Idaho's Weekly Journal of Local & National Commentary Week 2815


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by Free Market Duck

History of Fannie Mae and Freddie Mac reveal gross corruption, fundamental flaws
(July 17, 2008)

 The secret function of all central banking cartels -- from the simplest money changers of Jesus’ time to today’s complex Federal Reserve -- is to create clever monetary schemes by which to force fake money into an economy and transfer the wealth of citizens into the bankers’ pockets.  The bankers’ methodology is to cloak their scam in unintelligible VooDoo Economics and their moral philosophy is always an altruistic collectivist euphemism such as, “to save the nation,” or “help the poor.”

Washington, DC – Gather round, shut up, and pour yourself another hot cup of Rocket Java, girl friends.  Let’s look at today’s national socialist mortgage market:  Fannie Mae and Freddie Mac, which is currently teetering on a $5.3 trillion bankruptcy.  Yo-ho, yo-ho, a pirate’s life for me…

   In a USA Today article “Crisis at Fannie, Freddie bares fundamental flaws,” the authors discuss what a great idea it was to create these two socialist mortgage institutions to allegedly save the poor (altruistic reasons) and how they could be managed better by the federal government (national socialism) to stave off their impending bankruptcy.  The authors of the USA article put forth the tired old argument that what we need to save Fannie and Freddie from it’s current corruption and bankruptcy is management by “good socialists” instead of “bad socialists, as if there is such a thing as “good socialism” vs. “bad socialism.”  Nobody questions whether it is socialism per se that is the problem.  Nobody proffers the concept that the free market is the only moral and rational economic method by which to retain individual liberty, which is the basis for the functioning of a true free market economy.  Nobody points out that if one destroys individual rights, one destroys the market.

   Just when you think the USA Today authors get it, they skirt the moral philosophical premise of individual rights as the basis for a true free market and, instead, meander through a labyrinth of standard altruistic collectivist verbiage even though their empirical observation of Fannie and Freddie’s history is rife with huge special interest profits from blatant corruption.

   As the USA article starts out, with a lot of altruistic collectivist excuses and VooDoo Keynesian Economics:

   “Mortgage giants Fannie Mae and Freddie Mac like to portray their mission as something akin to George Bailey’s in the 1946 Frank Capra classic [movie] It’s a Wonderful Life.  By buying home loans from banks, they provide stability and liquidity to mortgage markets.  This helps average Americans, some of them of modest means, buy their homes.

   Recent events suggest a better comparison might be to The Wizard of Oz.  While Fannie and Freddie don’t deal directly with the home-buying public, they own or have guaranteed a staggering $5.2 trillion in mortgages.  This makes them like a pair of men behind the curtain pulling levers that keep the housing market humming.

   Now the curtain has been pulled back, exposing an ugly reality.  Despite years of warnings, the companies never set aside enough money to cover losses if the housing market turned sour.  That’s one reason the federal government readied a rescue plan for them over the weekend.  These companies are simply too important, not just to housing but to the entire economy to be left to flounder.

   While the size of this bailout plan – which includes an extended line of credit from the Federal Reserve and authority for the government to buy shares in one or both companies – is remarkable, bailouts have in fact long been part of Fannie and Freddie’s business model.

   Since they were chartered as government-sponsored, publicly-traded corporations four decades ago, they have used their lobbyists and political allies to bail them out of minor pinches.  When critics suggested, say, that they should be required to report to the Securities and Exchange Commission like other corporations, or pay state and local taxes, or increase their capital reserves, their influence-peddling machine went into action.”

   The authors go on to suggest that what is needed is more management by the federal government.  Buzz, wrong.

   Note what is really going on between the central banking cartel, the Federal Reserve, and Fannie and Freddie.  The Fed central bankers provide the fake paper money, printed up out of thin air, while Fannie and Freddie provide the vehicle, the pipeline, by which the central bankers inject their fiat currency into the market.  The central bankers earn interest on the principal they created out of thin air.  So does Fannie and Freddie.  Plus, the members of Fannie and Freddie receive huge salaries and bonuses.  All to “save” or “help” the poor home owner who allegedly could not obtain private mortgage money – which, as we know from today’s subprime slime, most of them should not have anyway. 

