United Liberty

John Stossel explains why that politicians may be too optimistic about the economy:

Obama advisor Larry Summers told my former ABC colleagues that “everyone agrees the recession is over.”

It’s possible. But I doubt it.

Sure, the vast Bush/Obama spending blew some air back into the housing bubble. But politicians’ delusion that they can control the economy does more harm than good. Home prices that by now might have found a sound floor — a foundation for growth — instead float on a sea of subsidies.

The March 15 issue of Forbes summarizes the Fed’s house of cards:

The FHA has a $45 billion cushion to cover $757 billion in home-loan guarantees. This is just one part of the federal government’s investment in housing. Another is the bailout of Fannie Mae and Freddie Mac… a third is the Federal Reserve’s purchase of mortgage securities ($1.25 trillion).

How much will the FHA cost taxpayers? Officially, nothing. FHA officers have told Congress they don’t believe they’ll need a bailout. (Fannie and Freddie said the same.)

CEO Franklin Raines promised, “it is private capital that is at risk, not the taxpayer’s…. We do not receive a nickel of federal money.”

This isn’t exactly the type of news that taxpayers want to start off the year with, consider how bad 2008 and 2009 went:

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.
[…]
The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on too many risky loans, Wallison said.

So while we’re hearing that taxpayers didn’t lose as much money as we thought we did with TARP, they’re still losing money with other bailouts. And to make matters worse, the Obama Administration and Congress are reflating the housing bubble by getting behind bad public policy, such as the $8,000 tax credit for home buyers.

Over the holiday, the Obama Administration announced that it was removing the cap on aid to Freddie Mac and Fannie Mae:

The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government’s estimate this summer of $170 billion over 10 years.

Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Under the formula, financial support would increase according to how much each firm loses in a quarter. The cap in place at the end of 2012 would apply thereafter.

By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.

While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government’s commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows.

Remember when we were told that Fannie and Freddie were fiscally sound and that there was no housing bubble?

Rep. Barney Frank (D-MA) wants to regulate salaries of workers from banks and financial institutions that received TARP money:

Part I

Economists disagree on the identity of the true culprit behind our current crisis. Some blame Wall Street; some blame the progressive politics that pushed Freddie Mac and Fannie Mae beyond their capacity; some blame the profiteering loan brokers, the foxy house flippers, and the naive subprime home buyers in their rush for quick profits. Some blame the Federal Reserve, including me from time to time.

In reality, all of the above had their role, but they are just players in a game, the rules of which are defined by politicians. The origin of the problem lies in the rule changes that caused the demise of sound commercial banking back in 1913.

The House voted and passed (328 to 93) yesterday a 90% tax on bonuses funded through bailouts:

The House was to vote Thursday on a bill that would place a 90 percent federal tax on bonuses paid to employees with family incomes above $250,000. The targeted tax would hit bonus recipient at companies that have received at least $5 billion in government money.

“We figured that the local and state governments would take care of the other 10 percent,” said Rep. Charles Rangel of New York, chairman of the tax-writing House Ways and Means Committee.

Rangel said the bill would apply to mortgage giants Fannie Mae and Freddie Mac but exclude community banks and other smaller companies that have received less bailout money. The mortgage companies also have received extensive government aid.

It seems this reaction from Washington over the AIG bonuses is nothing than an act, considering the Obama Administration knew about them well in advance:

For all of the furor since details of the bonuses became public over the last several days, the issue of retention payments to A.I.G. employees globally has been percolating publicly since A.I.G. was bailed out in mid-September. About $1 billion in retention payments for 2008 and 2009 are in question, but the controversy involves about half of that, about $450 million over two years, that was intended for employees of A.I.G.’s financial products unit. That unit was the source of the financial derivatives blamed for the near-collapse at the heart of the economy’s downturn.

The Treasury and Federal Reserve officials said they had known about the bonus program as far back as last fall.

We all know that one of the major causes of the current economic situation is the decline of home values and the subsequent turmoil this reigns upon the financial system. I’m not going to quote any numbers here or research. If you want to read more details, then go read this.

From Talking Points Memo comes a striking statistic:

The 2008 Republican and Democratic conventions were underwritten by hefty contributions from the institutions and individuals at the center of the country’s financial crisis, according to a report released Wednesday by the Center for Responsive Politics and the Campaign Finance Institute.