Posted on 09/12/2002 10:50:39 AM PDT by AdamSelene235
CAREERS & MONEY
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MONEY MATTERS Balancing ActFannie Mae Projects a Happy Image. But as Its Debt Grows Bigger and Its Executives Get Richer, Should Taxpayers Start to Worry?By Ross Guberman Ross Gubermans last article for The Washingtonian, Running From the Law, won a Dateline Award from the Society of Professional Journalists. His e-mail address is rossguberman@hotmail.com. Congressman Christopher Shays was lying in bed one night last March and told his wife he was about to take on a new battle. He said the Enron scandal had gotten him thinking about Fannie Mae and Freddie Mac, the two government-chartered housing-finance corporations. They were the only Fortune 500 companies that didnt have to tell the public about their financial condition. He had mentioned the problem to a couple of staffers and allies on the House Committee on Financial Services. The next morning, before he talked to anyone else, his office got a call from Duane Duncan, Fannie Maes chief lobbyist. Duncan said hed heard about Shayss comments and wanted to set up a meeting with Frank Raines, the head of Fannie Mae. He wondered if Shays liked Raines enough for such a meeting to be fruitful. Another lobbyist approached Shays and said, Youre making a lot of people unhappy with this. Shays, a Republican from Connecticut, knew Fannies antennae stretched all over town, but he never expected that a few stray remarks would trigger such a reaction. Figuring he was on to something, Shays teamed up with Edward Markey, a Massachusetts Democrat, on a bill to apply the governments disclosure rules to Fannie Mae and Freddie Mac. The more I look, Shays says, the more convinced I am that theyre not eager to disclose what they do. Theyre wonderful organizations, but theyre trying to protect a privilege that could ultimately be destructive to them. Shays broke a political rule in Washington: Dont mess with Fannie Mae. Wealthier than most nations, Fannie Mae is known to try to devour anyone who crosses it. Thats fine with Fannie Maes supporters, who say it has helped millions fulfill the dream of homeownership by combining public spirit and private innovation. Critics contend that Fannie Maes public face of heartwarming largess masks plenty of private greed. Fannie, they claim, is a company with the lowliest of missions: to juggle politicking and public relations so that its blend of subsidies and privileges remains intact. Months of interviews with Fannie Mae executives, employees, and customersas well as analysts, public officials, advocacy groups, and othershelp explain why people become so impassioned when they look into Washingtons largest shareholder-owned company. No one denies that Fannie provides benefits to homebuyersthe battle is over whether these benefits are worth the cost. A creature of Franklin Roosevelts New Deal, Fannie Mae was born as the Federal National Mortgage Association. In an era of unemployment and foreclosures, FDRs brainchild provided local banks and thrifts with money needed to finance home mortgages. Almost 70 years later, Fannie Mae is one of the worlds biggest financial-service companies. Eight trillion dollars pass through its coffers yearly. In 1968, Lyndon Johnson, looking to spin the agency off the governments budget, converted it into a public-private hybrid called a government-sponsored enterprise. Today Fannie Mae operates under a congressional charter but also generates profits for outsiders who hold more than $70 billion of its stock. In the past two years, as investments in high-tech and many other sectors of the economy have plummeted, Fannies stock has gone from $50 a share to more than $70. Its earnings are expected to go from about $6.15 a share this year to almost $7 next year. Fannie Maes sole competitor, Freddie Mac, was created in 1970 so Fannie Mae wouldnt monopolize mortgage buying. In practice, they march in lockstep on Wall Street and Capitol Hill. Freddie has remained smaller and quieter, and its stock also has performed well. Since mid-2000, the share price has increased from $40 to more than $60, giving Freddie a market capitalization of about $40 billion. At Fannie Maes helm is another FDRFranklin Delano Raines. A Harvard-educated Rhodes Scholar, a Bill Clinton budget chief, and the first African-American chief executive of a Fortune 500 company, Raines was considered a possible running mate for Al Gore in 2000. Fannie Maes headquarters, on Wisconsin Avenue above Georgetown, are modeled after the Governors Mansion in Colonial Williamsburg. They recall a manor house; limousines wait in a cobblestone circular driveway. Walking past electronic card readers, thousands of employees fill the companys three labyrinthine buildings. A trading pen, complete with earphones and ticker tape, adds a touch of Wall Street to the mix. Fannie Mae has made the best places to work lists of Working Mother and The Washingtonian. Employees enjoy weight-loss classes, concierge service, and on-site catering and emergency child care. Retention of women and minorities is high. Although the company retains ties to the government, the pay scale isnt among them: Raines made about $15 million last year in compensation and stock options. One of his predecessors received a $27-million severance package. For Fannie Maes rank and file, morale is as strong as the salaries and benefits. Employees suggest the good cheer comes from knowing that their spreadsheets help move people into homes of their own. As much as Fannie Maes advertisements feature youngsters chasing puppies in front of freshly painted Colonial homes, the company has never loaned anyone money to buy a house. By law, Fannie Mae and Freddie Mac buy only loans made by banks or other lenders.
