The Big Fed Bailout SCAM of 2008

Friday, October 3rd, 2008

It’s a scam. If you have any doubts about this stay with me and I will remove them all.

Let’s start with a mystery, shall we?

 

The bailout was introduced by Treasury Secretary Paulson and gives him almost total control of $700 BILLION. Secretary Paulson’s boss is Republican President George Bush.

The Democratic Senate passed the measure almost without question. The Democratic House of Representatives was also expected to pass the bill.

House Republicans, joined by some Democrats defeated the measure.

Did you catch that? House Republicans, joined by some Democrats defeated the measure.

We are 5 weeks from electing a new president. The Democrats despise President Bush - yet they backed him almost without question on this! WHY?

Barack Obama backed Bush in this. Why?

John McCain backed Bush on this. WHY?

Both nominees are scambling to say THEY were the first to warn about this problem. Obama and Biden are pointing all their fingers at George Bush and his “failed policies” on this matter.

The record shows the exact opposite is true! George Bush PUSHED for more oversite for Fannie Mae and Freddie Mac. John McCain is certainly on record as advocating tough, decisive action against Fred/Fan.

What’s the deal? Why is no one setting the record straight? (I don’t know what Obama said about Fred/Fan, what I DO know is he was second from the top recpients of money from these guys. Not bad for a first year Senator! Wanna a scary thought? He got the money long before he announced he was going to run for President of the United States.

Wait a minute. Things are going to start getting really interesting…

Some of the top people getting big money from Freddie Mac and Fannie Mae are Democratic Party officials. But you really have to dig to get this stuff. Why?

I can guess Obama’s motive for silence but why isn’t John McCain calling for heads? He got a paltry $20 grand compared to Obama’s $126,349. So why isn’t McCain stepping forward?

Even CNN reported a huge majority of Americans are against this bailout. By simply standing against it McCain could have separated himself from the current Administration AND Barack Obama while earning the respect of millions of Americans. But he didn’t. Why?

Why is everyone afraid to say the Emperor is naked?

But I’m not done yet!

Today, congressman after congressman talked about how the “credit crisis” was now affecting main street. Even one caller on C-Span said students couldn’t get loans for the entire year and his contractor lost his line of credit after 20 years of paying his bills on time. WHY?

What does a portfolio of bad loans held by two government sponsored enterprises (GSE) have to do with a line of credit held by a solvent contractor?

Maybe I’ve got this all screwed up but here’s a simple explantion of how the Fred/Fan system is supposed to work.

A bank lends money to a buyer to purchase a house. The loan is based on standards of what the buyer can afford and what assets the bank has to lend on.

It used to be the bank held a note (the mortgage) and collected until the borrower paid it off. In comes Fannie Mae (or Freddie Mac - why there was a need for another one of these, I’m not sure)

Fannie Mae buys the mortgage and “services” it. They collect payments and hold the paper until the borrower pays it off. This frees up the bank to lend more money. Fannie Mae makes money off the interest.

Since Fannie Mae is buying the paper they get to set the standards as to who gets to borrow money. Due to pressure from Congress (guess who?), Fannie and Freddie begin to press for loans to be made to unqualified buyers - “sub-prime” loans. They also increase the limits as to how much debt people can carry to buy a house.

So people could buy houses they couldn’t possibly afford. And they did. Worse, they stretched their budgets by buying adjustable rate mortgages (ARM’s). Then interest rates started to rise and payments started getting missed.

Then the housing bubble burst. Real estate prices fell . Now people are hanging on to mortgages they can’t afford - or rather defaulting on them. They can’t sell the houses because they are no longer worth what they paid for them.

This is the crisis in a nutshell.

So we have two semi-private (semi-public? government owned?) companies toting semi-truckloads of bad mortgages.

Now. You are a bank. You take deposits and loan money. Your profits come from the difference between what you pay to depositors and what you get for loaning money.

So why the credit crunch? Let’s face it. If banks want to make a profit they HAVE to loan money.

Once again, please understand this is all oversimplified. There are dozens, if not hundreds or even thousands of types of credit instruments out there. These guys borrow from those who lend the someone else and so on. It IS complicated.

But it all comes down to a handful (if that) of very large companies holding a mountain of bad paper.

But the banks sold their paper… to Fred/Fan. So what’s the deal here?

It looks to me to be more of a scam. It smacks of a scare tactic by a handful of moguls. They want the feds to take the paper, sell it to the American people - for dollars on the penny - so they can walk off into the sunset with TRILLIONS of OUR MONEY.

Wait! Did I say “TRILLIONS”? Yes.

You mean you haven’t heard of the “Housing Assistance Tax Act of 2008” ? $300 Billion for Fred/Fan passed in July 2008.

And Nancy Pelosi, et al, said “We aren’t done yet”. What’s that supposed to mean? More robbery? Count on it.

Fred/Fan holds $5 TRILLION in paper. How much is this is bad? Nobody knows for sure.

Now for the current boondoggle:

I can’t recall how many times a congressman said today “Warren Buffett says it’s a good dea”.

If I remember correctly Buffett made his money in stocks - not real estate. By the way, Warren is also filthy rich. Isn’t he supposed to qualify as a “bad guy” due to his wealth?

Okay, so Warren says it’s a peachy deal. How come?

As I wrote before - the basics of this bill is we buy piles of bad paper from Freddie Mac and Fannie Mae. What’s good about that?

Someone said today that if this bill didn’t go through then xxx people would go bankrupt and default on their mortgage. How does buying bad paper prevent this? Are we going to let those living in homes with defaulted mortgages simply not pay? So what happens then?

By the way, if this is such a good deal then why are the finacial wizards on Wall Street jumping on this?

It doesn’t make a lick of sense.

The ONLY thing that makes sense is this is some sort of a shell game and when we finally choose the one with the marble, it won’t be there. It won’t be under the other shells either. Then the guy running the game will disappear too.

We’ve been had friends. To rephrase Pogo “We have met the enemy and voted them into office”.

God bless,

 

Andy

 

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