The Bush administration pushed for, and got, the biggest bailout in history of private shareholders, at taxpayer’s expense. The National Debt was raised $800 Billion to cover it.

The banking and mortgage industries and millions of homeowners are in terrible shape. Foreclosure rates are at levels not seen since the Great Depression, and bank failure rates could reach depression-era levels, if not for swift action by the government to bail them out, and even then it will be too late for many.

More...

Recent diaries, such as this one have tackled the current foreclosure crisis.
This diary is an attempt to explain how we got where we are from the point of view of a former Fannie Mae employee. Today I will tackle a much-abbreviated version of the foreclosure crisis and the (possible) role of Fannie, Freddie and HUD in allowing it to happen. I tried to document as much as possible but couldn't find sources for some of the stuff I was told as a Fannie Mae employee.  If ANYONE has sources about these things (or counter sources--memories are an imperfect source) PLEASE put in the comments field. In a later diary I will tackle how to avoid getting into a foreclosure mess AND how to pay off your fixed-rate mortgage up to seven years early without really feeling it.
I worked at Fannie Mae from 1991-94 in an administrative job, leaving to take a job in my field of graduate study.  At the time Fannie was rolling in dough, primarily because of the Mortgage-Backed Securities business. Fannie Mae and Freddie Mac, the two private companies who originated as government agencies during the Roosevelt administration, were at that time the main issuers of Mortgage-Backed Securities, also known as MBS.

In a terrific piece that has gotten a fair bit of attention in the financial press, but received little mention outside those circles, Bill Gross, the bond market guru at PIMCO (the top bond investment manager) tells us in plain terms about the very knotty trillion dollar problem that may not be fixed "till the cows come home".  We kinda knew that it was worse than we thought but, Mr. Gross thinks that our policy makers in Washington have come up with a proposal that will work and one I think Kossacks should support.  

The presription is not going to taste good, and there will continue to be a great human toll, but I too think the patient will survive if we support current initiatives.

^{Cross posted on
The Economic Populist -
A Community Site for Economics Freaks and Geeks}

Failure in war can be a bad thing.  Failure in business can be a personal loss, and in some instances a detriment to the economy.  With the recent calamity hitting the two largest mortgage lenders, not to mention other large American business concerns, it seems to a select few that failure is indeed a viable and good option.

A gamble with very high stakes is being openly promoted by adherents to a free-market orthodoxy.  These individuals, gaming on anger and the perceived loss of utility of these given enterprises, are pushing the public onto this wager.

to bail out Fannie Mae and Freddie Mac.  Too big to fail, the worst is behind us and home values will begin to increase again.  

All of that has so many echoes from the recent past that one would have to be an ostrich not to hear them.  For those with a much longer and/or historical memory, the echoes are terrifying.

Iraq.  Enron.  Abu Ghraib.  Bear Stearns.  Bad apples.  Evil doers.  Too big/too important to fail.

Can you remember back a trillion or so dollars ago when taking down Saddam and Iraq was estimated to cost a mere $20 billion -- or nothing if Iraq’s oil revenues could be appropriated to pay for it?  Did you buy that?  It struck me as ludicrous as Bernanke‘s assertion that Fannie and Freddie will cost the federal government no more than $25 billion..  

These are words I longed to hear. Never thought I would hear:

             Cap ...     Executive ...     Compensation

How do Americans feel about a possible $25+/- billion "bailout" of Fannie Mae and Freddie Mac, the institutions which hold about half of the nation's mortgages?

Personal and family PAIN involved in all these foreclosures is simply incalculable and completely ignored. One out of every 200+/- homes in FL/CA/AZ is being Foreclosed! (1/122 in NV.) usnews

Senator Jim Webb talked (on Charlie Rose last night) about executive compensation at corporations where American taxpayers are holding the bag. I for one am grateful for this kind of leadership. At least that would be some progress.

Sorry guys. this is just one picture, but I really had to do a diary on it. b/c it's funny.

Fake news from richieville.com

FED BAILS OUT BERNIE MAC

Comedian Gets Check For $1.5 Trillion

Richieville News Service-WASHINGTON, D.C.

In its zeal to rescue the floundering mortgage giants Fannie Mae and Freddie Mac, the Federal Reserve Bank has also bailed out actor and comedian Bernie Mac, sending him a check for $1.5 trillion. An agency spokesman said the error was a clerical mistake.

