Bush Prods Congress On Mortgage Giants

President Calls For Legislation To Help Prop Up Fannie Mae And Freddie Mac

(CBS/AP)  President George Bush urged lawmakers on Tuesday to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the U.S. financial system to be "basically sound."

He also called on the Democratic-run Congress to follow his example and lift a ban on offshore drilling to help increase domestic oil production.

"I readily concede it won't produce a barrel of oil tomorrow, but it will reverse the psychology," Mr. Bush told a White House news conference - his first since late April.

CBS News correspondent Mark Knoller reports it was the president's 43rd full-length, solo, White House news conference.

It was an attempt to quiet fears about the economy, reports CBS News correspondent Bill Plante. It's no coincidence that it came on the same day Federal Reserve Chairman Ben Bernanke was testifying before the Senate banking committee. The administration is very concerned about what has happened, particularly about the public perception.

President Bush said the two troubled Freddie Mac and Fannie Mae mortgage companies play a central role in the U.S. housing-finance system and that government action to help them were not bailouts, since the two would remain shareholder-owned companies.

"I don't think the government ought to be involved in bailing out companies," the president said.

Amid soaring fuel prices, the toughest real estate market in decades, falling home prices and financing that's harder to come by, Mr. Bush said: "It's been a difficult time for many American families." But he also said that the nation's economy continues to grow, if slowly.

The president said that despite the woes of Fannie Mae and Freddie Mac and the recent government takeover of California bank IndyMac, U.S. depositors should not worry because their deposits are insured by the government up to $100,000.

"If you're a depositor, you're protected by the federal government," Mr. Bush said.

The Bush administration and the Federal Reserve announced an emergency rescue plan Sunday to bolster Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages - almost half of the nation's total.

The plan would temporarily increase a long-standing Treasury line of credit that could be provided to either company. Treasury also said it would, if necessary, buy stock in the companies to make sure they have enough money to operate.

The Fed also announced that it would allow Fannie and Freddie to get loans directly from the Fed - a privilege previously granted only to commercial banks until this March, when the Fed extended the borrowing to investment banks to deal with the collapse of Bear Stearns.

At the same time, a housing package was heading toward final congressional passage. It would modernize the Federal Housing Administration and create a new regulator and tighter controls for Fannie Mae and Freddie Mac.

It's this legislation that Mr. Bush urged Congress to pass as soon as possible.

Congress could move as early as this week on the housing legislation to send it to Bush. First, though, House and Senate leaders must strike a deal in consultation with Treasury Secretary Henry Paulson to resolve key differences so Bush, who has threatened to veto the measure, will sign it.

"I think the system basically is sound, I truly do," President Bush said. "I understand there's a lot of nervousness. The economy is growing. Productivity is high. Trade's up. People are working - it's not as good as we'd like. And to the extent that we'll find weakness, we'll move."

The president defended his insistence that the U.S. economy was not in a recession, even though many economists believe it is.

He said the traditional definition of a recession - two quarters in a row of negative growth - had not been met.

"I'm not an economist, but I do believe we're growing," he said. "I'm an optimist. I believe there's a lot of positive things for the economy."

He acknowledged, however, that "it's not growing as it should."

On Capitol Hill, Bernanke warned that inflation seemed likely to move even higher and economic growth would be "appreciably below its trend rate."

"In general, healthy economic growth depends on well-functioning financial markets," Bernanke said. "Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority," he said.

Mr. Bush acknowledged it could take years before opening the Continental Shelf to oil drilling would result in increased U.S. production. But, he said, at least it would put the nation on the right track toward reducing its reliance on imported oil.

"There is no short term solution," Bush said. "The president doesn't have a magic wand. You can't just say, 'Low gas."

It would take a long time for the drilling to have an impact, CBS News correspondent Bob Schieffer reports, and there's no chance that the Congress is going to do it. The Democratic rank-and-file has been a little more receptive to resuming offshore drilling, but the Democratic leaders in Congress are just flat-out against it.

Asked about his comment earlier this year that he hadn't heard of $4 gasoline, Bush said: "I've heard of it now."

