Fannie’s Failure Equals a Failure in Privatization

[rhett o rick]

The Federal National Mortgage Association (FNMA) commonly known as Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market.

Basically working men and women pooled their money (taxes) to help each other out in securing home loans. The sole purpose of the organization was to help working class citizens.

In 1968, FNMA was privatized because bankers wanted to get their hands on the money. Its purpose changed to making a profit and no longer for helping citizens. In good years it did good and the executives rewarded themselves generously. And now in hard times the executives still want their large rewards even though their company failed. Now they want the working class taxpayers to bail them out.

This is exactly what we can expect if McCain privatizes Social Security as he, and his wealthy banker friends, would like.

There is a place for capitalism and competition but it’s not in insurance like FNMA and Social Security. Insurance should be a pool of money set aside to help those of us in the working class that are less fortunate. There isn’t a lot of managing needed. We certainly don’t need middle-men (people) scraping off billions of dollars from the fund.

Now with satellite radio, we need competition. Isn’t it interesting that those that scream for privatization of Social Security to encourage competition are the same idiots that turn a blind eye on the monopolization of an industry like satellite radio?

I tried to use truthiness in writing this. If I have stepped on facts please let me know.

Also posted at keepitsimple-mo.blogspot.com

[YOY]

1. "There is a place for capitalism and competition but it’s not in insurance like FNMA and SS"

This is EXACTLY how I feel.

...and we get called "commies" for pointing this out...by people who've never been to college.

[Trillo]

9. Nice Strawman

Do you actually believe that these Greed Above All Else corporations are run by people who've never been to college? College folks (read that as those with 'higher educations') run nearly everything, and our system is screwed up beyond reason, or so it appears.

On the one hand, you don't appear to like how Fannie and Freddie have socialized their risks and failed their investors and put the larger financial system in jeopardy, on the otherhand you rail against folks that lack higher education. What does one have to do with the other?

[YOY]

16. Nice ivory tower

No I don't. but thanks for playing everyone's favorite gameshow: "I know HOW WHAT AND HOW YOU THINK!!!!"



The "commie line" was about the hooting dickholes on YouTube who dare to take any progressive idea and call it "communism".

[Trillo]

31. So then you simply 'presume'

that these "hooting dickholes" don't have college educations without one shred of evidence that they don't! Then you project "jumping to conclusions" onto others!

[YOY]

33. If they did they aren't using the education they gleaned.

Kindly leave attack mode. It's pretty low self esteem...and I ain't in the mood.

[Trillo]

38. I'm terribly, so very terribly, sorry, that you're not "in the mood"

I'm not in the mood to read tripe about those who lack college educations, when nearly ALL of our problems have been sourced from a hierarchical system where the directors, or 'movers and shakers' (those at the top making the critical decisions) typically have high educations. That's why I replied to you, you brought the tripe not worth reading up. Then you post more tripe about "jumping to conclusions", in reply to me, when I called you on your illogic.

May I kindly suggest that if you're in the mood to do some bashing, that you also be in the mood to receive some? ANything else is hypocrisy pure, plain, and simple.

---

Fannie and Freddie seem more a failing of those WITH high educations, than those without.

[YOY]

39. Look for a fight elsewhere.

Fucking with me on pedantic bullshit because you've got a nitpicking bug up your ass...wrong day wrong guy.

Welcome to ignore asshole.

[Trillo]

41. The "assholes" are the ones

with college degrees ruining everything for everyone else, then making the little people, particularly the 75% without college degrees, pay and pay and pay more taxes, go without healthcare, go without lots of things only rich CEOs can afford, pay for wars in foreign lands, and to top it off those folks have to take insults from you: "and we get called "commies" for pointing this out...by people who've never been to college."

You can sure dish it out but can't take it!

Adios. Good riddance.

[Fresh_Start]

2. if something works reasonably well for 30 years

and then goes belly up due to the changes in the environment, can you really blame it on privatization?
The argument is not working for me.

I think its more related to the cumulative effect of deregulation and lack of enforcement of remaining regulations

[But....]

3. 6 of one...

1/2 a dozen of the other. Privatization makes it a for profit organization, loose regulation and enforcement allows it to be too aggressive

[Fresh_Start]

4. I'd argue you must have regulation and enforcement

when you have privatization.

If those are in place, most of the risk and abuses are manageable.
But all of the controls were loosened and enforcement of regulation was deemphasized to a tremendous extent by a government more interested in aiding business than in aiding its citizens.