These transactions, known as the secondary-mortgage market, have helped make home loans a good investment. Thanks to them, Fannie bought or guaranteed $600 billion in mortgages last year and made $6 billion in profits. Fannie Mae keeps mortgage funds flowing. Although todays financial markets could handle that job, the companys ability to borrow trillions cheaply helps it finance loans Americans like most: 30-year, fixed-rate mortgages with low down payments. Fannie Mae also has worked to streamline how you get a mortgage. It developed what it calls DeskTop Underwriter to eliminate paperwork, appraise property values, and tell you quickly whether you qualify. Raines says such innovations can save home buyers as much as $1,000. The biggest plus: Fannie lowers mortgage rates. If you turn to the mortgage columns in the newspaper, the conforming mortgages on the leftthe ones Fannie and Freddie can buyare typically a quarter of a percent cheaper than the jumbo loans on the right (this year, loans for more than $300,700). For the average loan Fannie buysa mortgage of $118,000that reduction saves about $19 a month. tAs something of a miracle from a public-policy standpoint, says CEO Frank Raines, reflecting on his company as he sits at a conference table near Fannie Maes executive suites. The miracle didnt fall from the sky. As one government official puts it, the company shouldnt congratulate itself for winning a race that it started a mile ahead. During a congressional hearing last year, Fannie Maes chief financial officer, Tim Howard, was asked whether Fannie enjoyed special benefits over the rest of the housing-finance industry. I think thats a complicated subject, Howard said. Told by a congressman that the answer was almost arrogant, he conceded, We are given different opportunities from those which our competitions been given. Theres a reason Howard waffled: The government fuels much of what Fannie and Freddie do. Take the companies low borrowing costs, which allow them to shave that quarter of a percent off your mortgage. Why do investors charge Fannie and Freddie such low rates for their bonds? Its not that the companies are famously well managed. Its that investors are sure theyll be repaidif by no one else, by the US government. Uncle Sam would never let Fannie and Freddie default on more than a trillion in bonds, the thinking goes, because the government created them in the first place. That means if housing prices crash or either company stumbles, the taxpayers could be on the hook for hundreds of billions. Its as if the public had cosigned Fannie and Freddies debt, says Lawrence White, a New York University business-school professor and former Freddie Mac director. To pay for a very small cut in mortgage rates, White says, the taxpayers bear the risk of a massive bailout. The government has come to Fannies rescue before: Fannie lost $1 million a day during the early 1980s, requiring tax relief and other interventions. A few years later, taxpayers bailed out the Farm Credit System, a government-sponsored enterprise for agricultural loans. Together, Fannie Mae and Freddie Mac have a trillion and a half dollars in assetsmore than the gross domestic product of every country but Japan, Germany, and the United States. Their combined debtalso measured in the trillionsis poised to outpace that of the US government. Says Republican Representative Richard Baker of Louisiana, who chairs the House subcommittee overseeing Fannie and Freddie: The taxpayers are living under an enormous rock suspended by a single rope. Once it breaks, theres no recovery. Some observers think the rope is fraying. Earlier this year, the Wall Street Journal editorial board likened Fannie and Freddie to failed energy trader Enron, attacking the two companies exploding debt and terrible financial disclosure. The Economist called Fannie and Freddie arguably the most worrying concentrations of risk in the global financial system. A Fannie Mae executive insists the risk of a taxpayer bailout is so remote as to be unquantifiable. Why? The government created the Office of Federal Housing Enterprise Oversight solely to keep Fannie and Freddie out of trouble; mortgages are relatively safe assets; nationwide, the price of homes hasnt gone down in decades; and no one beats Fannie and Freddie in managing interest-rate