cozcommunio

For years the two government sponsored quasi-govenment public/private agencies Fannie Mae and Freddie Mac were suppose to be there to support the housing market.  Now it turns out the private part was to make money for their executives and stockholders (yes they are publicly traded stock companies) and the public part is that after over leveraging, mismanagement and accounting fraud it is now time for the taxpayers to provide billions in bailout money.  Heads I win, tails you lose.  Bill Clinton’s political buddy, Franklin Raines, who was CEO of Fannie Mae for a few years was forced out after accounting problems.  But don’t worry about Raines before he left he was able to pocket more than $20 million  in bonus and compensation in 2003 before he left.  How were these two entities allowed to grow in power and get in to the great mess they are now.  They had plenty of friends: politicians both Dems and Reps, Walls Street banks and even left wing newspaper columnist like Paul Krugman.  A few weeks ago Paul Gigot, the editorial page editor of the Wall Street Journal, wrote a great article naming names and giving a good overview of how these housing agencies got into such a mess. There main reason for being was to subsidies housing but in the end their power was used to help politicians and line the pockets of the politically connected.  As Gogot writes:

“… about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points[7/100 of 1%] on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie’s left-wing defenders are underwriters of crony capitalism, not affordable housing. So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn’t exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt. The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine “change,” not that either presidential candidate seems interested.”

Here is link to complete Gigot column:

http://online.wsj.com/article/SB121677050160675397.html

This entry was posted on August 15, 2008 at 2:17 pm and is filed under Accountability & Transparency, Markets & Freedom. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.