[rhett o rick]

5. I agree with strong regulations, but why privatize in the first place? You are just asking for this

type of failure.

[Romulox]

6. Rightwing economics is like a religion; you won't get a straight answer

Merely empty euphemisms like "efficiency", which entirely ignore the central question: "just who benefits from this alleged efficiency?"

When 30 years of deregulation and privatization correspond so neatly with declining wages and rising inequality, the answer is obvious.

[Fresh_Start]

8. Some things like affordable competent healthcare

shouldn't be privatized
Nor in my mind should education.
Nor should public safety
Nor should infrastructure
Though in either case I'd accept there may be a role for competition.

I just don't believe that financial products fall into the category of things which should be a responsibility of government.
However I'm an advocate of strong regulations and even stronger enforcement.

[Romulox]

10. Here's a hint: our healthcare system is ALREADY private, and is the least efficient in the world.

"I just don't believe..."

Economics purports to be a science. Belief is the stuff of religion.

[Fresh_Start]

12. I'm well aware of the deficiencies in our health care

so while I used the word believe, I meant it in the "I have an opinion" and not "I have an article of faith" meaning.

For governmental control to work for the people, the government must want it to be success for the people.
The problem for most of my life, has been that government is a servant to corporations and not to human citizens.
And privatization or nationalization will not solve that problem.

[rhett o rick]

13. Financial products? Fannie Mae is insurance. How do you have competition with

insurance?

[Fresh_Start]

15. Why shouldn't insurance be a competitive product

which for the most part it is?

Should the government be required to provide car insurance, home insurance, renters insurance, flood insurance, earthquake insurance whether or not the beneficiary of that insurance wants it? And bailing out investors over bad investments does not sit well with me. A

If I'm stupid enough to live in California, I don't believe that Iowans need to insure my home and possessions against the inevitable earthquakes.

[rhett o rick]

24. WOW, where to start. First insurance isn't competitive anymore than gasoline prices.

"Should the government be required to provide...insurance." That statement or question tells me a lot about where you come from. And I don't be part of the country. You see I look at government as me and you. I would like all of us in the working class to get together and pool our money to help those less fortunate. That's insurance. Hire a manager and pay them a decent wage. But private insurance's first objective is to make money in lieu of helping the less fortunate among us. In fact to make money, the private insurance companies start but eliminating those of us that are less fortunate. They deny claims because it makes them more money. One company recently gave bonuses to executives that denied the most claims. This may be for you but not me.

But since you live in Calif, maybe this example will hit home. Your local electric company doesn't have any competition and should be run by the people using the electricity (government). When privatized like Enron, the company goes after profit at the expense of the people.

I want an insurance company that won't scrap billions off the top for themselves and then turn around and deny claims.

Might I ask if you are a Libertarian?

[Fresh_Start]

27. The denial of claims and cancellations of policies

is a failure of regulation and enforcement.

[Fresh_Start]

34. No I'm a realist

In another post I'd already said that infrastructure shouldn't be privatized. Utilities are the backbone of infrastructure, I'd be delighted if they were nationalized.

You have to realize even in the Enron example you are citing that there was fraud involved. Its not that utilities were privatized. Its that there was complicit fraud to manipulate energy supplies and transport.

[RaleighNCDUer]

19. And yet, a fundamental such as housing percolates though

health care, education, public safety, and each is threatened when a family loses its home because of the actions of unscrupulous lenders.

Certainly, lack of proper regulation created this crisis, but if these were not privatized in the first place there would be no huge potential for profits that drew the lenders into the abuse in the first place. This was all about the bankers seeing a lot of money being moved around that they couldn't get their fingers into - just like social security.

It would seem that you, like the Freddie Mac lenders, stopped seeing this as being about homes for families in favor of seeing it as just another Wall Street "financial product". Insert competition into any of these arenas and you change the mission from helping the people to maximizing the profit, leaving the people as the last consideration, not the first.

[Fresh_Start]

23. you realize that the insurance in question

is insuring the investors and not the home owner, right?
Could the government please insure my personal investments against loss as well? While I do benefit from FDIC insurance, the government should also protect me from my own investment mistakes. For example, I loss some money in the tech bust.