fluctuations or defaults. Fine, say critics, but Fannie would not be the first giant to claim invincibility, only to collapse. Thats an even bigger worry, they say, because the more Fannie grows, the louder it complains that any attempt to cut its ties with the government is a tax on homeownership. Take Fannie Mae and Freddie Macs right to borrow $2.25 billion from the Treasury. Thats hardly enough to salvage a trillion-dollar company, but the line of credit is seen as a symbol of the governments commitment to Fannie Mae and Freddie Mac. Its a powerful symbol. Two years ago, when Gary Gensler, a top Clinton Treasury official, supported taking the right away, Fannie Mae CFO Tim Howard called him irresponsible and antihousing. A Fannie Mae spokesperson said the fallout from Genslers remarks would prevent 206,000 Americans from buying a home that year. Rick Carnell, also a top Clinton Treasury official at the time, wasnt surprised by the fury. Years before, when he was drafting legislation as a banking-committee staffer, Fannie tried to get him to include language suggesting that the government backed its debt while it denied the same to the public. He refused. Someone should pounce on Fannies double talk, he says. Fannie tells Congress, Dont worry, Uncle Sam is not on the hook. Then it turns around and tells Wall Street, Dont worry, Uncle Sam really is on the hook. Another of the governments gifts to Fannie Mae has caused controversy: It doesnt have to pay income tax to DCa privilege that costs the District hundreds of millions a year. McLean-based Freddies exemption costs Virginia a bundle as well.
In 1994, when Lightfoot tried to pass a resolution to repeal the exemption, he was barraged by Fannie Maes lobbyists and its favorite charities. The company threatened to leave DC if he prevailed. Christopher Shays found another of Fannie and Freddies privilegesexemption from Securities and Exchange Commission rulesharder to challenge than campaign finance. Theyre the only companies that dont have to describe their bonds and securities to prospective investors or pay fees to register themcosting the government millions of dollars a year. Nor have they had to file annual reports with the SEC, notify the public of major changes in their financial condition, or disclose when executives buy or sell company stock. Fannie claims it discloses much of this information anyway, but Representative Baker says, If those disclosures are voluntary, bank robbery is a charitable activity. In July, after the government dragged them kicking and screaming, both companies agreed to file annual reports and insider trades. Several governmental agencies have concluded that, taken together, these giftsthe implied backing, exemption from state and local taxes, exemption from disclosure and registration rulesare a taxpayer subsidy. Fannie calls the subsidy theoretical because the government has never sent the company a check. A better measure, experts say, is how much another company would pay to get the same deal. The Congressional Budget Office has tried to figure that out. The first time, in 1996, a Fannie spokesperson said, This is the work of economic pencil brains who wouldnt recognize something that works for ordinary homebuyers if it bit them in their erasers. Then in 2001, CBO did all it could to assuage Fannie and Freddies concerns and consult with independent economists before issuing the report. After receiving a courtesy draft, Fannie announced that the report should be completely disqualified from any serious consideration. Why the fuss? To start, CBO found that the subsidy to Fannie and Freddie is worth about $11 billion a year. Some object that many of those benefits go to the well-off. Rainess response: Talk to Congress. He has a point. Congress likes the idea of homeownership, and the mortgage-interest tax deduction and other housing tax breaks cost the government $100 billion a year. What Fannie really wanted to suppress was another CBO finding: that for every $3 of the subsidy that the company passes on to homeowners, it keeps almost another $2 for its stockholders and executives. In other words, taxpayers are subsidizing billions of Fannies profits each year. This is worse than $600 toilet seats, says economist Bert Ely. Its a slush fund, says consumer advocate Ralph Nader. Fannie Mae and its