Congress Calling for Legal Action Against Lenders who Sold Bad Debts to Fannie and Freddie
Posted by Carole VanSickle on Thursday, August 26th 2010
Earlier this week, we reported on a movement gathering momentum in Congress that would enable Fannie Mae and Freddie Mac to force lenders to buy back bad loans to help the mortgage giants recoup some of their combined $354 billion in losses due to delinquent mortgages and bad debt. Now, some members of the House of Representatives (Barney Frank, D-MA, and Paul E. Kanjorski, D-PA) are taking things a step further and calling for the president, both GSE’s and anyone else that they can get their hands on to use “all of [their] power to recover money” from underwriters and issuers of underwater securities that ultimately made their way to Fannie Mae and Freddie Mac [1].
The two representatives claim that Fannie and Freddie have cost taxpayers $150 billion to date, and blame a significant portion of these losses on “deception” on the part of “private companies [that] sold Fannie and Freddie loans or securities based on fraudulent documents.” Now, I am certainly not saying that there was no fraud on the part of any lenders, and we all know that some pretty lousy mortgages made it through the underwriting process in the past decade. But wasn’t this partly because of the lenient and even aggressive policies that not only encouraged but rewarded and even demanded these types of loans? Why should only half of the guilty parties pay the price now, especially when Fannie and Freddie were bailed out specifically to help disperse these losses?
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Thursday, August 26, 2010
Friday, August 20, 2010
Steve Rattner and Nancy Pelosi
We close with a parting shot at Steve Rattner. You might recall us heckling Rattner earlier this year during a presentation at an elite investment conference in New York. We were flabbergasted that a guy like Rattner – who made hundreds of millions as a private-equity manager while his clients reportedly made almost nothing – would lecture a room of real investors about the supposed "evils" of income inequality. We booed him and then called him a joke – to widespread applause from the audience. (By the way, Vanity Fair reports about the spectacle in its current issue.)
Our booing, the negative press, and even a corruption indictment for bribing New York State pension officials don't appear to have slowed him down or weakened his impressive self-esteem. He is not only publishing a book that brags about his role in restructuring General Motors (where he arranged for the union to steal 20% of the company, despite the fact that the union's policies and strikes led to the firm's demise). Rattner now says the tens of billions of dollars the U.S. taxpayers are going to lose on the upcoming GM initial public offering are a great stimulus for the U.S. economy. I'm not making this up. Here's what Rattner told Fortune: "If the government loses $10 to $20 billion, that's one of the most effective stimulus programs around."
Apparently Rattner and Nancy Pelosi went to the same school of economics. (Remember, Pelosi said paying for people to stay unemployed was the best way to stimulate the economy...) If the government losing money in bailout after bailout was truly good for our country, why wouldn't the government simply print billions up every day and mail it randomly to people across the country? We could have new billionaires every day!
It has never occurred to these people (Rattner and Pelosi) that when you take money away from profitable and productive people (taxpayers) and give it (by the billions) to failed companies and unemployed workers, you're not stimulating anything but more failure. Or maybe it has occurred to them... but they're merely operating (successfully) under the new rules of Amerika, where everything is done to appease the mob.
Porter Stansberry
Our booing, the negative press, and even a corruption indictment for bribing New York State pension officials don't appear to have slowed him down or weakened his impressive self-esteem. He is not only publishing a book that brags about his role in restructuring General Motors (where he arranged for the union to steal 20% of the company, despite the fact that the union's policies and strikes led to the firm's demise). Rattner now says the tens of billions of dollars the U.S. taxpayers are going to lose on the upcoming GM initial public offering are a great stimulus for the U.S. economy. I'm not making this up. Here's what Rattner told Fortune: "If the government loses $10 to $20 billion, that's one of the most effective stimulus programs around."
Apparently Rattner and Nancy Pelosi went to the same school of economics. (Remember, Pelosi said paying for people to stay unemployed was the best way to stimulate the economy...) If the government losing money in bailout after bailout was truly good for our country, why wouldn't the government simply print billions up every day and mail it randomly to people across the country? We could have new billionaires every day!
