Just as night inevitably follows day it is a crystal clear fact that the United States government and it’s federally created agents and instrumentality's caused the great real estate housing bubble which burst wide open in 2007, in turn causing the subsequent catastrophic financial meltdown in the economy which followed, still plaguing the nation today with no end in sight.
And the innocent among us are left to pay the wrongdoers for their folly.
Latest example: Fannie Mae and Freddie Mac, both entities created, controlled and wholly backed by Congress to encourage home ownership; the two largest sources of money for U.S. home loans; and probably the most culpable of the wrongdoers, are asking for yet another $7.8 billion and $6 billion respectively in taxpayer cash just to stay afloat after billions more in third quarter losses.
Congress created these two Frankenstein monsters for the dubious purpose of buying mortgages from small lenders; repackaging the instruments as securities for investors with guaranteed backing in order to ensure a steady source of home loan funds for people who could not otherwise obtain financing in the credit markets, i.e. people without good credit. Together with the Federal Housing Administration, they still back nine out of 10 home loans in America.
Any moron could have predicted accurately the sequence of events which happened next. The millions of un-creditworthy people who couldn’t afford to make their payments began to default on their loans, causing a massive number of foreclosures, resulting in a colossal implosion of home prices, a glut of houses for sale, and a complete meltdown of the home real estate market in America.
Innocent taxpayers, and home owners with good credit, including those who had already paid off their mortgages, (myself included), were eventually left holding the bill. In my own case, because of the busted bubble, my home was sold in 2009, after two years on the market, for less than half of what it was worth at the beginning of 2007, and I was lucky to get that price. Needless to say, I received no bailout.
At the end of 2011 the housing market is still a long way from recovery. Losses on derivatives and expenses related to bad home loans made before the financial collapse are the reason for the continuing debacle. Fannie Mae alone has so far sucked up $112.6 billion in funds from taxpayers since the government took full control of the firm in 2008. It has reported losses in 16 of the last 17 quarters.
Add Freddie Mac to the mix and the total taxpayer bailout comes to more than $170 billion and counting. On top of that the U.S. government has pledged unlimited funds in the future to keep them both going through the end of 2012. The figure could reach $193 billion and more by 2014.
Who gets that $193 billion? Why, the lucky lenders, and investors of course – the ones who got an iron clad pay back guarantee courtesy of the U.S. government. It’s the responsible taxpayers, homeowners and creditworthy borrowers who are getting the shaft.
Oh, and get this: the wrongdoers – the ones who caused the mess -- will be getting their share as well. Don’t worry about the government politicians, bureaucrats, agents and employees who ignited the fire. They’re all keeping their jobs and getting steady paychecks whether the economy is good or bad.
How about the executives at Fannie Mae and Freddie Mac – you know, the ones who actually blew the money on bad loans and shaky derivatives? Well, they’re not only still getting their hefty paychecks; they’re still getting huge yearly bonuses! That’s right; big bonuses; millions and millions of taxpayer dollars in bonuses!
Fannie Mae and Freddie Mac executives, Michael J. Williams, and Ed Haldeman, received a total of $17 million in bonus pay over the last two years, and are poised to rake in similar amounts this year. Compensation for the companies’ top executives totaled $35 million for 2009 and 2010, according to a report from the FHFA Office of Inspector General.
Edward DeMarco, their chief regulator as acting head of the Federal Housing Finance Agency, is attempting to defend the bonuses to a skeptical Congress. They’re justified “to attract and retain top talent,” he insists. Since both companies’ stock is worthless today, the bonuses are paid in cash; deferred compensation and incentive pay rather than stock options.
For Fannie and Freddie executives, it all comes on average to three times the amount in bonuses paid to executives in the 2009 taxpayer bailout of the failed AIG Corporation, which, incidentally outraged President Obama. The president is strangely silent now though.
So you see, it took top talent to get us into this financial mess in the first place -- the wrongdoers who blew the cash -- and in order to attract and retain more of such top talent to run a now worthless and gutted company, it will be necessary to keep paying the top talent millions upon millions of taxpayer dollars in salary and bonuses.
Compelling logic, isn’t it?
Let the innocent pay the wrongdoers.