consultants insist the company gives back more than it takes. But Federal Reserve chief Alan Greenspan and the Treasury Department have endorsed CBOs findings. Says Rick Carnell, the former Clinton Treasury official: Someone should ask Fannie, If the taxpayers dont subsidize you, why do you so object to giving up the special benefits you receive? rank Raines has told Fannies customers, the nations mortgage lenders, that Fannie is the Coca-Cola of the mortgage industry and they are the bottlers. An analogy that paints lenders as a mere afterthought doesnt sit well with people who have spent decades providing mortgages in communities across the nation. It also stokes their greatest fear: that Fannie and Freddie want to exploit their cheaper borrowing costs to monopolize the housing-finance industry. Then, lenders claim, Fannie and Freddie will set whatever prices Wall Street wants. The lenders probably are more concerned about their own survival than about how much consumers will pay for loans. But its true that Fannie has decided that its mission to promote homeownership extends to vacation-home loans, refinance loans, home-equity loans, even reverse mortgages for retirees. A little bit of what they do allows people to own a home who otherwise would not, NYUs Lawrence White says. But they mostly help people buy a bigger house, a second house, or a fancier house. Lenders call it mission creep. They also complain that Fannie forces them to use its DeskTop Underwriter after they spent millions developing their own systems. They object that Fannie has tried to sell foreclosed homes directly and tried to provide life insurance to homebuyers as a public serviceuntil someone leaked a memo about how the program would increase the companys profits. And they lashed out when Fannie partnered with Home Depots upscale Expo stores to provide installment loansuntil critics scoffed that taxpayers shouldnt be subsidizing hot tubs and sunrooms. What worries lenders most is that Fannie spends millions each year on radio and print ads. Why does a company that serves mortgage bankers need to promote itself with the public? A Fannie spokesperson concedes its good for people to associate Fannie Mae with homeownership. A senior vice president suggests that the ads educate officials about Fannies good works. More advertising comes from the Fannie Mae Foundation, a charitable organization funded by Fannie Mae the corporation. Last year, the foundation gave out $34.8 million in grants. It spent more than that$44 millionon television outreach ads so consumers can request brochures about obtaining a mortgage. Housing advocates say Fannies foundation should be doubling the size of its grants rather than spending millions to provide people with information available elsewhere. Lenders offer another explanation: Fannie wants to brand its name with the public to prepare for the day when the company will lend to consumers directly. eople want us to be a passive little company that just buys and sells loans, complains Arne Christenson, a Fannie executive who once served as chief of staff to former House Speaker Newt Gingrich. Former Federal Reserve chairman Paul Volcker may be one of those people. In a recent speech, he said that Fannie and Freddies mandate originally wasnt to dominate the home-mortgage market. It was solely to develop a secondary market, and theyve gone way beyond that. To keep Fannie and Freddie from going even further, in 1999 a coalition of big banks, small lenders, home appraisers, and mortgage insurers formed an advocacy group called FM Watch. Its ranks include Mike House, a lobbyist at the law firm Hogan & Hartson, and Haley Barbour, former head of the Republican National Committee. FM Watch tries to pass itself off as a consumer watchdog group. Its anything but. Nor has the group passed or blocked anything on the Hill. What FM Watch does is fuel the debate over Fannie and Freddie by publishing critical reports and planting negative stories that knock the two behemoths off their game. In that, theyve done well. The Web site fmwatch.org gets more hits from Fannie employees than from anyone else. Fannie has to defend itself against FM Watchs accusations in speeches, in the press, and online. One executive said in an interview hed have a stroke if an FM Watch report wasnt removed from his sight.
