MORE MINDLESS CRAP!!!!!

[ikrtolica]

[ikrtolica]

[gregorvass]

Do you watch Communist News Network (CNN).?????
Bill Clinton Is Calling MC CAAAIIINNNN His long time friend!

UUUHHHH>>>>>>>>FH.

[jp5]

Communist News Network (CNN) LOLOLOLOL!!!!!!!


Bard is right, Hillary stands a much better chance of a run in 4 years that she does in 8.


Heard a wild rumor that Obama is planing to drop Biden as VP nom and pick up Hillary. Anyone else hear this??

[gregorvass]

http://casone.blogs.foxbusiness.com/2008/09/24/ron-paul-sees-great-depression/

Finally somebody get's it!

[potto]

I thought this article was interesting to read. It was written back in the
year 2000.

The Fundamental Problem with Fannie Mae and Freddie Mac

Peter J. Wallison

On The Issues

December 2000

American Enterprise Institute for Public Policy Research

Fannie Mae and Freddie Mac have a public mission for which they enjoy an implicit subsidy from the federal government, yet their corporate structure obligates them to maximize profits for their shareholders. That dual role creates a fundamental conflict of interest, one with worrisome consequences for taxpayers as well as the future of our competitive private financial markets.

The Federal National Mortgage Association (now known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are two government-chartered and government-sponsored corporations. Both have been assigned the statutory mission of enhancing liquidity in the middle-class residential mortgage markets by buying and selling residential mortgages.

Fannie and Freddie were originally government agencies but were "privatized" when they were permitted to sell shares to the public. Today, both companies are among the largest and most profitable financial institutions in the world, with their securities listed on the New York Stock Exchange.

Their apparent success, however, obscures an inherent contradiction. They are shareholder-owned companies, with managers who have a fiduciary obligation to maximize profits, but they are also government-chartered and empowered agencies with a public mission. It should be obvious that they cannot achieve both objectives. If they maximize profits, they will fail to perform their government mission to their full potential. If they perform their government mission fully, they will fail to maximize profits.

In 1996, the Congressional Budget Office found that these two companies had received subsidies in 1995 of approximately $6.5 billion but that only about two-thirds of that subsidy was actually delivered to the mortgage markets. The remainder was retained for the benefit of the companies' shareholders and management teams.

That is exactly what one would expect from this hybrid form. If Fannie and Freddie were fully performing their government mission, their entire subsidy would have gone to the mortgage markets. The fact that they retained a portion for themselves reflects their obligation to their shareholders and the incentives of their executives to increase their own compensation.

This conflict of interest has direct practical consequences. Since 1992, Fannie and Freddie have had an obligation to assist in financing affordable and low-income housing. Obviously, doing so would be costly and would thus reduce their profitability. Studies now show that their performance in financing low-income housing—especially in minority areas—is far worse than that of ordinary banks. In other words, despite the fact that Fannie and Freddie receive subsidies to perform a government mission—in this case support of low-income housing—their need for and incentives to retain a high level of profit-ability is an obstacle to their performance.

But that is not the full extent of the problem. Because of their unique structure, Fannie and Freddie are able to determine the size of their own subsidies: There is no effective restriction on their issuance of debt, and since every bond or note they issue reflects the subsidy they receive, they can increase their subsidy without a vote of Congress. Although their subsidy was estimated at $6.5 billion in 1995, it is now probably in the range of $10 billion, and it will grow larger as they continue to borrow money in the capital markets and increase the size of their portfolios. Moreover, their fiduciary obligations to their shareholders require them to exploit their subsidy to the fullest extent possible.

Because Fannie and Freddie are not on-budget agencies—which is to say, Congress does not appropriate funds for their activities—Congress and the executive branch have no effective control over their growth, and hence no control over the risks they create for the taxpayers.

Thus we have a vicious and dangerous cycle: Fannie and Freddie must grow in order to maintain their profitability and hence their high stock prices, but there is no countervailing check on their growth—no effective competition, no required government approvals, and no fear in the financial markets that there is any substantial risk associated with financing this growth. In other words, these agencies are literally out of control.



The Growing Risk for Taxpayers

Today, both companies are financially healthy and pose no immediate risks to the taxpayers. That is because our economy and our housing markets are strong. Even if those favorable conditions were to continue indefinitely, history tells us that no company is fully isolated from market forces. That is especially true of Fannie and Freddie, because they are growing so fast that they will soon run out of high-quality mortgages to buy.

In Nationalizing Mortgage Risk: The Growth of Fannie Mae and Freddie Mac (AEI Press, 2000; call 800.937.5557 to order), a study I did with Bert Ely, we concluded that by 2003 Fannie and Freddie would own or bear the risk of over 90 percent of all conventional conforming mortgages and almost half of all mortgages in the United States. Since Fannie and Freddie must grow in order to remain profitable, that trend will continue. At some point, in theory, they will bear the credit risk of all mortgages, which could amount to an $8 trillion liability.

Aside from amounting to a nationalization of the mortgage markets without a vote of Congress, holding virtually all mortgages entails a great deal more risk than holding the high-quality mortgages that Fannie and Freddie have historically financed. Because of their implicit backing by the government, that increased risk will fall on the taxpayers. As was true of the savings and loan debacle, the story of Fannie and Freddie is a classic case of privatizing the profits but socializing the risk. Their executives and shareholders are benefiting now from government support, but if these companies ever stop growing or assume too much risk, or if interest rates spike, their losses will belong to the taxpayers.

But there is more. The ability of Fannie and Freddie to acquire all of the mortgages in the United States points to their threat to the private sector. It should be obvious that they are not going to let themselves run out of mortgages to buy. They are going to seek new assets to acquire, and hence new businesses to enter. We are seeing this now with their purchase of their own mortgage-backed securities (MBSs). Holding these allows them to earn more profit by taking more risk. When they were only guaranteeing mortgage-backed securities, they were taking only credit risk; the holders of the MBSs were taking the interest-rate risk. By buying back their own MBSs, Fannie and Freddie can also take interest-rate risk, and hence be more profitable. It is not clear, however, how buying back MBSs advances the mission of helping homebuyers.

Entering new lines of business, such as originating mortgages, financing home improvements, and offering lines of credit to consumers through home equity loans, also may be on the agenda for Fannie and Freddie. It may be possible for them to enter the commercial mortgage markets and, perhaps at some point, commercial lending. If they are able to do these things, their existence will continue indefinitely and they will be able to further exploit their implicit subsidy. Without some form of control—given their incentives—no end is in sight.

The mortgage markets are clearly in danger of being nationalized today; if Fannie and Freddie are not restrained, other sectors of the financial economy could similarly become risks of the federal government instead of risks of private-sector shareholders. It is no exaggeration to say that this is a threat to the private sector to the same degree as it is a threat to the taxpayers.



A Frightful Combination

From time to time, supporters of Fannie and Freddie have argued that these companies represent the perfect form of organization—a combination of private-sector efficiency and government financial power. The record shows, however, that the opposite is true. By combining the government's exemption from market discipline with the aggressiveness of private-sector management, Congress has created a financial monster.



Peter J. Wallison is a resident fellow at AEI and codirector of its Financial Deregulation Project. This article is based on a portion of his September 11, 2000, statement before the House Subcommittee on Capital Markets.

[nealpar]

Once again, the American public is getting the wool pulled over their eyes.

1 Euro=200 dollars. Yeahhhh!

[jp5]

...and how many Yen?

[gregorvass]

$200 Us = 1 OK HO

[ikrtolica]