[rhett o rick]

28. We (the government) got together in 1938 and said we would pool

our money and help the less fortune among us by guaranteeing their home loans. If we didn't, the banks wouldn't loan these less fortunate people any money to buy a home. We don't do this when people like you gamble on the horses or tech stocks, but when people are trying to BUY A HOME, for their family. Again we (the government)don't try to save you from your bad investments but do try to save you from swindlers. Well, we used to, but that has gone out the window now too.

When FNMA was privatized the goal of the company changed from help less fortunate to making a profit.

[Fresh_Start]

30. the crisis in housing isn't because Fannie and Freddie made

profits.

Its because Fannie and Freddie enabled loans to less fortunate people (and to swindlers) without regard to their ability to pay.
Housing had become a Ponzi scheme: facilitated by both the industry and the consumer.

There was failure of numerous regulations, failure of enforcement and outright fraud going on.
Fannie and Freddie profits were the least of the issue.

Fannie and Freddie could have been nationalized and had they allowed the same loans as a non-profit entity, we'd have the same problem.

[rhett o rick]

35. But why privatize them?

I want to thank you for the good dialog, I appreciate being able to discuss issues in a friendly manner.

[Fresh_Start]

36. I haven't gone back through the Congressional Record

to see what their original reasoning was.
I've read it was because of the costs of the Vietnam war and trying to control the federal budget.

Government is not known for innovation. While we can look at the synthetics and say how could the financial institutions be so stupid......, I'm sure there was more innovation in mortgage lending after they were privatized.

I attribute most of the problems to failure of "safety and soundness" regulation compliance, outright fraud and hubris. The no-doc loans were referred to as LIAR loans (or NINJA loans - "no income, no job, and (no) assets). Lending had itself become national: there was a loss of local market knowledge versus the old days of getting a loan from the neighborhood bank. The consolidation in banking, the increase in reliance on electronic scoring versus personal lending judgment, lenders didn't know the geographies where they were lending, and without question that presence of the government guarantee itself reduced the perceive risk for the lender and transferred it to the government.

And the real estate agents, the appraisers, the lenders and the consumers were all happily playing a game of 'greater fool'. The shortage of housing made people pretty desperate to buy. In my town, vacancy rate was below 1% and new listings would have multiple offers before the open house. And that situation went on for years.

[Fresh_Start]

37. you don't have to thank me....we should all be civil here

the privatization occurred under a Democratic President and a Democratically controlled Congress.....so in general, I'd assume that they weren't out to get us as much as they didn't forecast the risks that have compounded that original decision

[RaleighNCDUer]

29. When privatized, there is incentive to take risks - which they leaped at -

in the hope of greater profits.

When NOT privatized the incentive was to get people into affordable homes, creating a stable middle-class. With no profit to be made off marginal clients, only those who could REALLY afford the mortgages were approved, which ensured 1)a low foreclosure rate, and 2) a family stepping into the middle class.

Since the government was intent on housing people, not making money, they didn't approve risky loans - that benefited EVERYBODY. When it was privatized, the brokers could make money on it even if the borrower went belly up, so they had no incentive to deny the risky loans. The social consequences, however, meant a homeless family, massive debt, bankruptcy, job loss, etc.

Privitizing these institutions was a first step at dismantling the new middle class. Before this time the vast majority of people rented. During the past few decades we've had unprecedented home ownership. Now, we are moving again into a period of rentals predominating.

We could well come to see the communist revolution that the New Deal forestalled, when the banks once again own all the property and 1% of the population owns 70% of the wealth. That is what the republicans and neo-libs and their predatory capitalism are bringing us to - a new gilded age.

BTW, you are lucky you lost some money in the tech bust. Most of us out here had no money to lose in the tech bust.

[Fresh_Start]

32. I remember what it was like to be regulated

Safety and soundness have not been legislated away.
They have been neglected away.

[rhett o rick]

25. Well said. nm

[Fresh_Start]

7. FEMA wasn't privatized

it was purely incompetent.

Not privatized doesn't ensure competency or effectiveness or even the right priorities.

I believe that effective competition will lead to more innovation and effectiveness provided the right regulations and enforcement are in place.

[Romulox]

14. The problem with your ideology is that regulation is a product of a value system

For example, if you regulate the way businesses handle customer data, it is likely due to the fact that you value privacy over the marginal increases in "efficiency" that would occur if privacy was not an issue.

However, the value system embodied in the modern "third way"/laissez-faire/neo-liberal economics is merely and solely wealth maximization--any benefit to the American people is a mere "trickle down". In other words, the ideology of privitization is that consumers/taxpayers incidentally benefit from tooth-and-nail competition, and benefit to the American people is not the primary (or even secondary) motivation of capitalists.

