Ticking Time Bomb Explodes, Public Is Shocked

The Independent Institute ^ | 10 Sep 2008 | Robert Higgs

[oblomov]

Government cannot create wealth; it can only subtract it.

[Alia]

The trouble is, however, that now, even more than then, the American people have little interest in liberty. Instead, they want the impossible: home ownership for those who cannot afford homes, credit for those who are not creditworthy, old-age pensions for those who have not saved, health care for those who make no attempt to keep themselves healthy, and college educations for those who lack the wit to finish high school. Moreover, they want it now, and they want somebody else to pay for it.

This is a truth, and usually exactly what the Socialists throughout America clamor for. They don't think they are "socialists", they just think they're asking for their emotively-"earned" "40-acres and a mule".

[Ronin]

Bitter medicine, but not surprising.

Bread and circuses... The eternal curse of democracies.

[Kozak]

Might as well grab a loaf and get into the Big Tent while the show is still on....

[rbg81]

Great post! I especially love this line: votes are collared under democracy, not by talking sense but by talking nonsense. How true.....

[DB]

I wonder how long I have to get my “house in order” to weather the storm.

[mek1959]

I read articles like this and my instinct is to fight back...but against what? The socialist minded democrat party is hopeless and have the media promoting their idiotic plans. We have a public education system that now has us 4th from the bottom worldwide for math skills. We have a generation of XBox live behind us and the "worst" generation in front of us. This "worst" generation will utterly sink us and not care one iota. After all, didn't they pay into the "system" their $30,000 through payroll taxes to get $100,000's of health care? I try to resist being hopelessness, but then articles like these appear or the facts enter and I'm back to hopelessness.

I'm currently reading a book titled "The Forsaken" about people who immigrated from the US to the USSR in the 30's. Some just looking for a job and some, attracted to the idea of the "socialist utopia". Tens of thousands died chasing the facade of socialism. Looks like we're gonna repeat that here in the US as the federal government continues to grow and grow and grow and dictate more and more of what we can and cannot to. Try to open a business, you'll see what I mean.

Here's hoping for the best!

[Carley]

The people stealing billions from Fannie and Freddie need to be in prison, not advising Obama’s campaign.

[Skooz]

B-U-M-P everyone’s accusing me

[G.Mason]

" ... Are the politicians who construct these structures really such idiots that they cannot understand the logic of what they are doing? ..."

They understand exactly what they are doing.

They fully intend to be a permanent ruling class of a people who have lost the ability to care for themselves.

My fear isn't that these institutions will go belly up. My fear is that the hue and cry from the "government will fix everything" addicts will be for a more Utopian form of government.

A government where all the people have all they desire. A government that outlaws floods, hurricanes, sickness & death.

A government that makes pain & suffering a thing of the past. Where God is dead, and ignorance is rewarded with a free credit card, and a zero interest loan on a 40 acre estate.

A government like say ... Cuba, or the old Soviet Union, or even like China.

[oblomov]

This crisis will continue for several more years.

The sooner you get your financial house in order, the better.

Who knows what kind of crazy ideas a President Obama might implement with the aid of a Democratic Congress.

[oblomov]

I agree with your comments about what I call “the statist generation”. They will sink us, and believe that they are simply getting their due.

There will come a time (not so far away) when, despite our best hopes and intentions, it will be necessary to put our family flags above the country’s flag. I believe that currency controls are not far off.

[tbw2]

Because of concerns about a collapse like this, I am very glad we sold our Ginnie Maes earlier this year and are now debt free.
Prudent practice in normal times, now very wise planning. No more payments because of a stock with no more value.

[olezip]

The trouble is, however, that now, even more than then, the American people have little interest in liberty.

The trouble is, however, that there are no competency requirements for people to vote. They need to know nothing about the responsibilities and principles of democracy, the fundamental aspects of citizenship in the community, citizenship in the nation, and citizenship in the world.

Democrats and other elites want all the dregs and morons to vote without any understanding of cause and effect, responsibility, enlightenment, or knowledge; just vote as told especially for entitlements and other promises by the party of choice. To them there is no need to know how our system of government works.

There was a time when basic competence was required, was there not?

[IamConservative]

The sooner you get your financial house in order, the better.

Are there specific steps anyone would recommend for getting ones financial house in order? I have little debt and had no investments in the mortgage market and I'm still bathing in blood.

[WilliamofCarmichael]

Good news!

Congress and DOJ won't do anything but..

A few days ago lawyers from Coughlin Stoia filed a lawsuit on behalf of shareholders of Fannie Mae in federal court in Manhattan against four former or current Fannie officers or directors. The shareholders are alleging that "the four Fannie Mae executives made materially false and misleading statements about Fannie Mae’s business and prospects and misrepresented the Company’s financial statements which, in turn, artificially inflated Fannie’s share price."

I believe that share price increases determined the amount of bonuses.

[mek1959]

I agree with your term “statist” generation, my 75 year-old mother is one of them.

