Chicago Daily Observer

We’re told consumer confidence is at an all time low. Is it? Is it any lower than it was in 1979? Or are we just being fed more negativity on a daily basis?

The questions are posed because there is more than one way to look at the current economic situation. For example, all the focus is being put on homeowners who are losing their homes because they can’t pay their mortgages. But there is another side to the story that isn’t being talked or written about. The vast majority of Americans are paying their mortgages and are not in danger of losing their domiciles. So why is most attention is going to those who have sub prime loans or who have overstepped their ability to buy the home they have purchased?

It’s said a good offense is better than a defense and that’s exactly what some in Washington are ... Read More...

Emanuel, who served as a board member for Freddie Mac, one of the agencies that precipitated the economic crisis the nation now finds itself in, had no misgivings about taking a leadership role in tanking the bill. “He was cheerleading us along, mothering the votes,” says the aide. “We wanted enough to put the pressure on the Republicans and Congressman Emanuel was charged with making it close enough. He did a great job.”

Emanuel apparently is concerned the roles former Clinton Administration members may have played in the mortgage industry collapse could be politically—or worse, if the Department of Justice had its way, legally—treacherous for many.

The Treasury Department has told members of Congress that the US faces a financial tsunami if a bill to allow the government to purchase up to $700 billion of toxic financial securities from financial firms is not passed – this week.

Unfortunately, this solution of giving the US Treasury almost unlimited power to buy distressed securities could be avoided if the government made some simple (and temporary) changes to mark-to-market accounting rules. So far, and for many unknown reasons, these changes have been considered off limits.

Why drawing such a hard line in the sand is so important, is a real mystery. Certainly, firms that took excessive risk should be punished. And the US should avoid creating moral hazard whenever it can. But saying; “I told you that you would stay in your room for a whole week if you disobeyed, and I don’t care if the house is burning ... Read More...

(In 2005) For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the ... Read More...

There are three elements of the Fannie Mae/Freddie Mac collapse that I am not buying into.
First is the story that extending mortgage loans to people who couldn’t afford them caused the collapse. These people were both a type of catalyst for the crisis and then victims of the downturn, but they did not cause it.

Second is the notion that this shows the need for more government regulation of the banking industry. Au contraire, it was government regulation that both forced bankers to make actuarially unsound loans and then protected them from the consequences that triggered this crisis.

Third is that this is a great example of Republican mismanagement of the economy. That would be more persuasive if Fannie Mae and Freddie Mac had not been a veritable halfway house for Democratic financial luminaries between jobs. For once, even Barack Obama opposes a federal investigation – for fear ... Read More...

Moving down the Democratic Party food chain, we meet William M. Daley, son of former Chicago Mayor Richard J. Daley and brother of current Chicago Mayor Richard M. Daley. Daley worked as special counsel to President Clinton and chairman of Al Gore’s 2000 presidential campaign. He also served as a Clinton secretary of commerce from 1997 to 2000, and earlier as president of Amalgamated Bank in Chicago. He is now an executive at JPMorgan Chase & Co. Daley was appointed to the Fannie Mae board in 1993 by President Clinton.

Less than six months after the federal government interceded to prevent the collapse of Bear Stearns, it has now seized control of both Fannie Mae and Freddie Mac.

Although I am not thrilled with some details of the Treasury Department’s plan, something had to be done. The ultimate fate of the GSEs (Fannie and Freddie) increased uncertainty much like an approaching storm. Would they have to suddenly dump their massive portfolios of mortgages? Would they cease securitizing mortgages, throwing the mortgage market into further turmoil?

For the mortgage security marketplace these questions were huge. The mortgage market has been in disarray, spreads increased and prices were held artificially low, even for conforming, and performing, conventional mortgages. To top it off, reduced prices, because of “mark to market” accounting rules, led to pressure on capital requirements, which in turn increased the odds of a liquidation of huge mortgage portfolios. This “vicious ... Read More...

President Bush is poised to sign the housing and Fannie Mae bailout bill, after the Senate passed it with 72 votes on the weekend. But an underreported part of this story is that Majority Leader Harry Reid refused to allow a vote on Republican Jim DeMint’s amendment to bar political donations and lobbying by Fannie and its sibling, Freddie Mac.

This is a rare parliamentary move for a body in which even Senators in the minority party have long been able to force votes. The strong-arm play illustrates how politically powerful these government-sponsored enterprises remain even after going hat in hand to taxpayers.