It has never occurred to these people (Rattner and Pelosi) that when you take money away from profitable and productive people (taxpayers) and give it (by the billions) to failed companies and unemployed workers, you're not stimulating anything but more failure. Or maybe it has occurred to them... but they're merely operating (successfully) under the new rules of Amerika, where everything is done to appease the mob.
Porter Stansberry
GE "Government Electric?"
"I read Porter's analysis of GE's financial status and after doing my own reseach came to the same conclusion. Yet to date, GE is neither dead nor in a coma. Immelt seems to be well connected to the current administration. Is the government proping up the company similar to what it did for GM?" – Paid-up subscriber Butch
Porter comment: Actually, in some ways, what the government did for GE was much more valuable than what it did for GM. The government guaranteed nearly $300 billion in GE's debts. Probably no other force in the world could have saved GE from bankruptcy in the fall of 2008. Stupidly, the government didn't demand any substantial payment for that guarantee. Dumb, dumb, dumb.
But in any case, GE's problems really have nothing to do with liquidity. The problem is solvency. And more debt (or more guarantees) won't help the situation. They only forestall the inevitable. How do I know GE's problems are really about solvency, not just liquidity? Well, ask yourself the obvious question: How much is GE able to earn from its asset base? The answer is around $30 billion a year before taxes and interest. Its asset base is nearly $800 billion. Thus, its return on assets is a bit more than 3.5%. How can it afford to leverage these assets, when it's not generating enough income to cover reasonable interest? This analysis, by the way, doesn't even consider the massive losses GE faces from its investment into European mortgages.
Porter Stansberry
Porter comment: Actually, in some ways, what the government did for GE was much more valuable than what it did for GM. The government guaranteed nearly $300 billion in GE's debts. Probably no other force in the world could have saved GE from bankruptcy in the fall of 2008. Stupidly, the government didn't demand any substantial payment for that guarantee. Dumb, dumb, dumb.
But in any case, GE's problems really have nothing to do with liquidity. The problem is solvency. And more debt (or more guarantees) won't help the situation. They only forestall the inevitable. How do I know GE's problems are really about solvency, not just liquidity? Well, ask yourself the obvious question: How much is GE able to earn from its asset base? The answer is around $30 billion a year before taxes and interest. Its asset base is nearly $800 billion. Thus, its return on assets is a bit more than 3.5%. How can it afford to leverage these assets, when it's not generating enough income to cover reasonable interest? This analysis, by the way, doesn't even consider the massive losses GE faces from its investment into European mortgages.
Porter Stansberry
Roger Clemens
Poor Roger Clemens. It's bad enough to be exposed as a steroid user. And it's even worse to be caught lying about it (as it appears he has been). But the worst thing, from my perspective, is being accused of lying to Congress. I mean, that shouldn't even be a crime, should it? I thought you had to be a pretty damn good liar just to get into Congress. Imagine going to jail for doing something that nearly every other person in the room gets paid to do.
When it comes to lying to Congress, Clemens is a small-time perp. The big fish never get charged. Why haven't Hank Paulson and Ben Bernanke been investigated for the whoppers they told the world in front of Congress in July 2008? I watched both of them swear that Fannie and Freddie were "sound" and "well capitalized" just months before they completely collapsed. I knew they were lying and told you so at the time. What do you think is more important to our country... No. 1: On the record comments by the Secretary of the Treasury and the Chairman of the Federal Reserve about the solvency of government-backed financial institutions that were $10 trillion in debt and owned or guaranteed 50% of the mortgages in the United States? Or No. 2.: Whether or not Roger Clemens used steroids?
Porter Stansberry
When it comes to lying to Congress, Clemens is a small-time perp. The big fish never get charged. Why haven't Hank Paulson and Ben Bernanke been investigated for the whoppers they told the world in front of Congress in July 2008? I watched both of them swear that Fannie and Freddie were "sound" and "well capitalized" just months before they completely collapsed. I knew they were lying and told you so at the time. What do you think is more important to our country... No. 1: On the record comments by the Secretary of the Treasury and the Chairman of the Federal Reserve about the solvency of government-backed financial institutions that were $10 trillion in debt and owned or guaranteed 50% of the mortgages in the United States? Or No. 2.: Whether or not Roger Clemens used steroids?
Porter Stansberry
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