Opinion: The killing of Fannie Mae - Yes, it was greed, but it’s worse than that

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The New York Times has an excellent, if nauseating and horrifying, article by Charles Duhigg explaining in detail what happened to Fannie Mae.If you’re an American, you need to read this, because it will tell you how and why the financial mutilation of the United States happened.

The stink is unbelievable, even by post bailout standards.

It’s also the tale of how a successful, advanced mortgage insurance company was destroyed by “market forces” Friedman and Rand never even considered.

“Free market fundamentalism”, as it’s now called, is as rabid as other forms of fundamentalism, and easily as vicious.

Only the naïve and the senile can believe in a system comprised of huge money and no constraints.

The New York Times explains how Fannie Mae’s former CEO Daniel H Mudd was confronted by the “free” market in all its parasitic glory:

But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

2004, coincidentally, was when the FBI became aware that the mortgage industry was being targeted by systemic fraud and criminal activities. Sounds pretty right, given the sudden demand for Fannie Mae to buy anything and everything, doesn’t it?

The most polite possible view of “loans to low income borrowers” is that Congress had no idea of any problems in the mortgage industry. But if that’s so, it was also a great way of hyper-inflating the bubble that sank the industry. This was the time of frenzied mortgages, huge prices, and a housing industry in a haze of big profits.

Buying risky loans hardly qualifies as good business, in any industry. Was Congress seriously saying, “Go out there and buy the garbage,”? That’s just plain suspicious.

Given the amount of chest thumping on the subject of “socialism” by members of Congress recently, what particular set of values on the one hand demands participation by a government chartered agency, then screams when that agency has to be bailed out? How many double standards are necessary?

It’s painfully obvious that most people don’t know what mortgage insurance is. It’s a guarantee over mortgages. If there’s no insurance, forget borrowing. Banks and other institutions don’t take any unnecessary risks if they can avoid them, and they have built in safeguards. That’s why Fannie Mae and Freddie Mac are so important, and why they had to be saved.

I’m not going to recycle Duhigg’s article, which needs to be seen as primary information, but here’s a teaser:

Dozens of interviews, most from people who requested anonymity to avoid legal repercussions, offer an inside account of the critical juncture when Fannie Mae’s new chief executive, under pressure from Wall Street firms, Congress and company shareholders, took additional risks that pushed his company, and, in turn, a large part of the nation’s financial health, to the brink.

Between 2005 and 2008, Fannie purchased or guaranteed at least $270 billion in loans to risky borrowers — more than three times as much as in all its earlier years combined, according to company filings and industry data.

Well, well. How about that. What a coincidence. Another way of looking at this is that $270 billion worth of crap went through because someone was prepared to insure it, otherwise it wouldn’t have gone through.

If someone with a ZZZ credit rating decides to do someone a favor, and take out a loan they can’t possibly repay, and gets a cut from the insurance payout, doesn’t that make mortgage fraud a very rewarding occupation in an overheated housing market? The FBI weren’t talking about mortgagees when they were talking about problems in the industry, they were talking about mortgage fraud.

Meanwhile an active campaign was being staged by Fannie Mae’s competitors, with, again, support from Congress, to cut Fannie Mae’s share of the market.

If anyone can find a trace of anything resembling “free market” in any of this, after reading the NYT article, let me know. This is using elected representatives as spruikers, not a democratic process, nor even bona fide capitalism, let alone a free market. “Duly elected stooges” would seem more appropriate.

Then Fannie Mae’s biggest customer, Countrywide, decided it could do better business with others, and threatened to pull out. The choice of partners by Countrywide would be hilarious, if we weren’t talking about the total collapse of an entire industry: Bear Stearns and Lehmann Bros. were two of them.

Fortunately for all concerned, the Countrywide CEO was very oral-hygiene minded, so this meeting passed into history without any human fatalities. Just the death of two of the biggest corporations in the industry. Meanwhile Fannie Mae lost 56% of its business in two years, thanks to this termite-based methodology.

It must have been fun. Apparently a hedge fund manager rang Fannie Mae and informed them they should be taking out more risky loans, because it was the company’s job to make money for his hedge fund.

Also let me know if you can spot a competent person, or anyone aware of any possible problems, in this idiot’s opera.

Congress, during this love fest, then increased Fannie Mae’s affordable housing goals…

“Free market”, eh?

Where? When? According to whom? These are all rorts of a government system.

You’ll have to read the rest. Have some good strong paper bags handy.

There’s only one point that needs making:

America can send all these bastards back to Mommy on Nov. 4.

Preferably without their supper and those delightful duly elected benefits which are worth so much more than those mortgages.

This is total failure. There are no excuses. There’s not a reason on this side of hell to tolerate this behavior in government.

Someone might also want to give the IRS a laugh and check out their tax returns during all this duly elected zeal. Maybe even a few whimsical indictments are in order.

The choice is democracy, or this.

Whoever wins, destroy this disease, before it destroys America.