Newt Gingrich is the lastest Flavor of the Month for the conservative movement, which is feverishly looking for an anti-Romney candidate. But the former Speaker of the House has been forced to fight back against accusations that he lobbied for Freddie Mac, the government-created housing giant:
As he tried to leverage his recent rise in national polls into a full-fledged bid for the Republican nomination, Newt Gingrich was badly knocked off message on Wednesday by repeated inquiries about the more than $1.6 million he got in consulting fees from the mortgage giant Freddie Mac, which had a role in the housing collapse in recent years.
At a campaign event, Gingrich said that he characterized his work for the mortgage-finance entity as offering “strategic advice” and not as lobbying. He said he provided “strategic advice for a long period of time” after he resigned as speaker of the House in early 1999. The federally backed mortgage lender has been the target of a backlash since the collapse of the subprime-mortgage market and the deep recession in the housing market.
Gingrich said his lucrative association with Freddie Mac as a consultant – he has also said he was paid for his knowledge as an historian – should not trouble voters, he told reporters on Wednesday. “It reminds people that I know a great deal about Washington,” he said. “We just tried four years of amateur ignorance, and it didn’t work very well. So, having someone who actually knows Washington might be a really good thing.”
While President Barack Obama recently announced the expansion of HARP — a mortgage relief program established in 2009, one of the frequent points of critics is that the impact of the move is limited to a small number of homeowners. Bob Barr, a former Congressman from Georgia, explained this point over at The Daily Caller last week:
The program itself suffers from significant limitations. Most notably, it applies only to mortgages backed by Fannie Mae and Freddie Mac. According to Mark Calabria of the Cato Institute, the program “is available only to those who have already had a mortgage for over two years, are current on their mortgage, and have missed no more than one payment per year.” Calabria equates the program to “helping only those that do not need any help.”
James Pethokoukis, an economist at the American Enterprise Institute, explains that the idea behind HARP is full of holes, and that similar tricks in the past have not aided our sluggish economy. He notes, for example, that Obama promised that some 4 million homeowners would benefit with the creation of HARP in 2009. However, only about 20% took advantage of the program. Pethokoukis also concludes that the high-end estimate that 1 million homeowners will take advantage of HARP represents only a fraction of the 11 million property owners who are underwater in their mortgages.
But the point that this program does nothing really to lift the economy is further emphasized by the news that the housing market, which has yet to hit rock bottom, is heading for yet another dip:
The Federal Housing Finance Agency announced Friday that it was suing several financial institutions for risky loans made in the lead up to the 2008 financial crisis:
The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.
The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.
Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.
Of course, there is much more to the story than banks making bad loans. As Jon Berlau notes over at Market Watch, the government is complict just as guilty as anyone since it was involved in crafting the loans and mandated them on mortgage companies:
A more apt description would probably be that Fannie and Freddie are suing the banks for selling them the very loans the GSEs helped designed and that government mandates encourage — and are still encouraging them to make. These conflicted actions are just one more of the government’s contributions to the uncertainty that is helping to keep unemployment at 9 percent.
It was no surprise that the markets would react negatively to news of Standard & Poor’s downgrading our credit rating, but the market had one of its 10 worst days in history on Monday after losing 634 points, or 5.5% of its value:
Stocks took a sharp nosedive in another choppy day Monday to finish at session lows as investors fled from risky assets following S&P’s downgrade of U.S.’s credit rating last week in addition to ongoing economic jitters.
The Dow Jones Industrial Average plunged 634.76 points, or 5.55 percent, to finish at 10,809.85, well below the psychologically-significant 11,000 mark. The move marks the blue-chip index’s biggest point and percent drop since Dec. 1, 2008.
The S&P 500 plummeted 79.92 points, or 6.66 percent, to close at 1,119.46, its lowest close since Sept. 10, 2010.
Nasdaq sank 174.72 points, or 6.90 percent, to end at 2,357.69, its lowest close since October 4, 2010.
August is already on track to be the worst month for the S&P and Nasdaq since Oct. 2008.