Fannie claims that the episode was a public-relations stunt. Mortgage-industry sources confirm, however, that Fannie has threatened lenders that their business might suffer if criticism gets out of hand. Some see that criticism of Fannie as sour grapes. Democratic Representative Maxine Waters of California, a member of Bakers subcommittee, says, FM Watch is just jealous because their products arent as good as Fannies. And as much as the lenders gripe, they like selling their loans to Fannie and Freddie. Angelo Mozilo, CEO of Countrywide Credit Industries, says Fannie and Freddie have given us a liquid, organized market. If you took them away, it would be a disaster. But he adds that their ventures into the lenders market show a lack of respect for direct lenders, which has created mistrust. One reason for mission creep is that Raines has promised Fannies shareholders 15-percent earnings growth a year. Thats a bold prediction for any company. (Billionaire investor Warren Buffett sold his Fannie stock in response.) Its even more audacious because mortgages are expected to grow at only half that rate, and Fannie and Freddie already own or guarantee most of the nations middle-class home loans. To satisfy investors, critic Bert Ely says, Fannie and Freddie will eventually have to finance the entire middle-class housing market. In a confidential report last winter, Morgan Stanley analyst Ken Posner predicted that the companies borrowing advantages and management would soon drive many lenders out of business. Fannies executives appear confident that as long as Fannie makes it cheaper and easier to obtain a mortgage, consumers arent going to object. Publicly, Raines claims that the monopoly fears are hogwash. He says you can tattoo it on his forehead that Fannie will never try to lend to consumers directly; he adds that the mortgage market will grow fast enough to keep Fannie busy for years. More important, he says, while middle-class whites already own homes, many other Americans dont; by targeting those underserved borrowers, Fannie can be a positive social force while improving its bottom line. In March 2, 2000, a story in the Washington Post suggested that Fannie and Freddies policies were harming the ability of African-Americans and Hispanics to obtain mortgages. The bombshell came from William Apgar, then a top official at the Department of Housing and Urban Development, now a professor at Harvards Kennedy School of Government. Raines called a press conference to denounce the story. He also wrote a letter to the editor attacking Apgars qualifications and accusing the paper of journalistic malpractice. Raines has reason to be defensive. Although both HUD and housing advocacy groups have long said that Fannie and Freddie should do more to help underserved borrowers, the loudest voices have been those of FM Watch and libertarian think tanks not known for their interest in providing affordable housing. Raines insists that improving homeownership for all Americans is his top priority. Its not empty rhetoric: In addition to financing trillions of dollars in loans for targeted groups, Fannie is the nations leader in developing low-down-payment, flexible-underwriting, and other innovative programs for credit-impaired borrowers. Says Maxine Waters, who represents South Central Los Angeles: Im looking at this stuff day in and day out. Fannie has been very responsive in opening up opportunities for minorities and the poor. But the gist of the Post story was correct. Fannies good intentions aside, for years HUD has found that Fannie and Freddie lag behind private lenders in serving African-American borrowers and other underserved communities. A Fannie spokesperson says the company has pledged to do better. Former HUD official Bill Apgar retorts: Changing the numbers would be better than changing the perception of those numbers. The lagging numbers are not just embarrassing. Congress has spent a decade goading Fannie and Freddie to increase the proportion of their portfolios devoted to low-income and minority borrowers. In exchange for their benefits, Fannie and Freddie are supposed to be willing to make less profit from affordable-housing loans than from middle-class loans. Wall Street is not encouraging either company in that direction. Peter Wallison, former counsel to the Treasury and a resident fellow at the conservative American Enterprise Institute, says its impossible for the company both to maximize profits and to fulfill its public mission. Raines denies that the two tracks are incompatible, but he faces pressure from the competing constituencies. Fannies executives claim that outsiders focus on the companys political story more often than on its business. But Fannie Mae devotes so much effort to stifling dissent and preserving the status quo that it can be hard to know which is which. At Rainess disposal is the most formidable team of Washington heavyweights that corporate America has ever seen. Its all a matter of know-who, not know-how, complains Ralph Nader about Fannies higher ranks. Theyve perfected all the techniques of lobbying and pay massive salaries for Rolodex hiring to ensure against any change. Naders favorite example: Fannie Mae vice chair Jamie Gorelick, a well-connected Washington lawyer who earned almost $1 million in her first eight months on the job after serving as counsel to the Defense Department and deputy to former attorney general Janet Reno. Besides Gorelick, Raines, and former Gingrich aide Arne Christenson, other politicos have cashed in at Fannies executive suites. Running political campaigns is invaluable: Rainess predecessor Jim Johnson ran Walter Mondales 1984 campaign after decades as a Democratic kingpin. Coaching debates is worth something, too: Executive vice president Tom Donilon prepared Michael Dukakis and Bill Clinton for their campaign face-offs, and former general counsel Robert Zoellick prepped George W. Bush for his.
