[Congressional Record Volume 156, Number 70 (Tuesday, May 11, 2010)]
[House]
[Pages H3299-H3300]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TALE OF WALL STREET
The SPEAKER pro tempore. Under a previous order of the House, the
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
Ms. KAPTUR. Madam Speaker, the clever comedy tale that's being spun
by Wall Street megabanks and their minions here in Washington is that
they are paying back $700 billion our taxpayers bestowed on them in the
fall of 2008. In fact, some spinmeisters say the bailout actually will
cost our taxpayers just $109 billion, not the originally projected $700
billion of costs, called TARP, the Troubled Asset Relief Program. The
PR spin even got CNN to report that the cost to the taxpayers will be
far less than originally anticipated. If you believe that, you'll
believe anything.
One of the bittersweet reasons that they will pay back less is that
the Obama administration originally stated that up to 4 million people
could save their homes through the loan modification program that was
part of the TARP. But through this February, only 170,000 distressed
homeowners received any long-term modification. So that program is a
failure, as the American people continue to be disgorged out of their
homes. In fact, only 4 percent of those eligible have even been dealt
with and their mortgages reworked.
We need a full cost accounting across this economy of what these
speculators did to us. They took our money, they gambled with it, and
then they turned our Treasury into their insurance company. And now
they're dumping all their mistakes on our generation and the next two
to follow.
I want to shine the light on a very dark corner where the true cost
of the bailout sits. Come with me and look beyond the curtain where the
wizard is really hiding. Secretary Geithner and even Elizabeth Warren,
the TARP overseer, say the banks are paying us back. But what they are
paying back is only part of the so-called TARP moneys. Paying back the
TARP is far, far from enough. At least 12 Treasury programs have thus
far cost our taxpayers over $727 billion. Perhaps $380 billion
represents TARP. But there are 24 Federal Reserve programs that have
already cost $1.738 billion. So the approximate total cost of the Wall
Street meltdown is somewhere over $2.4 trillion put right at the
taxpayers' doorstep. That number is staggering. It's huge. Thus, the
TARP money being paid back is less than 1 percent of the staggering
number.
Paying back the TARP is hardly enough. Wall Street banks recorded
record profits and record bonuses last year on the backs of the
American people who are struggling without jobs and fighting to keep
their homes. We expect the $2.4 trillion will continue to rise. And
here is why: Treasury has promised unending support, regardless of the
dollar amount, for the next 3 years to Fannie Mae and Freddie Mac to
fill the holes in each institution. These are two secondary market
institutions' dumping grounds for all of Wall Street's unfinished
laundry.
Our government has spent already $61 billion on Freddie Mac. Plus $83
billion more on Fannie Mae. That's another $144 billion--and the number
is rising.
{time} 1945
We will spend more, as both companies continue their death spiral of
losses. But the $2.4 trillion cost still might not be all that the
financial crisis, brought on by reckless speculators on Wall Street,
will cost us.
What about the cost of all those bad mortgages settled in at Fannie
and Freddie, as well as institutions across this country and world? You
see, the heart of the financial crisis is the housing crisis, so we
need to add in the losses at FHA, VA, and the Agriculture Department
because they all do housing programs. Add in the cost to our economy as
a decline in equity in homes across this country. We need to count that
too. And what about the total cost of unemployment that came after
that? Figure out how much the Federal Government has paid out in
insurance in COBRA payments. What about including an accurate estimate
of the cost of lost productivity? What growth potential have we lost?
And what about the effect on the economy of the loss in stock earnings?
How about the loss in IRAs and pension funds? The Ohio public pension
funds took a $480 million hit with the failure of Lehman Brothers. What
about the effect on the economy of higher premiums on the FDIC banks
who had to shore up the insurance fund because so many smaller banks
have collapsed under the toxic weight and potentially fraudulent
practices of the big banks? Community banks can't expand, hire, or lend
more since more revenue has gone into insuring their deposits. When
these small banks go down due to the damaged economy brought to us by
Wall Street, the big banks gobble them up and even get bigger.
Can you put a dollar value on the mental and emotional strain that
citizens across this country are experiencing? It's clear that Wall
Street is doing just fine, and it's equally clear that Main Street is
not. Madam Speaker, we need a full cost accounting of what Wall Street
cost this economy, and we're far from calculating it.
[From the New York Times, May 7, 2010]
Ignoring the Elephant in the Bailout
(By Gretchen Morgenson)
If you blinked, you might have missed the ugly first-
quarter report last week from Freddie Mac, the mortgage
finance giant that, along with its sister Fannie Mae,
soldiers on as one of the financial world's biggest wards of
the state.
Freddie--already propped up with $52 billion in taxpayer
funds used to rescue the company from its own mistakes--
recorded a loss of $6.7 billion and said it would require an
additional $10.6 billion from taxpayers to shore up its
financial position.
The news caused nary a ripple in the placid Washington
scene. Perhaps that's because many lawmakers, especially
those who once assured us that Fannie and Freddie would never
cost taxpayers a dime, hope that their constituents don't
notice the burgeoning money pit these mortgage monsters
represent. Some $130 billion in federal money had already
been larded on both companies before Freddie's latest request
But taxpayers should examine Freddie's first-quarter
numbers not only because the losses are our responsibility.
