Anti-bank rhetoric may be all the rage, but there are 19 billion reasons why taxpayers should redirect their anger toward Fannie Mae and Freddie Mac, the lawmakers who keep bailing them out and the news media that refuse to report it.
$19 billion in taxpayer money to be exact—and that’s just this time.
On May 10, The Washington Post reported that government-owned mortgage giant Fannie Mae lost another $11.5 billion and will request additional taxpayer support of $8.4 billion “to stay afloat.”
Fannie’s sister in socialized risk, Freddie Mac, will ask for $10.6 billion more from taxpayers after losing $8 billion in the first quarter. Add it up and that’s $19 billion more tax dollars down the drain.
Don’t expect the TV news to criticize it; in fact, if history repeats itself the network newscasts won’t even report the bailout requests. The three broadcast networks ignored their previous request for $15.3 billion in March.
Even back in 2004, when accounting scandals at Fannie Mae reached monumental proportions (think Enron x 19), the television news media barely covered the story.
The news of continued losses at Fannie and Freddie should also give taxpayers more reasons to think that the financial reform bill won’t solve the nation’s financial systems problems.
That bill, crafted by Democratic Sen. Chris Dodd, hit the Senate floor on May 11. Having shielded Fannie and Freddie from congressional intrusion for years, Dodd made sure to exclude them from the reforms despite their role in the financial crisis. In fact, the risks taken by Fannie and Freddie inflated the housing bubble and led, in part, to the economic collapse.
The government-sponsored enterprises (GSEs) used their government mandates to increase home ownership and implicit (now explicit) guarantee from the Treasury Department to dominate the mortgage market, unfairly competing against private companies. According to The Washington Post, Fannie and Freddie “fed the crisis” by buying subprime loans as early as 1995. Now, the federal government owns them guaranteeing all the losses fall on taxpayers.
Yet as of 2009, Fannie and Freddie still “financed or backed” 70 percent of single-family mortgages, according to Bloomberg Businessweek.
Allowing Fannie and Freddie so much power has cost taxpayers dearly. This week’s bailout requests bring the total cost of bailing out the former GSEs to roughly $145 billion. Taxpayers can thank Democratic Presidents FDR, Bill Clinton and now Barack Obama for all that waste.
Forget “too big to fail,” Fannie and Freddie are too well connected to fail. The duo have played the Washington political game for years spending a combined $170 million on lobbying between 1998 and 2008, and $19.3 million in campaign contributions to well-known Democrats and Republicans between 1990 and 2008.
In 2006, Freddie Mac was fined $3.7 million for allegedly violating federal election law. In 2004, both Fannie’s CEO and vice chairman were former Clinton administration officials.
Fannie Mae has had powerful Democratic connections ever since it was chartered by Congress in 1938 under FDR. Clinton expanded the power of both GSEs in the 1990s, which even The New York Times realized could be a problem.
“Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s,” the Times wrote on Sept. 30, 1999.
The Times was incredibly prescient, since that is exactly what happened once the housing bubble burst beginning in 2006. The Wall Street Journal had also warned about corruption, excessive risk and political relationships of Fannie and Freddie repeatedly since 2002.
Obama is also well tied into the GSEs, as their second highest campaign donation recipient (1989-2008), according to OpenSecrets. Obama repaid their generosity in 2009, when he removed their debt ceiling of $400 billion, ensuring that the government can continue to prop up the Democratic mortgage shops with the taxes of productive citizens no matter the cost.
According to The Washington Post, former CEO of Fannie Mae Franklin Raines, who had been ousted due to “extensive financial fraud” that happened during his tenure, was in talks with Obama in 2008. The article said Raines had recently “taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters.”
With friends in such high places there is no reason to believe any of this will change. As evidenced by the financial reform bill, Dodd and others in Washington don’t want to say no to their buddies at Fannie and Freddie. But they are attempted to exact their pound of flesh from the “greedy” Wall Street banks.
The latest $19 billion request is a mere fraction of the taxpayer money already used to bailout Fannie and Freddie. Those bailout costs will continue to climb if Congress won’t do anything to end Washington’s best example of “too big to fail.”
Julia A. Seymour is the Assistant Editor for the Media Research Center’s Business & Media Institute.