Call it the Christmas surprise.
The Treasury Department announced it had removed the $400 billion financial cap on the money it will provide to mortgage giants Fannie Mae and Freddie Mac to keep them afloat.
Taxpayers have already shelled out $111 billion to the pair. Now there is no end in sight.
A senior Treasury official said losses are not expected to exceed the government's estimate last summer of $170 billion over 10 years.
However, the government has not been accurate, or forthcoming, about the true scope of the problem or about the reality of potential losses.
At this point, we should not believe any government estimates or claims.
It's important for us to reflect on the fact that in July 2008, the Congressional Budget Office said that the government rescue of Fannie and Freddie would cost $25 billion, at most.
The Budget Office said there was a better than even chance that the rescue package would not even be needed before the end of 2009 and would not cost taxpayers any money.
Instead, what has happened is that losses have been so spectacular that the $400 billion cap was quietly removed on Christmas Eve, a traditionally slow news day when most Americans were busy celebrating the Christmas holiday and not paying attention.
The Treasury made the change before year-end to avoid having to ask Congress for another bailout, which would be politically risky in the 2010 election year.
It's also worth noting that the head of the CBO at the time was Peter Orszag, who is now White House Budget Director. What this proves is that being wildly incompetent, or grossly misleading, is actually rewarded.
Bert Ely, a banking consultant in Alexandria, Virginia, said that lifting the cap raises significant concerns and could spell big trouble ahead.
"The companies are nowhere close to using the $400 billion they had before, so why do this now? It's possible we may see some horrendous numbers for the fourth quarter and, thus 2009, and Treasury wants to calm the markets."
Exactly. Sudden moves of such magnitude don't occur in a vacuum. The government clearly knows what's coming and it is preparing for a tsunami of losses.
Without government aid, the two firms would have already gone under, leaving millions of people unable to get a mortgage.
Together, Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages.
The combination of high unemployment, adjustable-rate mortgages that will reset this year, and a likely increase in mortgage rates, will all combine to result in further foreclosures this year.
Currently, there are 2.8 million active interest-only loans nationally, worth a combined total of $908 billion. This year, about $70 billion of interest-only loans will reset. That will result in a massive number of additional defaults.
If the news of unlimited taxpayer support isn't disturbing enough, here's something additionally outrageous: The CEOs of Fannie and Freddie could get paid as much as $6 million apiece for 2009, despite the companies' dismal performances last year.
How's that for justice?
What's clear is that there is no justice. Bankers and lenders have created a "heads I win, tails you lose" environment, and our government has aided and abetted them.
This is no moral hazard anymore. There are no consequences for poor decision-making. There are only private gains and public losses. A government-backed, corporate socialism has arisen in modern America. This is not true, democratic capitalism.
All this latest news should do is lessen America's already diminished view of our government, its competence, and its truthfulness. The government's loss estimates have proven to be wildly inaccurate.
The reality is that without the huge government subsidization of the US housing market through Fannie and Freddie, the enormous housing bubble probably wouldn't have occurred in the first place. The balance sheets of Fannie Mae and Freddie Mac have grown by a stunning $4 trillion.
We, the American taxpayers — including those of us who didn't overextend ourselves, those who bought homes they could actually afford, those who didn't view their home as a financial investment or get-rich-quick scheme, and those who never even bought a home — are all stuck with this gargantuan bill.
It will just be added to the already existing national debt, which will never be successfully paid off. It just keeps growing, and accruing additional interest.
We will remain perpetually in debt, much to our own detriment.
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