Since they also include details on Freddie's delinquent
mortgages, the company's sales of foreclosed properties and
losses on those sales, the results provide a telling snapshot
of the current state of the housing market
That picture isn't pretty. Serious delinquencies in
Freddie's single-family conventional loan portfolio--those
more than 90 days late--came in at 4.13 percent, up from 2.41
percent for the period a year earlier. Delinquencies in the
company's Alt-A book, one step up from subprime loans,
totaled 12.84 percent, while delinquencies on interest-only
mortgages were 18.5 percent. Delinquencies on its small
portfolio of option-adjustable rate loans totaled 19.8
percent.
The company's inventory of foreclosed properties rose from
29,145 units at the end of March 2009 to almost 54,000 units
this year. Perhaps most troubling, Freddie's nonperforming
assets almost doubled, rising to $115 billion from $62
billion.
When Freddie sells properties, either before or after
foreclosure, it generates losses of 39 percent, on average.
There is a bright spot: new delinquencies were fewer in
number than in the quarter ended Dec. 31.
Freddie Mac said the main reason for its disastrous quarter
was an accounting change that required it to bring back onto
its books $1.5 trillion in assets and-liabilities that it had
been keeping off of its balance sheet.
None of the grim numbers at Freddie are surprising, really,
given that it and Fannie have pretty much been the only games
in town of late for anyone interested in getting a mortgage.
The problem for taxpayers, of course, is that the company's
future doesn't look much different from its recent past
Indeed, Freddie warned that its credit losses were likely
to continue rising throughout 2010. Among the reasons for
this dour outlook was the substantial number of borrowers in
Freddie's portfolio that currently owe more on their
mortgages than their homes are worth.
Even as its business suffers through a sour real estate
market, Freddie must pay hefty cash dividends on the
preferred stock the government holds. After it receives the
additional $10.6 billion it needs from taxpayers, dividends
owed to Treasury will total $6.2 billion a year. This amount,
the company said, ``exceeds our annual historical earnings in
most periods.''
[[Page H3300]]
In spite of these difficulties, Freddie and Fannie are
nowhere to be seen in the various financial reform efforts
under discussion on Capitol Hill. Timothy F. Geithner, the
Treasury secretary, offered a vague comment to Congress last
March, that after some unspecified reform effort someday in
the future, the companies ``will not exist in the same form
as they did in the past''
Fannie and Freddie, lest you've forgotten, have been
longstanding kingpins in the housing market, buying mortgages
from banks that issue them so the banks could turn around and
lend even more. After both companies overindulged in the
lucrative but riskier end of home loans, they nearly
collapsed, prompting the federal rescue. Since then, the
government has continued to use the firms as mortgage buyers
of last resort, to help stabilize a housing Market that is
still deeply troubled.
To some, the current silence on what to do about Freddie
and Fannie is deafening--as is the lack of chatter about
Freddie's disastrous report last week.
``I don't understand why people are not talking about it,''
said Dean Baker, co-director of the Center for Economic and
Policy Research in Washington, referring to Freddie's
losses. ``It seems to me the most fundamental question is,
have they on an ongoing basis been paying too much for
loans even since they went into conservatorship?''
Michael L. Cosgrove, a Freddie spokesman, declined to
discuss what the company pays for the mortgages it buys. ``We
are supporting the market by providing liquidity,'' he said.
``And we have longstanding relationships with all the major
mortgage lenders across the country. We're in the business of
buying loans and we are one of the few sources of liquidity
available.''
But Mr. Baker's question gets to the heart of the
conflicting roles that Freddie and Fannie are being asked to
play today. On the one hand, the companies are charged with
supporting the mortgage market by buying loans from banks and
other lenders. At the same time, they must work to minimize
credit losses to make sure the billions that taxpayers have
poured into the firms don't disappear.
Freddie acknowledged these dueling goals in its quarterly
report ``Certain changes to our business objectives and
strategies are designed to provide support for the mortgage
market in a manner that serves our public mission and other
nonfinancial objectives, but may not contribute to
profitability,'' it noted. Freddie said that its regulator,
the Federal Housing Finance Agency, has advised it that
``minimizing our credit losses is our central goal and that
we will be limited to continuing our existing core business
activities and taking actions necessary to advance the goals
of the conservatorship.''
Mr. Baker's concern that Freddie may be racking up losses
by overpaying for mortgages derives from his suspicion that
the government might be encouraging it to do so as a way to
bolster the operations of mortgage lenders.
That would make Fannie's and Freddie's mortgage-buying yet
another backdoor bailout of the nation's banks, Mr. Baker
said, and could explain the government's reluctance to
include them in the reform efforts now being so hotly debated
in Washington.
``If they are deliberately paying too much for mortgages to
support the banks,'' Mr. Baker said, ``the government wants
them to be in a position to keep doing that, and that would
mean not doing anything about their status until further down
the road.''
It's no surprise that the government doesn't want to
acknowledge the soaring taxpayer costs associated with these
mortgage zombies. The truth about Fannie and Freddie has
always been hard to come by in Washington, and huge piles of
money seem to circulate silently around both firms.
Remember last Christmas Eve? That's when the Treasury
quietly decided to remove the $400 billion limit on federal
borrowings available to Fannie and Freddie through 2012.
That stealth move didn't engender much confidence in either
the companies or their government guardian.
But because taxpayers own Freddie and Fannie, we should
know more about their buying habits, as Mr. Baker points out.
Unfortunately, if the government's past actions are any
indication of what we can expect, then don't hold your breath
waiting for the facts.
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