To support those public faces, Fannie spent more than $6 million last year to influence lawmakers and public officials. That includes the salaries of a sizable in-house staff and retainers paid to many of the citys most prominent law firms and lobbying shops. Fannies executives often drop the names of various powers that bea chumminess Ralph Nader says was also true of the savings-and-loan industry before it collapsed. These politically charged executives, directors, and lobbyists glide into campaign mode whenever Fannies status is threatened. After the Wall Street Journal criticized the company last spring, Fannie called the editorials a smear job and orchestrated protest calls. Top executives Arne Christenson and Chuck Greenerwho knew editorial-page editor Paul Gigot from conservative circlestraveled to Manhattan to mend fences. After sending around all these nasty letters and launching these incredible missiles, they tried to jolly us, Republican to Republican, says Susan Lee, who wrote the Wall Street Journal editorials. Christenson started the meeting by passing around old photos of Gigot and himself practicing tricks on the basketball court. The charm offensive didnt work. In June, the Journals board argued that taking on Fannie and Freddie would be President Bushs biggest challenge after toppling Saddam Hussein. To court lawmakers, Fannie holds fundraisers and stages public-relations events touting the number of mortgages Fannie has financed in their districtslike General Motors encouraging a senator to brag about how many constituents had bought its cars. Many on the Hill chuckled when Fannie elevated Duane Duncanthe Fannie operative who first called Christopher Shayss officeto lobbyist stardom: Duncan was chief of staff to Representative Richard Baker, Fannies nemesis in the House. Not all of Fannies lobbyists use a velvet glove. Congressional sources say the company has tried to get unruly Hill staffers fired. And after Baker proposed a stronger regulator for Fannie and Freddie two years ago, Fannie Mae hired a phone bank to call constituents on behalf of the Coalition to Preserve Homeownership, a front for the interests of Fannie, Freddie, real-estate agents, and homebuilders. Some members of Bakers subcommittee were enraged after they received anonymous boxes filled with thousands of letters from constituents protesting a so-called congressional proposal to raise mortgage costs. Fannie is adept at trying to smooth over such misunderstandings. On a single day in mid-October 2000, 11 of its employees, including Raines and other top officials, wrote checks for campaign contributions to Democrat Ken Bentsen of Texas, a key member of Bakers subcommittee. A week before, 14 employees contributed to the campaign of Virginias Chuck Robb, then on the Senate Banking Committee. And to keep the two parties in line, Fannie donated $1 million during the 2000 cycle and another $1 million for the 2002 cycle. That puts Fannie among the top ten corporate donors of so-called soft money, just after Microsoft. Says Charles Lewis, executive director of the DC-based watchdog group the Center for Public Integrity: Here you have an entity given extraordinary largess that throws around tons of money to maintain its cushy situation. Also disconcerting, some say, is Fannies nationwide network of partnership offices. The official line is that the local offices allow experimentation with innovative mortgage products, but a Fannie executive once admitted that the offices were a cheap way to expand Fannies political base. One of the first offices was in San Antoniohome to the late Democratic Representative Henry Gonzalez, then chair of the House Banking Committee. Controversy surrounds the Fannie Mae Foundation as well. It gives out more affordable-housing grants than anyone else in the country, provides millions to DC advocacy groups and cultural institutions like the Kennedy Center and Arena Stage, and sponsors the Help the Homeless walkathon and other charitable ventures. The foundation also helps Fannie Mae fight its adversaries. Although foundation CEO Stacey Davis claims that a Chinese wall separates the foundation from Fannies corporate interests, housing advocates and other critics accuse Fannie Mae of using the foundations grant money as a weapon. Its grant payola, says Nader. Fannie sprinkles millions around the District and then calls on those groups when the company needs to neutralize dissent. After Shays and Markey introduced their bill, grant recipients such as the National Urban League and the National Council of La Raza, which advocates for Hispanic-Americans, took a sudden interest in SEC disclosure rules and wrote to support the bills defeat. John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for more than 800 neighborhood organizations, says the foundation took away a $65,000 grant after he complained about Fannies poor record on affordable housing. (Fannie