As many of us remember, Clinton, at least ostensibly to save money, went from long to short in issuing bonds and notes to finance the Federal deficit, meaning it became somewhere between difficult to impossible to buy 30 year T-bills. Fannie and Freddy, being Government sponsored Enterprises with implied, but not explicit, guarantees for their paper stepped into the gap and started issuing long term mortgage backed securities, mostly backed by substantially worthless subprime mortgages. Nevertheless, those securities were treated as AAA investment grade due to the implied Federal guarantee by the rating agencies, which did not inquire about the soundness of the underlying paper. Hence, the substantially worthless Fannie/Freddie securities were in turn purchased by multiple pension plans and other institutions, all to the tune of about 4 $$ trillion, IOW about 4 $$ trillion of queer sold as AAA investment grade securities. Thus, when the whole thing collapsed in 2007-2008, the entire world economy was at risk, and we got TARP.
TITLE ITROUBLED ASSETS RELIEF PROGRAM (required 'Congressional Oversight' sections listed)
Sec. 101. Purchases of troubled assets.
Sec. 102. Insurance of troubled assets.
Sec. 103. Considerations.
Sec. 104. Financial Stability Oversight Board.
Sec. 105. Reports.
Sec. 107. Contracting procedures.
Sec. 108. Conflicts of interest.
Sec. 111. Executive compensation and corporate governance.
Sec. 116. Oversight and audits.
Sec. 118. Funding.
Sec. 119. Judicial review and related matters.
Sec. 121. Special Inspector General for the Troubled Asset Relief Program.
Sec. 125. Congressional Oversight Panel.
Sec. 127. Cooperation with the FBI.
Sec. 129. Disclosures on exercise of loan authority.
In HR 1424, there are enough rules, regs and CONGRESSIONAL OVERSIGHT REQUIRED that not one Thin Dime should have been 'misspent.' So if anything crooked did go on Congress should look in a mirror. They dropped the ball -- again.
REFERENCE Treasury Secretary Henry M. Paulson Jr. left his suite at Manhattans Waldorf-Astoria Hotel Sept. 15, 2008, after a sleepless night, feeling hed done all he could to minimize the damage from that mornings collapse of Lehman Brothers Holdings Inc.
At meetings concluded the previous evening at the Federal Reserve Bank of New York, Paulson and executives of the worlds largest financial institutions worked to head off two threats they anticipated in the wake of the biggest bankruptcy in U.S. history. The bankers spent hours trying to unwind Lehman-related credit-default swaps, bets made on whether companies will repay their debts. And with the help of a rule change by Federal Reserve Chairman Ben S. Bernanke, they were confident bank-to- bank loans would keep flowing.
Nobody accounted for Bruce R. Bent. The 72-year-old who created the first money market fund in 1971, the Reserve Primary Fund. He touted it as an investment so safe it would lull clients to sleep -- so safe that, even with $785 million in loans to tottering Lehman, Bent and his wife had jetted to Rome that Sunday evening to celebrate their 50th wedding anniversary.
Bents $62.5 billion fund had lent money to Lehman, mostly by acquiring short-term notes called commercial paper, used by companies to pay everyday expenses such as utilities and payroll and by Wall Street to fund everything from takeovers to the mortgages it turns into bonds. Money funds like Bents are the biggest buyers of commercial paper, purchasing about 40 percent of outstanding issues, according to the Fed.
It was commercial paper and the $3.6 trillion money market industry that traded the notes that came close to sinking the global economy -- not a breakdown in credit-default swaps or bank-to-bank lending. The bankers were focused on saving themselves, and commercial paper, as invisible as the air they breathed, never came up at the meetings, according to one of the two dozen executives invited to the New York Fed by its president, Timothy F. Geithner, 48, and Secy Paulson.
That ties a lot of it together. I remember Clinton reducing the maturity of our debt and therefore interest payments. I never thought that it would make MBS more attractive.