I am going to have to post a lot of stuff to educate you. It is clear that a simple response is not going to work. Your responses show a great depth of ignorance about how Fannie and Freddie work and what happened in the mortgage crisis. So, you will have to give me some time to gather enough data to teach you what is going on.
Here is a start. This article was posted in the New York Post in the summer of 2008 long before the "November Surprise" of the economic collapse.
+++++++++++
The stock of mortgage giants Freddie Mac and Fannie Mae fell sharply this week. The drop not only shows how far they've fallen in investors' esteem - it calls into question both how the government regulates the companies and plans in Congress to milk the two to cover other housing outlays.
Fannie and Freddie were originally chartered by the federal government - and that's a big reason they've prospered for decades. Both buy mortgages from lenders and package them into securities that are sold around the globe, and also invest in mortgages and mortgage-related securities. But their borrowing costs are greatly lowered because it's assumed that the feds stand behind their debt.
But the subprime crisis has investors nervous about any mortgage-linked investment. Triggering Monday's sudden sell-off was a research report suggesting that an accounting-rule change would force both to raise tens of billions of dollars of new capital.
The drop was brutal: The two companies lost roughly 20 percent of their value. Then Jim Lockhart, the head of the Office of Federal Housing Enterprise Oversight, stepped in to calm the fears. He pointed out that his agency decides whether Fannie and Freddie are adequately capitalized - and the stocks regained about half their losses the next day.
But the real damage has been done. Investors are starting to see what some have warned about for years - namely, that both Fannie and Freddie are far riskier propositions than many, especially in Congress, have thought.
This "revelation" is long past due. Together, these entities underwrite about 80 percent of the mortgage-backed securities market. The failure or severe mismanagement of either one could have major consequences for the rest of the economy.
Why have years of warnings about Fannie and Freddie's financial condition largely fallen on deaf ears? Mainly because the two have built auras as invincible, all-knowing and essential parts of the economy. Their lobbying muscle is legendary in Washington. Even a series of major accounting scandals, which forced senior managers in both companies to resign, failed to really dent this image.
Increased investor scrutiny and regulatory oversight is long past due, and we can all be grateful if Monday's panic leads to this. The one good part of the Senate's housing bill would impose a stronger oversight of both Fannie Mae and Freddie Mac - which now is even more important if the two are to regain investor confidence.
Monday's price drop also shows how foolish it is for Congress to rely upon the two to pay for a deeply flawed housing bailout. Both the House and Senate are working on bills that impose a small fee on the mortgages that Fannie and Freddie hold in their investment portfolio. The Senate wants to use the money to refinance about 500,000 bad mortgages into ones with a federal guarantee; the House wants it for low-income housing programs.
Lawmakers were figuring the Freddie/Fannie investors wouldn't miss the money. But with investor confidence quite shaky after Monday, that looks like a terrible bet.
Instead of relying on those funds, Congress should modernize and strengthen both firms' regulator. That improved oversight would help to reassure the markets that future housing problems won't develop into crises that could threaten the viability of either firm or require a massive bailout with taxpayer dollars.
Both Fannie Mae and Freddie Mac are behemoths whose financial health is fairly precarious. As the market knows, both need tens of billions of dollars more in capital than they have. Monday's stock-price drop is a warning.
David C. John is a senior research fellow in economic-policy studies at The Heritage Foundation.
First appeared in the New York Post
http://www.heritage.org/Press/Commentary/ed071408a.cfm
++++++++++++++++++++++
OK, so note a few facts that can be gleaned from this article:
1)Fannie and Freddie were chartered by the Federal Government as pseudo "private" entities under heavy federal control.
2)Fannie and Freddie underwrite at least 80 percent of all home mortgages in the nation
3)The government oversight was failing
4)the government was so clueless about the impending disaster that they actually thought they could take more money that was in Fannie/Freddie and use that to arrange a sort of bail out/buy out of bad papers on bad mortgages in the market place. So, it is clear that the government and Wall Street knew that the bad paper/mortgage problem was out there. But, the government who oversees Freddie/Fannie was clueless about the weakness of Freddie/Fannie because they thought Freddie/Fannie could bail the system out.
"Monday's price drop also shows how foolish it is for Congress to rely upon the two to pay for a deeply flawed housing bailout. Both the House and Senate are working on bills that impose a small fee on the mortgages that Fannie and Freddie hold in their investment portfolio. The Senate wants to use the money to refinance about 500,000 bad mortgages into ones with a federal guarantee; the House wants it for low-income housing programs.
Lawmakers were figuring the Freddie/Fannie investors wouldn't miss the money. But with investor confidence quite shaky after Monday, that looks like a terrible bet."
The article's author was right. Not only was there no money in Freddie/Fannie, the Fed had to do what it had promised: Back up Freddie/Fannie. The Fed had to pump money into Freddie/Fannie rather than taking money from there to fix the problem...
Clueless goverment oversight....
5)"Fannie and Freddie were originally chartered by the federal government - and that's a big reason they've prospered for decades. Both buy mortgages from lenders and package them into securities that are sold around the globe, and also invest in mortgages and mortgage-related securities. But their borrowing costs are greatly lowered because it's assumed that the feds stand behind their debt."
The Feds stand behind the debts of Fannie and Freddie. That is terribly important to understand
6)"Then Jim Lockhart, the head of the Office of Federal Housing Enterprise Oversight, stepped in to calm the fears. He pointed out that his agency decides whether Fannie and Freddie are adequately capitalized - and the stocks regained about half their losses the next day."
"Increased investor scrutiny and regulatory oversight is long past due, and we can all be grateful if Monday's panic leads to this. The one good part of the Senate's housing bill would impose a stronger oversight of both Fannie Mae and Freddie Mac - which now is even more important if the two are to regain investor confidence."
Again, you can see good evidence that there is a government agency set up to monitor this and oversee Freddie and Fannie. Freddie and Fannie are goverment puppets.
7)"Monday's price drop also shows how foolish it is for Congress to rely upon the two to pay for a deeply flawed housing bailout. Both the House and Senate are working on bills that impose a small fee on the mortgages that Fannie and Freddie hold in their investment portfolio. The Senate wants to use the money to refinance about 500,000 bad mortgages into ones with a federal guarantee; the House wants it for low-income housing programs."
Quoted again to focus on another issue:
The Senate wanted to use Freddie/Fannie money to knock out 500,000 bad mortgages (toxic paper) into one bail out of sorts and have shock/toxicity swallowed by Fannie/Freddie. Why is that important to understand? You have to understand that Fannie/Freddie serve this purpose. They are used to insure the housing mortgage system.
Now, the House wanted to use the money they thought was available in Freddie and Fannie to use for "low income housing programs". Now, we are getting to one of the issues I noted that caused some heated disagreement:
The government uses Freddie/Fannie to guarantee loaning programs for the poor who otherwise can't get a home mortgage. This was started in the days of Bill Clinton. I will have to do some more digging for you for references on that starting time period.
So, when I say that they were forcing banks to make loans to people who can't pay them, this is what is meant:
1)Freddie/Fannie get a government mandate to guarantee mortgage loans made to poor people who normally can't get a home mortgage.
2)Freddie/Fannie and Government regulators go to banks with the program.
3)Some banks look at it as easy money: make the loans to a big eager population. sell the notes off to various programs which eventually ends up as bundled financial products that are owned by Freddie/Fannie OR which are insured/backed by Freddie/Fannie.
Now, I will have to do some more homework for your benefit. I need to find the issue of Clinton starting this program of "affordable housing for all Americans" and I need to find the names of all the crooks who left Freddie/Fannie with big bonuses and ended up in Obama's cabinet/administration.