[deacon20081]

The FDIC has had to use 25% of the money they have to insure banks on ONE CALIFORNIA BANK.
We will soon be OWNED by foreign governments like the Saudis. Bush and cohorts have done their job as planned and our country is about to be sold. The term Global Economy makes me sick.

[starleo146]

Still, isn''t it shocking that taxpayers may end up having to rescue these institutions? Not really. We''re going through a major financial crisis -- and such crises almost always end with some kind of taxpayer bailout for the banking system.

And let''s be clear: Fannie and Freddie can''t be allowed to fail. With the collapse of subprime lending, they''re now more central than ever to the housing market, and the economy as a whole.

) 2008 The New York Times

[starleo146]

Also, Fannie and Freddie, while tightly regulated in terms of their lending, haven''t been required to put up enough capital -- that is, money raised by selling stock rather than borrowing. This means that even a small decline in the value of their assets can leave them underwater, owing more than they own.

And yes, there is a real political scandal here: there have been repeated warnings that Fannie''s and Freddie''s thin capitalization posed risks to taxpayers, but the companies'' management bought off the political process, systematically hiring influential figures from both parties. While they were ugly, however, Fannie''s and Freddie''s political machinations didn''t play a significant role in causing our current problems.

[starleo146]

So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works.

In that case, however, how did they end up in trouble?

Part of the answer is the sheer scale of the housing bubble, and the size of the price declines taking place now that the bubble has burst. In Los Angeles, Miami and other places, anyone who borrowed to buy a house at the peak of the market probably has negative equity at this point, even if he or she originally put 20 percent down. The result is a rising rate of delinquency even on loans that meet Fannie-Freddie guidelines.

[starleo146]

But here''s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that''s because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn''t do any subprime lending, because they can''t: the definition of a subprime loan is precisely a loan that doesn''t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.

[starleo146]

The most important of these privileges is implicit: it''s the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue.

This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

Such one-way bets can encourage the taking of bad risks, because the downside is someone else''s problem. The classic example of how this can happen is the savings-and-loan crisis of the 1980s: S.& L. owners offered high interest rates to attract lots of federally insured deposits, then essentially gambled with the money. When many of their bets went bad, the feds ended up holding the bag. The eventual cleanup cost taxpayers more than $100 billion.

[starleo146]

Here''s the background: Fannie Mae -- the Federal National Mortgage Association -- was created in the 1930s to facilitate homeownership by buying mortgages from banks, freeing up cash that could be used to make new loans. Fannie and Freddie Mac, which does pretty much the same thing, now finance most of the home loans being made in America.

The case against Fannie and Freddie begins with their peculiar status: although they''re private companies with stockholders and profits, they''re "government-sponsored enterprises" established by federal law, which means that they receive special privileges.

[starleo146]

And now we''ve reached the next stage of our seemingly never-ending financial crisis. This time Fannie Mae and Freddie Mac are in the headlines, with dire warnings of imminent collapse. How worried should we be?

Well, I''m going to take a contrarian position: the storm over these particular lenders is overblown. Fannie and Freddie probably will need a government rescue. But since it''s already clear that that rescue will take place, their problems won''t take down the economy.

Furthermore, while Fannie and Freddie are problematic institutions, they aren''t responsible for the mess we''re in.

[starleo146]

Fannie, Freddie and the Threat of Economic Meltdown

By Paul Krugman, The New York Times. Posted July 15, 2008.

[starleo146]

More astonishing, however, were the public assessments of the election made by the Organization for Security and Cooperation in Europe and the Council of Europe. Their election-monitoring missions in Azerbaijan took due note of the violence and election irregularities, but their overall appraisals were alarmingly upbeat. The OSCE mission chief, Giovanni Kessler, said the election showed "an increased vitality of political life and serious efforts in Azerbaijan towards democracy and international standards." Meanwhile, the head of the Council of Europe''s parliamentary delegation, Guillermo Martmnez Casaq, said he hoped the election could "mark the beginning of a new era in Azerbaijan in which progress could be achieved through cooperation of all democratic forces in the country." [HRW]

Maybe Worldwide Strategic Partners had something to do with the mild reactions of the international community to the stolen election.

