Sunday, September 7, 2008

FIRST WE SAVE--THEN WE DECIDE WHAT IT IS WE HAVE SAVED

Treasury to Rescue Fannie and Freddie Regulators Seek to Keep Firms' Troubles From Setting Off Wave of Bank Failures
By Zachary A. Goldfarb, David Cho and Binyamin Appelbaum Washington Post Staff Writers Sunday, September 7, 2008; A01
The Bush administration yesterday prepared to take over the troubled housing finance companies Fannie Mae and Freddie Mac, after concluding the companies don't have enough capital to continue to play their crucial role funding home mortgages.
Under the plan, engineered by Treasury Secretary Henry M. Paulson Jr., the government would place the two companies under "conservatorship," a legal status akin to Chapter 11 bankruptcy. Their boards and chief executives would be fired and a government agency, the Federal Housing Finance Agency, would appoint new chief executives.
The action, which would be one of the most sweeping government interventions in private financial markets in decades, is planned for today, according to several sources.
. . . The plan would not resolve the larger question about the future of the two companies -- whether they should be nationalized, privatized or maintain their current structure. Those options have been intensely debated within the government and among financial experts. Some proposals would dramatically change how home mortgages are funded in this country.
Paulson and other government officials decided to act before those more complex issue were decided because of fears that Fannie and Freddie's ability to make cash available for home loans would face serious challenges in coming weeks. Sources said the plan is to leave the more sensitive policy decisions to Congress and the next administration.
__________________________________________________________________
This administration has not been good at sensitive policy decisions. It's more skilled at 'with us or against us' politics and has been amazingly successful in that ploy, while uniquely and devastatingly incompetent in all other aspects of governance.
Wars that don't quite work out, economic policy that encourages bubbles and then hasn't a clue as to what caused them, all that shortsighted liberal talk about rights--it's been a heavy load to carry.
One could say (might even be inspired to say) that taking on 'the most sweeping government interventions in private financial markets in decades,' just 59 days before a national election, is impudent, or (to add a single letter) imprudent. Secretary Paulson will have his way on this one (sprung on us over a weekend) for the same reason our increasingly polarized Congress has given Republicans their way for eight years--fear.
Four days from now, we will celebrate the 9-11 permanent imposition of fear on the theory and practice of American government. And you thought it was about the attack on our nation by terrorists. Watch McCain and Obama bow down to those darker forces of fear on Thursday.
Democrats are paralyzed by their (now institutionalized) fear of being cast as 'not doing anything for homeowners,' fear of 'not supporting the troops' or 'being soft on terrorism.' Those last two demagogueries turned out to be so potent and successful that now every Republican proposal is cast in the light of spotlighting dissent and driving dissenters to cover.
I live in a country that finally got over that, at great cost. It was communist Czechoslovakia when Vaclav Havel was jailed for his dissent. Now it is reinvented as the Czech Republic. Just as Prague has proved itself able to move out from under 40 years of fear, Washington pulls that stifling blanket more securely (and blindingly) over its head.
Interesting to me that Paulson has turned to investment bank Morgan Stanley for advice in this process of ironing Freddie and Fannie's laundry. It's primary business these days concerns Global Wealth Management, Institutional Securities and Investment Management. Seems a perfect (if fatally self-interested) fit for the restructuring of Fannie and Freddie; co-conspirators in the massive fraud that was the sub-prime mortgage scam.
(Snippets from Wikipedia)
  • The private wealth management department was added into the firm's business units by 1977 when Morgan Stanley established Morgan Stanley Realty Inc.
  • In 2003, Morgan Stanley agreed to pay billions of dollars in order to settle its portion of various legal actions and investigations brought by Eliott Spitzer, the Attorney General of New York, the National Association of Securities Dealers (Now FINRA), the United States Securities and Exchange Commission, (SEC) and a number of state securities regulators, relating to fraud that was allegedly perpetrated upon retail investors by a dozen of the largest investment banking securities brokerage firms.
  • In order to cope with the write-downs during the Subprime mortgage crisis, Morgan Stanley announced on December 19, 2007 that it would receive a US$5 billion capital infusion from the China Investment Corporation in exchange for securities that would be convertible to 9.9% of its shares in 2010.
  • In August 2008, Morgan Stanley was contracted by the United States Treasury to advise the government on potential rescue strategies for Fannie Mae and Freddie Mac.
Morgan Stanley works uniquely for ex Goldman Sachs CEO Henry Paulson. He knows and golfs and lunches with all the players. Once he has offloaded the Fannie-Freddie bad loans to the taxpayer, he (or a new administration) can get around to the really profitable work of deciding the form of the fiscally laundered companies that carry 70% of the nation's mortgages. Cleanliness (as all Republicans know) is next to godliness. I can't wait to see what it costs us additionally to parachute the current thieving and fraudulent management buffoons out of both quasi government, quasi private firms.