GOP senator on mortgage bailout: 'Socialism is alive and well in America'

Republican Sen. Jim Bunning of Kentucky today slammed the Bush administration's proposal to bail out Fannie Mae and Freddie Mac, declaring, "socialism is alive and well in America."

"When I picked up my newspaper yesterday, I thought I woke up in France," Bunning said in a statement today. "But no, it turns out socialism is alive and well in America. The Treasury secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed's purchase of Bear Stearns' assets was amateur socialism compared to this."

In a news conference this morning, President Bush (pictured) defended the rescue plan for Fannie and Freddie, saying, "I don't think it's a bailout."

"If your question is, should the government bail out private enterprise, the answer is, no, it shouldn't," Bush said. "And by the way, the decisions on Fannie Mae and Freddie Mac -- I hear some say 'bailout' -- I don't think it's a bailout.  The shareholders still own the company.  That's why I said we want this to continue to be a shareholder-owned company."

Relatedly: The Securities and Exchange Commission is taking emergency action to protect Fannie and Freddie in the stock market. Bloomberg News: "The U.S. Securities and Exchange Commission will take emergency action today to the limit the ability of traders to bet on a decline in the shares of Freddie Mac, Fannie Mae and brokerages, the agency's chairman said."

Analysis: Under the president's proposal, the government could become a shareholder of Fannie and Freddie. That's not what most Americans mean when they talk about a "shareholder-owned company." The government is taking extraordinary and unprecedented steps to protect and support Fannie Mae and Freddie Mac.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Getty Images.

Comments

[sfvrealestate]

Peter, are you TRYING to court the Drudge crowd with incendiary headlines like these? Has this Kentucky politician never heard of the FDIC or any other government-run social safety nets? If you ask me, there's NOT ENOUGH socialism in this country -- we need more government and we need it now.

[MyLessThanPrimeBeef]

I don't mean to step on the CIA's toes, but there is your terrorists and their mass weapons of destruction right there - two brothers, Freddie Mac and Fannie Mae with their mortgage backed securities, holding the entire world's financial fate hostage.

I don't know about you, but these are terrifying times.

[jb]

Private gains, public losses - the system is crooked.

[NevadaGal]

Wow,

Traditionally, all the upheaval and any financial "oops" seem to happen around Sept-Oct in the markets. It is only mid July this time. It is going to be a very interesting Fall/3rd Q this year.

Maybe one for the history books!

[Tombstone Realty]

"The shareholders still own the company. That's why I said we want this to continue to be a shareholder-owned company."

Yeah, it's just the shareholders are the government, that's all.

Between this, and his thought we can just go off shore with a shovel and a straw to get more oil.......

[John Haberkorn]

Peter, I seem to recall your predictions for 2008. Didn't one of them include the announcement of a bailout with the Washington gasbags saying, "This is not a bailout"?

BTW: Thanks for your blog. It's a daily read for me.

[Lou]

Thanks God someone said it. I always laugh when I hear people criticize America for being too capitalist. HA. I wish America was capitalist. We have institutions like the Fed and Fannie manipulating the market. And at the same time the majority of our budget goes to unchecked entitlements that will eventually bankrupt our country. Capitalism, American should try it sometime.

[Nelcisco]

so the government is taking extraordinary & unprecedented steps to save Fannie and Freddie huh, and Bush says "I don't think its a bail out"...what is it then?

Is it any wander why his approval rate is in the toilet!

I'm not for government intervention when it comes to publiclly traded companies but the survival of the Mortgage and RE industry counts on a bailout at this point.

[David Raether]

I don't have an axe to grind, I just want to know: What would happen if the government did nothing and Fannie and Freddie went bankrupt?

I was talking about this with a friend and we couldn't figure out what this would mean.

Could one of the readers of this blog who actually knows write in and explain what happens if they go under.

Also: upsides and downsides of that event.

Thanks in advance!

[It All Happens on the Margin]

Private gains, public losses - the system is crooked.

Posted by: jb | July 15, 2008 at 12:21 PM

Huh? For years, the Federal Government has profited from Fannie and Freddie in a sort of sick relationship. They are deepening it now, offering them discount window access and stock in the 2 companies.

For years, government at ALL levels has profited from the runup in home prices in the form of property tax, recording fees, etc.

And for the past year, California has taken in huge sums of coin in gas tax revenue (not enough to offset the losses in the home market, however).