   What a clean, clever, and creative scam by the federal central bankers and their federal buddies at Fannie and Freddie, who, by the way, continually oscillate between robbing everybody as Congressmen and then robbing everybody as highly paid employees at Fannie and Freddie.  That’s why Congress does nothing to stop this National Mortgage Robbery.

   Read the following history of Fannie and Freddie, compiled by USA Today, and note how corruption has increased:

1938:  The National Mortgage Association of Washington is chartered to increase the liquidity in the mortgage market by creating a secondary market.

1949:  Fannie Mae begins to buy and sell loans guaranteed by the Veterans Association.

1954:  The association is converted into a mixed ownership corporation, partly owned by private stockholders.

1968:  The association is split in two:  Fannie established as privately owned, while the Government National Mortgage Association (Ginnie Mae) is created within the Department of Housing and Urban Development.

1970:  Fannie Mae joins the New York Stock Exchange and is authorized to buy conventional mortgages.  Congress creates the Federal Home Loan Mortgage Corp. to provide liquidity to the mortgage market using private capital.

1971:  Freddie Mac creates the Mortgage Participation Certificate, now the conventional mortgage-backed security.

1982:  Fannie Mae funds one out of every seven U.S. mortgages.

1984:  Freddie Mac distributes 15 million shares of participating, preferred, non-voting stock to individual member savings institutions.  It also tops $100 billion in home financing.

1989:  Freddie Mac becomes listed on the New York Stock Exchange.  The Financial Institutions Reform, Recovery and Enforcement Act also establishes a new governing structure for the company.

1992:  Fannie Mae becomes the largest issuer of mortgage-backed securities, surpassing Freddie Mac and Ginnie Mae.

1996:  Fannie Mae marks its 10th-consecutive year of record earnings.

1997:  Freddie becomes official name.

2001:  Stock price peaks at about $87.

2002:  Freddie Mac is required to register stock with the SEC for the first time.

2003:  Freddie enters into a consent order with the Office of Federal Housing Enterprise Oversight (OFHEO) and pays a $125 million civil money penalty for understating its 2002 earnings by $5 billion.

2004:  Stock price reaches a record $70 a share in December.

2006:  Freddie Mac pays a penalty of $3.8 million to the Federal Election Commission for donating money to candidate Michael Oxley, chairman of the Financial Services Committee, who was running for federal government offices.  SEC fines Fannie Mae $400 million for accounting manipulation from 1998 to 2004.  In this period, executives allegedly received more than $90 million in bonuses.  SEC asked Fannie Mae to restate its earnings from 2001, resulting in corrections of $11 billion.  Fannie Mae also violated two accounting regulations regarding costs of prepayment on loans and derivatives the company used to lower its portfolios risk.

2008:  Fannie and Freddie are currently teetering on the edge of a $5.3 trillion bankruptcy, possibly tipping the U.S. economy into a Depression larger than the 1930s Great Depression since they currently hold more than 50% of U.S. mortgages, which are defaulting at record rates.

   And these are the two corrupt GSEs (Government Sponsored Enterprises) that the Federal Reserve and Sec of Treasury Hank Paulson are doing everything possible to keep alive.  Why?  Because Fannie Mae and Freddie Mac are huge monetary pipelines through which the U.S. central bankers, the Federal Reserve, conduct their monetary scams to rake in billions and billions of dollars in profits, effectively transferring the wealth of Americans into the pockets of the bankers.

   The above scenario of central bankers and their buddies at Fannie Mae and Freddie Mac is not one of free market capitalism.  It is outright robbery of the taxpayers and can best be described as corporate welfare through a nationalized, socialized mortgage system.  Welcome to Keynesian VooDoo Economics which is simply socialism on the installment plan.  The solution:  get back to constitutional money, a 100% gold standard. – FM Duck

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