"Look, we're working really long hours," said Fed Chairman Ben Bernanke, speaking to reporters here. "Everyone's a little frazzled, so mistakes like this are going to happen."

There probably isn’t a man alive who doesn’t reach his hand into his pocket on a daily basis. It is a normal occurrence, paying for a purchase, or just standing around waiting for something, hand in the pocket without giving it a thought.

Well the news out of Washington Friday July 11 was more than a bit disturbing. It seems that we are all familiar with George Bush and his moneyed Republican friends sticking their hands into our pockets, through high gasoline and food prices, as well as through taxes on everything including the kitchen sink.

George W. Bush's legacy won't be what he has done to civil liberties, the environment, the initiation of a war based upon lies, or any dozens of other problems he created. It will be based upon the reality that the economy affects every person, rich or poor, liberal or neo-con, fundamentalist or atheist.

Yesterday, George W. Bush took a time out from his grueling schedule of insulting world leaders and playing Xbox to hold a press conference about the economy.

As is typical with a Bush press conference, is was a unicorn pony ride through fields of candy corn.  Follow me over the jump, to revel in wonder and merriment.

For those of you new to this:

Questions from the press are italicized for your pleasure.
Bush's bullshit is thick and bold, like in real life.
My responses are in plain text, which I'm sure means something profound.

Now, let me pass it along to you!

It is my habit to turn on the radio (NPR) during morning kitchen time - making/eating/cleaning up after breakfast.   We got up so late yesterday, that by the time I flipped on the radio, the Decider-in-Chief's Press Conference, (which many suspect to have been timed to divert attention from Obama's speech, later yesterday) was just getting under way.

Normally, my urge is to change the channel.  I hate that whiney, patronizing tone and those slurred s's with all my heart!   But I toughed it out, and now, I'd like to share my pain (and my responses).  

(By the way - it's much easier to read than it is to watch or listen to! No smirks or attitude!)

The Fannie and Freddie show is not over yet.

In an article in the Telegraph today, Ambrose Evans-Pritchard warns that the the US Treasury may have just days to act before foreign patience snaps

Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.

Please read the full article. It is enlightening, and scary.

As of the time of this writing, it appears that there is no other coverage of this gaffe on the internet anywhere. I wish that I could have found video to embed here, but none was available. I transcribed it myself having recorded it using my dvr on closing bell on CNBC at 3:00 p.m. CST Tuesday, July 15. The gaffe occurs at the seventh minute.

Closing Bell on CNBC began to at least acknowledge that some feel there might possibly be a problem with the housing market and potentially the economy.  

Gretchen Morgenson, the Pulitzer Prize winning NY Times financial writer, appeared on Closing Bell today. She spoke about the President's remarks.

When I was growing up as a young Republican dork, I was told that "regulation" was a bad word. Sensible people were for less government regulation. Socialists were for more government regulation because they liked big government controlling the markets and your life. And most of all they loved red tape that inhibited business.

And to this day, I still shudder when I hear the word "regulation." It sounds so nasty and socialist. That's the power of brainwashing.

Here's the only problem - it turns out you totally and completely need regulation. Without government regulation, the excesses of the market go unchecked and we constantly have financial meltdowns. Kind of like ... now.

Or,  What Would The Great Depression of the 1930s Look Like in Our Modern Economy?

It's been quite a week for Capitalism.

On Friday, federal regulators seized the assets of Indybanc, making it the second largest bank failure in American history. On Monday morning depositors were reported lining up at Indymac branches in California at 4:30 AM in an effort to get their deposits out.

http://www.bloomberg.com/...

July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers.

... ... ...

``I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an interview from Singapore. ``So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.''
... ... ...

There has been a lot of discussion about whether or not the Federal Government should be stepping in and fashioning a bailout on Fannie Mae (FNM) and Freddie Mac (FRE) which are both publicly traded stocks.  

While I feel strongly that we spend too much money bailing out failed banks, investors and more, I have very strong feelings about this particular bail out.

There's a bigger picture here that you might not understand.  Follow me through the Fannie Mae disaster.  Tomorrow I will write a diary similar to this regarding Freddie Mac.