Friday, December 25, 2009

The Fannie / Freddie bailout is worse than expected

On December 24 I stumbled across an urgent call from Jane Hamsher and Grover Norquist. They called for the immediate resignation of President Obama's Chief of Staff, Rahm Emanuel. Their reason was the linking of corruption to the Administration with Rahm in the middle of it. Furthermore, they were concerned that the alleged corruption related directly to an anticipated doubling of the September 2008 bailout of Fannie Mae and Freddie Mac to happen before December 31.

With the passing of 24 hours, I find that Hamsher & Norquist were wrong. The Treasury isn't doubling the Fannie / Freddie bailout. They've decided to give them no limit whatsoever!

The Treasury announced the heart their plans on their website on December 24:

At the time the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship in September 2008, Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth. Treasury is now amending the PSPAs to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years.

Adding insult to injury, it appears that at exactly the same time Treasury announced a remake of the 1981 Steve Martin classic - with the 2009 version to be named Benjamins from Heaven - the US Housing regulator approved huge bonuses for the leaders of these failed companies.

Filed on Christmas Eve, just ten minutes before Santa landed... Reuters reported:

The U.S. housing regulator has approved pay packages for the chief executives of mortgage finance companies Fannie Mae and Freddie Mac in the range of $4 million to $6 million, the Wall Street Journal said, citing people familiar with the matter.

It is clear that there is absolutely no shame in Washington. Needless to say, it's pretty obvious why these two decisions were announced on Christmas Eve.

Ironman is also discussing this.

Tim White

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