Not only were the markets reacting to the S&P downgrade of our credit rating, but also the credit agency’s downgrade of Fannie Mae and Freddie Mac, the government-created housing giants. And President Barack Obama didn’t help matters either. The White House announced that he would speak at 1pm; however, he didn’t speak until approximately 1:50pm. The Wall Street Journal noted after Obama delivered his remarks at 2:04pm:
I had the displeasure of reading a Paul Krugman column a short while ago after reading a link to it in a Reason comment thread. (That, of course, was quite pleasant.) Naturally, Krugman spouts off utter stupidity:
Watching the evolution of economic discussion in Washington over the past couple of years has been a disheartening experience. Month by month, the discourse has gotten more primitive; with stunning speed, the lessons of the 2008 financial crisis have been forgotten, and the very ideas that got us into the crisis — regulation is always bad, what’s good for the bankers is good for America, tax cuts are the universal elixir — have regained their hold.
On the face of it, this seems bizarre. Over the last two years profits have soared while unemployment has remained disastrously high. Why should anyone believe that handing even more money to corporations, no strings attached, would lead to faster job creation?
And now trickle-down economics — specifically, the idea that anything that increases corporate profits is good for the economy — is making a comeback.
Below are a collection of links that I didn’t get around to writing about, but still wanted to post for readers to take a look at. Since I end up with a dozen or more stories a day that I don’t post on, this will hopefully be a daily feature from this point forward.
Facing a tough race for re-election against Steven Palazzo, Rep. Gene Taylor (D-MS) told a local paper that he voted for John McCain, a Republican, for president in 2008 over Barack Obama, his party’s nominee:
How scared is Mississippi Rep. Gene Taylor about his reelection prospects? Over the weekend the 10-term Democratic congressman made a startling admission: He voted for Republican John McCain for president in 2008.
Taylor made the revelation that he didn’t vote for President Barack Obama to the Biloxi Sun Herald just as he’s locked in the most competitive reelection battle of his career against Republican state Rep. Steven Palazzo. Despite the district’s strong GOP tilt – its residents voted 67 percent for McCain in 2008 – Taylor has never won reelection with less than 58 percent of the vote.
Palazzo’s challenge to Taylor flew under the radar for most of the election cycle. But as of late, the state representative has capitalized on the extreme dislike for the Democratic leadership in the conservative coastal district, particularly for House Speaker Nancy Pelosi. In ads, he’s hammered Taylor for voting for Pelosi as speaker and reminds constituents Taylor has voted with Pelosi 82 percent of the time. In pre-general election campaign spending reports filed last week with the Federal Election Commission, Palazzo narrowly outraised Taylor in the first two weeks of October.
On Friday, I wrote about the latest vote buying scheme from the Obama Administration, which is to forgive a portion of homeowners’ debt in the hands of Fannie Mae and Freddie Mac.
[C]ommentators left and right can agree that this is not a good idea. No matter how stable said low-income homeowners are, they shouldn’t be buying houses with no equity, because if they suddenly have to sell said houses, they’re going to have trouble coming up with 6% to pay the broker, closing costs, etc.
So why is the government doing this, even though I can think of no policy analyst who doesn’t actually work for the National Association of Realtors who would say that this is a good idea? Because politicians want to help poor people with capital formation, and homeownership is the way that the American middle class has traditionally gone about capital formation.
Imagine you’re the president. You’ve had a tough year, your approval rating is at 41%, with voters disapproving of your handling of foreign policy and the economy. Your “stimulus” bill has been a failure. And your party is expected to have a rough go of it in the mid-term elections, just three months away.
So, how do you get voters back on your side? Have government-backed lenders forgive a portion of debt owed by homeowners:
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.
The bailout for Freddie Mac and Fannie Mae could put taxpayers on the hook for up to $1 trillion:
The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.
Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.
“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.
Fannie, based in Washington, and Freddie in McLean, Virginia, own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise. How deep in the hole Fannie and Freddie go depends on unemployment, interest rates and other drivers of home prices, according to the companies and economists who study them.
Losing $1 trillion is considered a “worst-case scenario,” but we’ve been told by politicians that the taxpayers’ commitment to Fannie and Freddie was low, even in the age of bailouts. Looks like we’ve been lied to again.