later reinstated the funding.) Reverend Graylan S. Hagler, pastor of DCs Plymouth Congregational United Church of Christ, told Congress that after he challenged Fannie about its zero-down lending policy, the foundation canceled an $80,000 grant to a nonprofit housing group he supported. He picketed Fannies headquarters and its annual meeting in Texas in response. A St. Petersburg Times study found that the foundations grant-giving favors groups affiliated with Fannies executives or in the districts of powerful politicians. Fannie denies that the foundation is a lobbying arm. Fannie Mae is a bit like the tobacco industry, Charles Lewis says. They use the foundation to try to put a happy face on what they do. The whole thing is part of a perpetual boondoggle so they maximize public risk and private gain. Thumb through Fannies press over the years and youll find lots of predictions that the companys critics are poised to force change. Although thats as unlikely now as in the past, Fannie has alienated many public officials who say theyre increasingly skeptical of what they consider the companys sloganeering and political subterfuge. Peter Wallison of the American Enterprise Institute thinks the government should be fighting Fannie and Freddies monopoly power just as it went after Microsofts. Wallison claims its hard to know whether the government controls Fannie and Freddie or they control the government. Some say the two companies treat OFHEO, the agency that monitors them, like a lap dog.
NYUs Lawrence White argues that Fannie and Freddie no longer need a subsidy: Its time to say, Thanks, guys, youve done well, but now you can go home and swim like everyone else. White thinks Fannie and Freddie could build on their expertise and reputation to continue financing mortgagesbut in a free market. In their place, he says, the government could tailor a far more efficient program to help low-income people buy homes. Critics ranging from libertarians to Ralph Nader have also endorsed full privatization, though Fannie executives dismiss them as existentialists and ideologues. Others have proposed keeping Fannie and Freddie out of the upper-middle-class market, curbing their subsidized borrowing, and ratcheting up the help they must provide to poor and minority homebuyers. ne voice the company cant ignore is that of Wall Street. A mortgage-industry analyst complains that because of the perception of Fannie Maes political risk, those who bought the companys stock in the past year have lost money. Fannie Maes stock, after going up in late 2000 and early 2001, has traded mostly in the $70-to-$80 range. Youd never know it from the way Wall Street pushes Fannie Mae as a strong buy. We speak with one voice, the analyst claims, because were spoon-fed by Fannies investor-relations department. He adds that because many analysts work for banks that clamor for Fannies underwriting business, a lot of cheerleading goes on in public but not behind closed doors. He says he wishes Fannie would sever its government ties and end the debate. Fannie denies any such change is in order. Asked about the various proposals, Raines says, You cant hurt Fannie Mae without hurting homeowners. Having hoped that Raines would draw on his government experience to broker a solution, some officials are disappointed to see him take such a hard line. They say meaningful discussion is impossible because Raines takes every concern personally and the company politicizes every dispute. One government official complains: Its not enough for them to disagreethey have to question your judgment and attack your motives, even imply youre just stupid. When Fannie is criticized, Raines concedes, its like theyre attacking one of our children. Were protective to a fault of our mission. As the Bush administration talks reform, Fannie is likely to fight back by turning to the public and to Capitol Hill. No one is picketing over Fannie Maes debt load or demanding that the government stop subsidizing loans for the middle class. Many policymakersamong them Democratic Representative Paul Kanjorski of Pennsylvaniathink the zeal to reform Fannie and Freddie is misguided. People marvel at what weve been able to do with homeownership in this country, Kanjorski says. He says hed like to use the companies public-private partnership as a model, say, for providing economic aid to distressed areas. Fannie Mae couldnt agree more. Critics say that reactionwhat one calls their smugness that theyre doing the Lords workis typical of Fannie Mae: talking a good populist game while living like kings. Despite all the noise, Raines says, the ratio of action to criticism is very low. If something were really wrong, wouldnt someone in the government do something? From the August 2002 issue. |
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LOL. My 401K offered a tech fund within weeks of the NASDAQ collapse. Great contra-indicator.