She's a liberal democrat and could care less about how this impacts her children or her grandchildren. By goodness, she “paid” into the system (though she really didn't) and now she's entitled to her due. It's sickening. That's why I call them the “worst” generation.

The generation before them aptly called the “greatest” generation would never view things the way the “worst” does. They would have continued to sacrifice for the good of others and the country. Not this generation, they'll vote themselves bigger increases if possible. Look who put Charlie Rangel in office all these years, “statists”.

I agree with the earlier post about getting our financial houses in order. Tough times are coming.

[snowrip]

I believe that share price increases determined the amount of bonuses.

...and it was the goal of management to DOUBLE the share price, irregardless of how it was done. The bottom line is this: Fannie and Freddie were run by liberals to make money, and part of that money was given to democrat politicians in a successful attempt to neutralize any federal investigation into the entire scam.

[snowrip]

From "Politics and the Fannie Mae Piggy Bank:Franklin Raines, Jamie Gorelick, and some very cooked books (NR Online, exerpted)

On May 23, 2006, as a jury in Houston deliberated the case against top Enron executives Kenneth Lay and Jeffrey Skilling, a little-known regulatory agency in Washington, the Office of Federal Housing Enterprise Oversight (OFHEO), released a study with the dryly bureaucratic title “Report of the Special Examination of Fannie Mae.” The document received far less attention than the news from Enron, but its conclusions were stunning. In meticulous detail, it outlined a culture of corruption at the Federal National Mortgage Association — better known as Fannie Mae — that rivals the most serious corporate scandals in recent years. In this case, however, the main players are Washington insiders — some of them prominent veterans of the Clinton administration — and the scandal’s effects could ripple through Congress for years.



Fannie Mae is the biggest single source of money for mortgages in the United States. From 1998 to 2004, the years covered by the OFHEO investigation, it was headed by former Clinton budget director Franklin Raines, whose top management team included former Clinton Justice Department official Jamie Gorelick, sometimes mentioned as a future attorney general in a Democratic administration. During that period, the report says, Raines and his team grossly overstated Fannie Mae’s earnings — to the tune of $10.6 billion — for the purpose of paying themselves big bonuses. “By deliberately and intentionally manipulating accounting to hit earnings targets,” the report says, “senior management maximized the bonuses and other executive compensation they received, at the expense of shareholders.”

In doing so, the report says, Raines and his team steered Fannie Mae far afield from its original mission, transforming it from a stable business into a risky one. Fannie Mae has its roots in the New Deal, when it was established to increase the amount of money available for mortgages. Over the years, its main business has been to issue debt and then use the proceeds to buy mortgages from lenders, allowing those lenders to give out new mortgages. Originally a government agency, Fannie Mae went private in 1968, with the goal of “increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans,” according to its mission statement.

But Fannie Mae is not just any private institution. It is congressionally chartered, meaning its existence is established in law, it does not have to pay state and local income taxes, and it is not subject to bankruptcy laws. It can borrow money at a lower rate than anyone else except the federal government itself. Given all that, there is a public perception that Fannie Mae is a rock-solid government institution. “There is an implied guarantee,” says Sen. John Sununu, a member of the Senate Banking, Housing, and Urban Affairs Committee who has sponsored legislation to reform Fannie Mae. “Investors think they are the next best thing to Treasuries.”

There’s no doubt that Fannie Mae succeeded in its original mission of increasing the amount of money available for mortgages. In the 1980s, it went a step further, essentially creating a new product when it bought up mortgages and bundled them for sale to investors as mortgage-backed securities. It was an extraordinarily profitable move for Fannie Mae, and good for the housing market, too.

But in the 1990s, the company moved in a much riskier direction. Fannie Mae used its borrowing power to buy up mortgages and hold them, making a profit from the difference between the low price it paid to borrow the money and the higher interest rate it received on the mortgage. It was potentially profitable, but it had nothing to do with helping low- and middle-income people buy houses. “It doesn’t do anything to support their core mission,” says Senator Sununu, “and it increases their exposure to interest-rate risks.”

But the OFHEO report suggests that none of that mattered to Raines, who had been a top official at Fannie Mae in the early 1990s before leaving to join the Clinton administration and then returning to Fannie Mae as chief executive in 1998. According to the report, Raines became obsessed with propping up Fannie Mae’s earnings per share, or EPS, even if he had to use creative accounting to make it happen. Raines set a series of increasingly higher EPS goals that, if met, would trigger bonuses for the executive team that far surpassed what they received in salary.

[Gritty]

...Raines and his team grossly overstated Fannie Mae’s earnings — to the tune of $10.6 billion — for the purpose of paying themselves big bonuses. “By deliberately and intentionally manipulating accounting to hit earnings targets,” the report says, “senior management maximized the bonuses and other executive compensation they received, at the expense of shareholders.”

Hmmm,... Harold Raines,... Harold Raines,....

... Oh, I remember. Isn't he advising the Obama Campaign on economics?

Why isn't he advising his prison cell mate on stock picks, instead?