[Congressional Record (Bound Edition), Volume 156 (2010), Part 6]
[House]
[Pages 7809-7810]
[From the U.S. 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.

[[Page 7810]]



                 [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.''
       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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