Thursday, May 12, 2011

Mortgage Reform? This Proposed Legislation Changes NOTHING

Legislation is being introduced on a bi-partisan basis that purports to replace Fannie Mae and Freddie Mac with five private firms:

"Two lawmakers, a California Republican and a Michigan Democrat, are set to unveil legislation Thursday to replace mortgage giants Fannie Mae and Freddie Mac with at least five private companies that would issue mortgage-backed securities with explicit federal guaranteesLINK

Someone please explain to me how THIS changes anything?  A Government guarantee only enables extreme moral hazard.  And moral hazard is moral hazard whether it's a giant Government beast being completely plundered and riddled with fraud under the stewardship of political animals like Franklin Raines or administered by total private sector thieves like Angelo Mozilo or Charles Keating.  The only difference is that one - Raines - is a product of the political system whereas crooks like Mozilo and Keating buy their own politicians.

Both set-ups are recipes for disaster and massive transfer of middle class taxpayer wealth to those who benefit from the explicit federal gurantees.

Fannie Mae just recently posted another massive loss and has requested another $8.5 Billion in aid from Obama - this is at least the fourth time FNM will have been given your tax money, the total is now in the 100's of billions, and it's 3x larger than the request made just a few short months ago  LINK  There's surely some correlation between between the FNM/FRE bailout requests and the Treasury's repeated requests to lift the debt ceiling.

Here' my explicit guarantee:  if FNM/FRE are transferred into 5 private companies, we will see 5 times as many bailout requests every quarter and we will get to subsidize the salaries and bonuses of the people running those companies just like we do for the people running Wall Street banks.  There will be no difference.  Fannie and Freddie should be completely shut down, let the banks (shareholders and upper management) who dumped the crappy loans onto the Government balance sheet take the losses and the Government should get the hell out of the business of making loans to homebuyers.

Update -  here's what Government guarantees/moral hazard have created:   Delinquent homeowners in NY/NJ go three years living with their defaulted mortgage without making any payments.  Here's the LINK


  1. Armstrong-Bonfire of the Real Wealth

    This is a chart illustrating the effect of long-term deflation/devaluation of bond investments caused by what is portrayed as inflation. It is the key to understanding gold and private assets in the future. There is just no possible way to even break even investing in government debt of any nation. Selling public debt is the greatest fraud of all time and it is no different than what Madoff was accused of and sentenced to die in prison.

    As long as government is the ONLY party who can file charges, there will be corruption and a thriving oligarchy to control government to (1) prosecute enemies and (2) to prevent their own prosecution. We have to understand the nature of the beast in order to prepare for the future based upon simply what always unfolds under these circumstances. This is the real driving force behind the shift from PUBLIC to PRIVATE assets on the horizon.

    Just as the Borgia, Medici, and a host of Kings over the centuries, all sought to grab the Papacy and install their handpicked candidates who were never men of God. They exploited religion to justify their desired power just to control the politics. Remember Thomas Becket who was a friend and appointed archbishop by the king to allow the king to tax and prosecute clergy for money. Becket was not a priest, but he found religion and opposed the king costing him his life right in church. The same is true today with the bankers who have infiltrated government to ensure their House Always Wins. Most of history is lost in the propaganda.

    For example, they say the pope refused Henry VIII a divorce. The truth is Henry VIII’s wife the Holy Roman Emperor’s aunt, Catherine of Aragon. The emperor imprisoned the pope and there was no way he would grant the divorce with the Emperor’s gun pointed to his head. The bankers today have infiltrated government to such an extent, that we have lost all sense of for the people by the people. It is now for the oligarchy and by the oligarchy. This is why we are really screwed.

  2. 2 good interviews

    James Turk

    GoldMoney’s James Turk interviews Sprott Asset Management’s John Embry
    about the recent turmoil in the precious metals markets, suppression
    of mining share prices, inflation around the world, the ignoring of
    inflation in the United States, the possibility of hyperinflation, the
    political polarization demonstrated by Canada’s recent election, and
    several other subjects. Embry’s advice to investors: Buy the dips in
    the precious metals, don’t worry too much about the smashdowns, and avoid leverage, since you’re up against forces with infinite leverage.
    Turk and Embry will be speakers at GATA’s Gold Rush 2011 conference in London in August ( The interview is 30 minutes long and you can find it at the GoldMoney Internet site here:

  3. In addition to managing their portfolios the two additional responsibilities of the GSEs should be handled separately. The private sector must be encouraged to replace the GSEs financial activities including a private market for MBS and covered bonds.

  4. I have been reading in some of the blogs that government also taking some major steps in decreasing the interest rate of mortgage loans is it true?