I''m barely scratching the surface of the brochure, which I encourage readers to peruse for themselves.

[starleo146]

he government clearly stole the election, and then brutally beat hundreds of people who poured out in the streets in protest. The day after the election, I watched from the roof of a hotel in Baku as thousands of riot police beat protesters unconscious. Afterward the riot police raised their shields to the sky and turned their batons into drumsticks, celebrating the victory of intimidation.

Now hundreds have been arrested, while Isa Gambar, the opposition leader, is effectively under house arrest and activists from his Musavat party are being beaten and detained all over the country. Everyone I speak to is scared.

The violence surrounding the election was shocking yet predictable, as the government for years has shut the opposition out of the political process. In the months leading up to the poll, Azerbaijani authorities blatantly manipulated the electoral process to ensure that Ilham Aliyev would inherit his father''s presidency. The opposition had nowhere to go but the streets.

[starleo146]

Abramoff and his team stole some tribal elections (Slate of Eight, anyone?), but their accomplishments in that domain pale compared to WSP.

Worldwide Strategic Partners claims to have mounted an aggressive campaign to discredit opposition parties in the Azeri elections, thereby enabling the government to enforce election curfews. Sounds like a euphemism for destroying the opposition so that the government could violate the law with impunity.

According to Human Rights Watch, the Azeri government stole the 2003 election:

[starleo146]

III. Arranged a series of meetings for the Foreign Minister of Azerbaijan during his September visit to the U.S.

IV. Worked with members of the Helsinki Commission to reduce the negative language in the U.S. press release following the November Elections

V. Implemented an aggressive media campaign to discredit the Azeri opposition candidates, allowing the government for freedom in enforcing election curfews and laws.

VI. Arranged several articles and speeches to be placed into the U.S . Congressional record

[starleo146]

III. Arranged a series of meetings for the Foreign Minister of Azerbaijan during his September visit to the U.S.

IV. Worked with members of the Helsinki Commission to reduce the negative language in the U.S. press release following the November Elections

V. Implemented an aggressive media campaign to discredit the Azeri opposition candidates, allowing the government for freedom in enforcing election curfews and laws.

VI. Arranged several articles and speeches to be placed into the U.S . Congressional record

[starleo146]

Perhaps even more incredible is the Worldwide Strategic Partners brochure that ran with the expose. [Download payne.pdf]

Here''s what WSP claims to have done for Azerbaijan, verbatim, from the last page of the brochure, emphases added:

I. Arranged for the President of Azerbaijan to visit the U.S . and meet with President Bush -- a task the Azeri government had been trying for over 3 years

II. Arranged a private phone call between the Vice-President of the United States and the President of Azerbaijan, prior to the Azeri Elections in November of 2005

[starleo146]

Lobbyist Stephen P. Payne, a new rising star of pay-to-play politics, makes Jack Abramoff look like a piker.
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The Sunday Times caught politically-connected lobbyist Stephen Payne on tape suggesting that a $250,000 donation George W. Bush presidential library could help secure access to senior administration officials.

[starleo146]

I looked everywhere on this forum never saw once
Lobbying Firm Brags About Smoothing Way for a Stolen Election

Posted by Lindsay Beyerstein, Majikthise at 12:12 PM on July 14, 20 (cont)

[kansas1946]

(CBS/AP) President George Bush urged lawmakers on Tuesday to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the U.S. financial system to be "basically sound."

***************************************

Yawn. The Republican megopoly fought against any regulation or oversight of these insitutions, (because those institutions paid big-time into their campaigns) and now that the greedy creeps have ruined millions of families dreams of a home, Georgie wants to bail them out. Worst president in the history of the US.

[tryhonesty]

Bush, do the world a favor...ZIP IT! (And then, get out of my country!)

[sistatee-2009]

In April 2007, Daniel H. Mudd, CEO of Fannie Mae, said, "Today, our exposure remains relatively minimal--less than 2.5 percent of our book business can be defined as subprime." In 2006, Mr. Mudd''s total compensation from the company was $11,500,000. Today, YOU get to bail out his company, while he walks away with a fortune.