[Nick]

Well, Bush is technically correct: a bailout assumes that as the end result, the entity being bailed out is thus safe and sound. The GSE's will not be safe or sound as a result of the US using billions of taxpayer dollars to pay off their losses, they will still have bad debts, and still be doing the same things which incurred the losses. It would be more accurate to call it a payout of taxpayer dollars than a bailout.

That's probably not what Bush meant, but it's ironic that even though what he intended to express was laughably BS, he ended up being technically correct. Now if we could just get the media to call all these "rescue" and "bailout" plans payoff plans (as they are), we might get somewhere with public sentiment.

[Tombstone Realty]

Why Freddie/Fannie is dangerous.

I've been following this whole thing on the marketwatch board.

A banker posted, from a smaller bank , because someone asked why don't we just let Freddie/Fannie rot. He said that it would devastate his own bank, and many others, even though his bank didn't get involved in the subprime loan thing at all. Apparently they use Freddie/Fannie investments as a source of safe liquidity to fund their operations.

If the share value vanishes, either by failure or government bailout, there goes a good chunk of lifeblood for his bank.

I'm not a banker, but it would explain why the government is so furiously working to save them, and the usual Fed/Treasury power struggle isn't occurring.

[joe]

Well it is not hard to see socialism is alive and well in America. Just listen to anything Obama says. Just about all the the elected Democrats are obviously socialist/marxists.

[TakeFive]

Posted by: sfvrealestate:

" If you ask me, there's NOT ENOUGH socialism in this country..."

Your being facetious, right? Or have the real estate commissions become so scarce that now you want the rest of us to pay your bills?

I'll bet when times were good, you complained endlessly about all the taxes you paid.

[Champagne Panic]

Lets just hope that Bush and Cheney don't get killed
live on TV. Because that would cause a long and
ugly champagne panic. I just don't think this country
could handle that with all the other panics.

[Rich]

Few of us had realized that during the long night of Republican rule from Reagan forward classical conservative economics was wasting away and being replaced by a handful of hollow cliches that its own followers would believe without any practical grounding in real politics or economics. all week long the talking heads at CNBC have been pointedly asking everyone in sight whether government policies supporting home ownership weren't bad and why shouldn't we just stop and let the market take care of everything? Of course, doing away with the home mortgage deduction and allowing Fannie and Freddie to fail would plunge housing and the rest of the economy that relies on it into a hundred-year recession, but none of their guests had the wit to point that out. And we all know that homeowners take better care of their property and have more invested in their communities than renters, but abstractions like that don't seem to count in the new conservative economics.

Another set of pundits at some of the market journals are demanding that the government seize all the shares from existing investors in Freddie and Fannie as part of the government's plan--never mind that Fannie and Freddie are actually fully solvent at this point and the idea behind the Paulson plan was give the market confidence in buying their packaged securities going forward. The neocon economists want to scorch the earth and never mind that no sane person would ever buy stock again knowing that people out there want to bankrupt them every time a company goes through a rough patch. Purity for its own sake is all that matters, and all of these capitalist puritans come from privileged backgrounds where nothing that matters to the rest of us is any practical issue to them. I'll take socialism over malign neglect any day...

[Laker]

sfvrealestate wrote: "...we need more government and we need it now...."

Sure, so that RE agents would get their commissions flowing....

[Laker]

I have a solution that would be good for everyone except share holders - and that is how it should be. Share holders get gains and take risks.

If there are no risks, there are no gains.
My idea is to let Fannie and Freddie go bankrupt, thus wiping out the share holders completely. All the bond holders would also take the loss on their notes.
Liquidate and sell the mortgages to other investors/banks for market value. Keep in mind the government is only backing about $5 billion of Fannie & Freddie combined.

At the same time, create a new government entity "BENNIE SMUCK" (or any name you want) FULLY funded and backed by US government to buy mortgages and mortgage backed securities that are scrutinized based on normal lending practices such as buy any loan up to Million dollars where the borrower put 20% down of his documented cash, (no 2nds), have reserves to pay 6 months, qualify him based on 30 year fixed including taxes and insurance, and his documented income is 1/3 the loan amount. Allow this for 720+ FICO. You can relax the 1/3 income to loan ratio by putting 30% cash down and FICO of 800.
So, with this, we will have a new entity that will buy all the good loans with tax payers money but those are good loans that will not risk the tax payers but actually provide profit. All the bad loans go to the garbage and have the investors hold the bag for them.
That is also called Privatize the profits and privatize the losses.

