The mortgage giants Freddie Mac and Fannie Mae have been under financial distress and political scrutiny at the same time. The Treasury Department has lifted the $400 billion cap in investment in Fannie and Freddie, and that has caused a political uproar. Now, Congressman Dennis Kucinich, the Democratic Chairman of the Domestic Policy Subcommittee of the US House Oversight and Government Reform Committee, has promised an investigation.
I want this to be an informational post. There is a lot of heat around the lightening rod issue of Freddie and Fannie, but not a whole lot of light, and even less perspective. People are outraged that the bailed-out mortgage giants have been approved for $6 million executive compensation packages. What I see happening is the proper liberal anger over executive compensation here is making an ugly alliance with the conservative class and race-baiting in which they blamed Freddie and Fannie for making the economy collapse by giving mortgage loans to - can you believe it - poor people! Poor people - especially poor black and brown people brought the whole economy to its knees. Uh huh.
At any rate, time for the light and perspective I mentioned.
- NPR's All Things Considered did a good story on this. Please listen to the whole thing:
- Linda Lowell of Houseingwire.com explains how the traditional media has mislead on this and fed into the populist frenzy. The so-called "cap" has not been eliminated. It has simply been modified to take into account circumstances rather than just a hard limit. She also argues that given the vast stake of these two companies in the housing market, this is well timed. Please read the whole piece. You won't understand all the technical details, but you don't have to.
- Despite the right's demonization of Freddie and Frannie, 84% of the subprime loans were issued by private institutions free of government regulations.
- Freddie and Frannie hold 90% of secondary mortgages, and secondary mortgages are 70% of all mortgages. If you think the housing market collapsed in 2008, wait till Freddie and Frannie goes bankrupt. The entire United States housing market will look like Detroit's.
- The compensation packages, while eye-popping are rather small compared to Wall Street. I'm not defending the $6 million figure, but trying to put things into perspective. Also, it's dumb as a doorknob to suggest a trillion-dollar economic disaster and housing market crash will all be fixed if we just don't Freddie and Fannie's CEOs $6 million.