This is ron paul with your weekly update for august 23rd. Recently there have been some encouraging signs that Congress is finally willing to admit what should have been evident two years ago. Even after a $150 billion bailout, Fannie Mae and Freddie Mac are still bankrupt and should be abolished. Indeed Rep. Barney Frank, a longtime champion of Fannie and Freddie has made a few statements alluding to this and I have signed on to a letter asking him to clarify his remarks and hold hearings on.
This topic. there seems to be a growing consensus in favor of abolishing fannie and freddie. This is the good news. The bad news is that instead of simply returning to the free market, Fannie and Freddie will probably be replaced with something equally damaging, and at this point we can only guess what that will be. One possibility is that instead of these two giant Government Sponsored Enterprises (GSEs) the government will deputize thousands of smaller banks to do the same.
Thing that is to securitize mortgages with taxpayer guarantees to encourage lending that otherwise would not happen. In other words, there will be a myriad of smaller Fannies and Freddies, and government involvement will reach even deeper into the financial sector. Fannie and Freddie, and thus the taxpayer, has an alarming $5 trillion exposure to the mortgage market. To some, spreading out this risk might seem tempting, and a smart thing to do. But the fact remains that if a bank expects to lose money on a loan, so will the.
Taxpayers. playing around with structures and definitions will still not deal with the root problem government meddling in the housing market, playing fast and loose with our tax dollars, and central planning by the Federal Reserve. Banks have complex risk assessment strategies in place that help them forecast if a particular loan will make them any money or not. If they expect to make money, they will approve the loan. If they have doubts, sometimes they will ask for a cosigner to improve their.
Odds. you might do this willingly for a friend or a relative if you didnt mind losing some money on their behalf, but current government policies essentially force taxpayers to become cosigners for risky borrowers that are complete strangers, who the banks have already determined to be bad risks. Taxpayers have no choice in the matter because politicians decided a few decades ago that dangling homeownership in front of more people seemed like a good way to garner votes.
That was sold to voters as a compassionate gesture to the poor and beneficial to society as a whole. After all, how could giving more Americans an ownership stake in society be bad? The combined policies of loose credit and government backing increased the demand for housing and drove prices sky high. When the housing market heated up to the breaking point everything came crashing down. Those suddenly facing foreclosure saw the reality of government compassion. Truly, when government offers you a gift, you should eye it with.
Great suspicion. Another tragedy is that many job seekers are now tethered to their locations because of upside down loan obligations. It takes a lot of effort with their bank and damage to their credit scores to figure out how to get out and move to a place where there are jobs. Will the government now be seeking ways to subsidize renters in some way because of this lack of mobility? Some think so.
My hope is that for the long term stability and health of the economy, the government will extricate itself from the market altogether and let it normalize. My fear is that in its usual misguided efforts at solving one crisis, it will create a thousand others. Thanks for calling this update. A new update is placed on this number, 8883221414 every Monday morning. The written text can be found on my website house.gov/paul under the heading Texas Straight Talk. Thanks for calling.
Former Fannie Freddie Officials Face Significant Fraud Lying Charges
Bjbjq p(gt;a judy woodruff: the people who were running two mortgage giants when the housing bubble burst were formally accused today of civil fraud. The Securities and Exchange Commission filed a lawsuit naming six former executives at Fannie Mae and Freddie Mac. The six were accused of lying about how deeply Fannie and Freddie had invested in securities backed by risky home mortgages. ROBERT KHUZAMI, Securities and Exchange Commission: In two separate complaints, we allege that these individuals caused their companies to materially.
materially misstate their subprime mortgage exposure in filings with the sec, through public statements, through investor calls and media interviews. JUDY WOODRUFF: The head of the SEC’s Enforcement Division, Robert Khuzami, spoke in Washington, and said the charges go right to the top. ROBERT KHUZAMI: Our suits reach into the corporate boardrooms and name the former CEO of Fannie Mae, Daniel Mudd, and the former chairman and CEO of Freddie Mac, Richard Syron. JUDY WOODRUFF: Together, Mudd and Syron, seen here at a congressional.
Hearing in 2008, are the highestprofile individuals to be accused in the financial crisis. four other senior executives were also named, two from each company. Fannie and Freddie own or guarantee about half of all U.S. home mortgages. But the housing meltdown brought them to the brink of collapse, and the government seized control of both in September 2008. Since then, the federal government has lent the firms more than $150 billion, the largest bailout of the financial crisis. Mudd was fired from Fannie after the federal takeover, and, today,.
He insisted the lawsuit should never have been brought. he said quote every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public. The SEC is wrong end quote. The institutions Fannie and Freddie entered agreements with the government today, accepting responsibility for their conduct, without admitting or denying the allegations. Federal criminal investigations are also under way into the two firms. And we take a closer look now at today’s charges.
With edward pinto. he’s a resident fellow at the american enterprise institute, and he served as executive vice president and chief credit officer for Fannie Mae in the 1980s. And Lynn Turner was chief accountant for the Securities and Exchange Commission from 1998 to 2001. He’s now a managing director at the consulting firm LitiNomics. We thank you both for being with us. Edward Pinto, to you first. Remind us before we talk about these charges of, what exactly was Fannie Mae and Freddie Mac’s role during the time.
Of this complaint, late 2006 to the middle of 2008, in the housing market? edward pinto, former Fannie Mae executive: Fannie and Freddie were the biggest players in the secondary market. They controlled a substantial portion. Another substantial portion was controlled by private mortgagebacked security issuers. But they had a very large participation in the marketplace and were buying large quantities. JUDY WOODRUFF: Secondary market meaning? EDWARD PINTO: Primary market is the origination. Secondary market is what happens to the loans.
After they’re originated, who ends up with the loans. judy woodruff: now, lynn turner, how significant are these fraud charges? LYNN TURNER, former Securities and Exchange Commission chief accountant: I think these are very significant. I think they’re a very positive development for investors, in that it shows, in this case, the government is willing to go after and hold accountable the people at the very top when they don’t fully disclose very important information to those who are buying stocks, making investment in this type of company.
Judy woodruff: but it has taken several years to bring these charges. what does that say to you? LYNN TURNER: You know, having been involved with SEC investigation and the legal process, it is not unusual that it would take this long to start an investigation, issue subpoenas, get documents, go through them, go back and forth in the court with the defense attorneys. So I don’t think this is a particularly long period of time. It’s just that the wheels of justice grind slowly at this time. And I do think the SEC has within a reasonable.