Hmmm! Could a Congressman from the insurance capital of the country and a member of the House Committee on Financial Services possibly have an ulterior motive here?
Another lobbyist approached Shays and said, Youre making a lot of people unhappy with this.
Masterful misdirection! No mention of all those who are ecstatic about Shays actions? I wonder why?
Possibly. Conflict is good, it brings truth to the surface. Why should a private corporation use the power of government to acheive a real estate monopoly?
Their privileges are miniscule compared to those of those leading the parade against them: Citigroup, JPM, BofA.
During a congressional hearing last year, Fannie Maes chief financial officer, Tim Howard, was asked whether Fannie enjoyed special benefits over the rest of the housing-finance industry. I think thats a complicated subject, Howard said. Told by a congressman that the answer was almost arrogant, he conceded, We are given different opportunities from those which our competitions been given. Theres a reason Howard waffled </>
Howard didnt waffle at all. The answer is right on target. Its detractors/competitors have different, far superior, privileges.
if housing prices crash or either company stumbles, the taxpayers could be on the hook for hundreds of billions. Its as if the public had cosigned Fannie and Freddies debt
What a joke. Bailouts of the very monetary elite railing against the GSEs occur every few years when their deadbeat clients fail (Mexico, Argentina, Brazil, S.E. Asia), but their afraid large scale consumer mortgage failures. Ha!
There are more people than the monetary elite questioning the GSEs. Furthermore, impure motives do not refute the validity of a person's arguments.
Even if JPM et al. pose greater injustice and risk to the taxpayers than the GSEs, this is not a reason to refrain from criticizing the GSEs.
Given the housing market is the sole prop holding up our economy right now, I find them relevant.
It shouldn't. However, the people who are leading the parade are playing the public for dupes. They over-hype the GSE issue, when the danger these money-center banks pose dwarf the GSEs. They have more dangerous privileges,more dangerous portfolios, more dangerous accounting preferences, frequent bailouts (always described as a bailout of the debtor for further misdirection for the stunningly naive), and when all else fails, the second most powerful man in the country is in their hip pocket.
AND THEY'RE STILL NOT SATISFIED. THEY RAIL AGAINST THE GSEs!!!!!
That's only true if it doesn't serve to misdirect public scutiny from the CANCER because they are worried about the pimple!
I am opposed to bailouts. Of course, if you don't bail them out liquidity for the housing market would dry up and the housing market would collapse.
What a crock!
Dismantling the Federal Reserve would be rather, uh, turbulent. No one is going discuss it unless there is a massive economic crisis. Save your arguments for then. In the meantime, why not start with the more tractible GSEs? Try pimple surgery before you attempt open heart surgery on the monetary system...A better solution would be a slow transiton to free market currencies like E-gold.
Look, why don't you find some interesting Fed/JPM articles and post them?
Why do you insist on hijacking every GSE article I post?
I don't even know how to post an article or what rules govern it.
I wouldn't call it highjacking. I rarely post to any subject other than one on financial issues. Whenever I see a financial posting, I comment. What do you mean by "hijcking." Do you mean I question whether GSEs are all that dangerous?
The rules are on the front page. You press the post buttom. HTML takes about 1 hour to learn.
I rarely post to any subject other than one on financial issues. Whenever I see a financial posting, I comment. What do you mean by "hijcking." Do you mean I question whether GSEs are all that dangerous?
No. I mean everytime I provide additional info on the GSE's, you essentially respond: That's nothing compared to JPM et. al.
Maybe so. But why not post some relevant articles and start a discussion on the subject.
So far in my last 6 or 7 posts I sketched out the conditions that would destabilize the GSEs: Deflation, pre-payments, defaults, etc. Skeptics like Southack have provided excellent counter-arguments. When they doctored their shock tests and deliquency rates started rising, I updated Freepers. Just about everytime, you changed the subject to JPM.
I'd love to know more about JPM. Why not collect articles on the subject and post them?
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