[sfvrealestate]

C'mon, Laker and TakeFive. Put down your Realtor axe for a sec and listen. The anti-regulatory, anti-big government climate that has existed in this country since Reagan has produced the savings and loan debacle and now the financial market debacle. We need more government regulation so this crap doesn't keep happening. That way, the gains aren't privatized as much and the losses don't become public problems. We also need universal health care and solvent Social Security, but that's a different blog. So, no, I wasn't joking. And BTW, nobody likes paying taxes, not even you guys.

[Nick]

Well really, the only real problem with socialism as a government structure and policy is its complete and utter failure to ever produce any tangible, real benefit for the people above what capitalism produces. Other than that, it's a very good, efficient, well-functioning system which works well, in particular in theory. I wouldn't personally want to see the US go that way, but I'm not going to say it has no benefits; as a theoretical model, discounting every single instance where it has actually been done, ever, and allowing for flexible enough definitions (so that each person can construe the system in their own mind for their own optimum benefit), it works great.

[It All Happens on the Margin]

SFVRE,

would you support more regulation in RE, including making the MLS public record, rather than a private database?

Redfin, zip, and others have been fighting over this in court for years, and the Realtor lobby continues to use the "private/proprietary information" line as a means to preserving the sacred 6%.

Meanwhile, in other "enlightened" markets, like the UK, commissions are under 2%. In Hong Kong, they are around 1%.

Proof:
http://realestate.uc.edu/Publications/International
Brokerage.doc

'splain that.

[TakeFive]

Posted by sfvrealestate:

"We need more government regulation so this crap doesn't keep happening."

Gov regulations ARE why this happened. All this carping about low income earners with poor credit being denied loans because of racism lead to government meddling in the mortgage business. Fannie Mae and FHA being fine examples.

If the lenders had their own money on the line and merely the objective standards of income and credit history to set the risk, this bubble would never have occurred.

But the sweet irony in all this is watching reality collide with the PC notion that FICO scores and earnings history are unfair.

We just tried socialism by giving everybody a loan. And it failed. Again. But your solution is...more socialism?!

[shockg]

have reserves to pay 6 months, qualify him based on 30 year fixed including taxes and insurance, and his documented income is 1/3 the loan amount. Allow this for 720+ FICO. You can relax the 1/3 income to loan ratio by putting 30% cash down and FICO of 800.

HAHA. This is of course coming from someone who claims to have sold his home near the peak and is sitting on a pile of cash. How realistic is 30% down? What about the first-time buyers who have no equity to roll into a house? Your situation is not representative of the little guy. What self-serving non-sense.

[sfvrealestate]

It All Happens on the Margin: did you mean more regulation or more transparency re the MLS? I'm all for both.

The mls/public trend hasn't hurt at all -- it has just created more educated consumers. Or so I'd like to think.

Further, I think the government should stiffen the licensing requirements -- right now, it's as easy to get a real estate license in California as it was to get a loan 18 months ago. (BTW, loose licensing requirements there were another anti-government invention that helped the large brokerages and hurt just about everybody else. Okay, so my manager is going to kill me.)

Also, I think that the more regulation in the r.e. industry, the less likely it is that the big banks are going to want to "own" the business -- and they've been working on that very thing for a number of years.

Finally, I can't speak to foreign countries and their commission structures, but those agents are probably commissioned employees and not solely independent contractors, like we are here. But just so you know, at the end of the day, after broker splits and costs, an agent's commissions here probably amount to less than 1%.

[It All Happens on the Margin]

SFVRE:

The international figures I quoted are apples:apples with the US's "standard" 6%. On average, sellers pay a total 2% commission to the listing BROKER. We are way outside the norm, mainly because the MLS is privatized and access is limited to Realtors. So non-traditional listing models, like Redfin and others, have been restricted from access to "proprietary" information, like extended photos (for some regional MLS's), listings that are over 1 week old, or simply blocked access altogether.

Why?

Because the Realtor lobby is extremely strong and vigilant about MLS access. It's evident in their litigation, vigorously blocking the firms above (and even squeezing realty.com, a very early "redfin-style" attempt) from fully accessing MLS content.

Again, why 6%? I, and many others (including the UC study linked above) postulate it is because of continued de-regulation of the real estate industry and a resistance on the part of realtors to make public the MLS.

I get that agents make a tiny piece of the action. But the broker-agents (Re/max and the rest) make full pop....