Therefore, to say that the "right regulations" will secure "effective competition " begs the question: what purpose will these "right regulations" serve? What values will they embody? If it is not the greatest good for the greatest number of Americans, then what good would more regulations do? Promote "efficiency"? "Efficiency" is just a word that means "capitalists get to keep more of the wealth that workers create".

So you see, the very concept that the "right regulations" would keep multinational corporations in check is silly--if our values as a nation are economic darwinism and "every man for himself," the "right regulations" will merely facilitate this end.

[Fresh_Start]

21. The same problems exist without privatization

The problems you are alluding to are not limited to privatized organizations. If the federal agency is not regulated to secure the most good, it also will not do so. And even if it were intended to so so, the bureaucracy can readily be corrupted so that it utterly fails to serve anyone other than however is in power.

There are numerous government entities which are not privatized which have been working for business and not the people. That should be painfully obvious to all of us.

Like you are suggesting, multinational corporations cannot and will not ever put the people before their own investors. However, multinationals already exist and wishing them away is pointless. I'm thinking we need to remove the profit motive from government contracts. Hell, there should be a 'draft' whereas they are compelled to serve the country without profit. Many humans serve their country and put their lives on the line to do so, the very least that corporations could do is put their profits on the line

[rhett o rick]

20. You missed the point of the post.

Just because the republicans can't (and don't want to) run government effectively, doesn't mean we should privatize everything. That's exactly why they don't make government work. Competition has it's place. For clothes, cars, computers, shoes, lawn service yes. Insurance no.

[Fresh_Start]

22. oops response posted on wrong post, please delete

thank you

[galileoreloaded]

11. Ummm time to look at the plan again.

The goal is to pull Fraudie and Phoney off the market, absorb the losses at the treasury to keep the overseas buyers of the CURRENT treasuries "whole' then split the company up into 8-12 separate profitable entities, and then re-capitalize the Governments losses with the private sales of the NEW companies back into the marketplace. It is pretty clear, and most money gurus have been writing about it for days. The PROBLEM is that as they continue to make our overseas "credit card companies" whole, there is great risk that the US drops AAA rating, and we are unable to service the debt. (the interest) All they did was absorb the losses into the system, hoping it is short term.

The rub is that as interest rates on housing fall, the actual cost of money becomes negative, increasing the hyperdeflationary/hyperinflationary balance to a knife's edge.

The only choice was to BK the country now, or put it off 6-8 weeks. Most would say put it off, as there are so many people dependent on .gov support and services that it would greatly influence an election cycle. The net effect is the same overall. We will repudiate our debt, one way or the other in the coming weeks, as all structural support for our ENTIRE financial system is dissolving like a tissue in the tub. Worthless dollars or worthless homes and cars and 401k's, same net effect.

Even the MSM is starting to fronpage this so as to get us quietly ready for what is coming. Evidence?? Headline and link to CNBC's website this AM. Still up.


Bailouts Will Push US into Depression: Manager

Companies:Fannie Mae | Freddie Mac
By CNBC.com | 11 Sep 2008 | 09:11 AM ET


The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.

"We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange."
<snip>

Unfortunately, this will not be solved politically, by either candidate as there are no bullets left to fire. It is a singularity event that will require a 1830's mentality to fix, not recycled 1930's or 1960's ideas. The differences between now and those times are staggering, as we have no oil, we are not the lender nation, and the majority of the populous has is just starting to figure out that promises made are NOT promises kept.

I am soooo sorry that we are living this, and I am sorry for my little kids, but the harsh reality is that people steal. Given the opportunity, and the proper incentive, EVERYBODY steals. We have witnessed the longest and largest (central) bank robbery in history.

All that is left to say is good luck, and be safe.

[rhett o rick]

17. You mean if we ignore it, it won't go away? I bet FDR is spinning in his grave.

Thank you Mr. Roosevelt for 60 good years.

[Johonny]

18. Republicans stand for privatized gains

socialized loses.

[rhett o rick]

26. Loot and pollute. nm

[ColbertWatcher]

40. I started a thread asking questions about privatization ...

... can anyone check it out and give it some love?

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=3976387&mesg_id=3976387

[rhett o rick]

42. Apparently not a top issue today. nm

[Supersedeas]

43. a concession that Government oversight in many areas of the economy is NECESSARY