Russia Holds all the Cards – Thank the Freddie/Fannie Debt in Part
March 17, 2014 | Filed underBreaking News,Economy | Posted by SUAadmin
By Scott W. Winchell and Denise Simon – SUA Editors
When we see that what is happening in the Crimea has roots that date back long ago, we see why Putin can do whatever he wants because he holds a huge hammer over the US, a huge economic hammer.
The Chinese hold a similar hammer as well, all totaling over $1.7 trillion of the $5.4 trillion of all securities related to Freddie and Fannie held overseas.
No matter what Obama and the EU may want to do to stave off these “1938 Sudetenland” style tactics for land grabs, Putin can do what he wants because he knows he can take our stock market down at anytime. How do we know this? He already proposed a plan to the Chinese to do just that, the Chinese however balked at the idea in 2008.
Meanwhile, billions go “off-book” as Amy Payne points out to us in her piece at The Foundry posted below. What is more bedeviling; the ties to Russia and China holding all that toxic paper six years later, or the fact that our own government is hiding it all in plain sight?
In an interview with Hank Paulson by Robert Preston at the BBC, he cited the title of an article: “Russia planned Wall Street bear raid,” and tells us of the utter fear the former US treasury secretary was feeling and how close we came to a complete economic collapse. In that Interview, Paulson said:
“When Fannie Mae and Freddie Mac started to become unglued, and you know there were $5.4tn of securities relating to Fannie and Freddie, $1.7tn outside of the US. The Chinese were the biggest external investor holding Fannie and Freddie securities, so the Chinese were very, very concerned.”
Visiting Russian Prime Minister Vladimir Putin and China's Premier Wen Jiabao shake hands at the Great Hall of the People in Beijing, China in March 2014
Visiting Russian Prime Minister Vladimir Putin and China’s Premier Wen Jiabao shake hands at the Great Hall of the People in Beijing, China in March 2014
“Here I’m not going to name the senior person, but I was meeting with someone… This person told me that the Chinese had received a message from the Russians which was, ‘Hey let’s join together and sell Fannie and Freddie securities on the market.’ The Chinese weren’t going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship [the rescue plan for them, that was eventually put in place].”
For me this is pretty jaw-dropping stuff – the Chinese told Hank Paulson that the Russians were suggesting a joint pact with China to drive down the price of the debt of Fannie and Freddie, and maximize the turmoil on Wall Street – presumably with a view to maximizing the cost of the rescue for Washington and further damaging its financial health.[/i][/b][/size]
Robert Preston continues: But this kind of intelligence from China on Russian desire and willingness to embarrass the US in a financial sense may help to explain – in a small way – why President Obama shows little desire to understand Crimea as seen by Mr Putin. (Read the complete article at the BBC here.)
Oh the ‘ties that bind’ and the ‘tangled webs we weave…’ Please read both articles knowing that Obama is now not going to levy any sanctions on Putin per John Bolton on Greta tonight. Meanwhile, you may wish to read about Russia’s energy investments, especially page 17 of this report: “Russian Energy Investments in Europe” here.
We hear that most of this happened because of the Bush Administration, and in fact, the following was said in an OpEd to the Washington Times in 2008: “Neither the White House nor Congress heeded the warnings, Fannie and Freddie retained strong bipartisan support during the 1990s and early part of this decade.” (Editorial, “Hear, See And Speak No Evil About Fannie And Freddie,” The Washington Times, 10/9/08)
But that has been totally debunked and a time line is available on a screen captured page from the White House at the time you can still view here. It starts with this opening then lays out all the key events that prove it was the Democrat controlled Congress that was most responsible: Over the past six years, the President and his Administration have not only warned of the systemic consequences of failure to reform GSEs but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. In fact, it was Congress that flatly rejected President Bush’s call more than five years ago to reform the GSEs. Over the years, the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems with the GSEs.
No matter how they blamed Bush, and Obama still does to this day, this is Obama’s foreign policy debacle, one in a long line, and it all goes back to his own party’s boondoggles dating back to Bill Clinton as well. Also, read this report: “The Evolution of the Subprime Mortgage Market” published in 2006 that takes us back to 1995.
By Amy Payne – The Foundry
Spine-tingling TV shows and movies are always featuring spy capers that are “off-book.” Their existence is on a need-to-know basis, and sure, they’re being funded, but no one sees where that money’s going.
There’s a very real, very expensive—and a lot less thrilling—off-book operation going on in Washington.
The Treasury is keeping Fannie Mae and Freddie Mac, the taxpayer-backed loan guarantee giants, off the federal budget.
In 2008, the government took control of Fannie and Freddie and agreed to shield the entities from bankruptcy. Now that the country has recovered from that housing crisis, and money is coming back in through these government-sponsored entities (GSEs), their true cost remains hidden.
“The GSEs’ off-budget status excludes them from federal budget rules and processes, and hides the real cost to taxpayers from federal control over Fannie and Freddie,” explains Heritage’s Romina Boccia in a new report.
It’s jaw-dropping that such massive flows of taxpayer money could be kept outside the federal budget. And as you can imagine, keeping that cash off the books distorts the overall budget picture.
Just for a start, the housing entities’ “profits paid to the Treasury in 2013 alone have resulted in federal spending and deficits being underreported by more than $100 billion,” says Boccia, the Grover M. Hermann Fellow.
This affects public perception of the deficit—and even lawmakers’ perceptions as they make plans to spend more in the coming year’s budget.
“Lower reported spending and deficit figures are encouraging lawmakers to increase spending and neglect entitlement reform,” Boccia says.But the picture is indeed false. The U.S. economy does not need Fannie and Freddie as their boosters suggest. They are a vehicle for corporate cronyism and have not helped homeownership rates or interest rates in America.
If they were eliminated, the deficit would appear to go up—but only because the real deficit has been obscured by this influx of money during the GSEs’ more profitable years. Boccia explains that, “were Congress to eliminate Fannie Mae and Freddie Mac effective in 2014, the budget would record an $81 billion increase in spending and deficits.”
As we saw in the housing crisis, Fannie and Freddie are not always profitable—that’s how the government ended up taking them over in the first place. And that takeover put taxpayers on the hook not only for past mistakes, but for guaranteeing current and future loans. At this stage, taxpayers are ultimately responsible for the nearly $4 trillion in GSE guarantees. (For perspective, see: How much is $1 trillion?)
Yes, the GSEs need to be eliminated. Before that happens, more people will need to see the full liability they create. Boccia says: Putting the GSEs on budget would show taxpayers and Congress that Fannie Mae and Freddie Mac impose a real cost on taxpayers and that eliminating the GSEs would improve federal finances. Proper accounting of the GSEs’ impact on the federal budget is an important step toward their—very necessary—elimination.