venice, Italy.
• $10 million for a remake of “Sesame Street” for Pakistan.
• $35 million allocated for political party conventions in 2012.
• $765,828 to subsidize “pancakes for yuppies” in the nation’s capital.
• $764,825 to study how college students use mobile devices for social networking.
Then there’s this from Bill Meisen and the dissidents of Syria….
….as well as this related bit from Barbara Brady and John Cotton:
Finally, we’ll call it a wrap with News of the Bizarre, brought to us today by Bill Meisen and the whacked-out weasels of Oregon:
Gladstone fires Sgt. Lynn Benton, implicated in murder-for-hire of spouse
A police sergeant implicated in a murder-for-hire plot against his estranged wife was fired today by the city administrator.
Sgt. Lynn Benton, who has been on administrative leave since his wife was found slain in May, was fired by City Administrator Pete Boyce after a due-process hearing was held by teleconference. Police Chief Jim Pryde said Benton was fired after a four-month investigation by Gladstone, Milwaukie and Portland police into “two serious allegations” unrelated to the murder case.
“Lynn Benton is no longer an employee of the Gladstone Police Department,” Pryde said. “As this is a personnel matter, I am prohibited from discussing this further.”On administrative leave, Benton was paid $6,357 a month while a team of investigators looked into the death of beautician Deborah Higbee Benton, 54, who was found beaten and shot in the Gladstone salon she ran for 20 years.
Benton, 49, has not been charged in the case, but Clackamas County prosecutors named him a co-conspirator in court last week during a bail hearing for defendant Susan Ellen Campbell, who has been charged with murder in Higbee Benton’s death.
Prosecutors said Benton, a 24-year police veteran offered Campbell $2,000 to Higbee Benton, but had no immediate plans to charge him. “The investigation is continuing,” said Greg Horner, Clackamas County chief deputy district attorney. “We’re not going to comment any further.”
….Benton and Higbee Benton married in 2010 in what became a tumultuous relationship, prosecutors said. Benton, born Lynne Irene Benton, already had undergone a female-to-male sex-change operation and had legally become Lynn Edward Benton.
As our Canadian friends would say, “Beauties, eh?!?”
Other than our traditional Christmas post and an occasional column as the urge seizes us, we’ll be taking the rest of the year as vacation. Catch you in 2012!
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