Inappropriate vilification of Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac have been unfairly and inappropriately characterized as being culprits in the mortgage mess, while in fact they have been both heroes and victims and continue to be victimized. All was fine on the housing and mortgage-backed security front up through 2000 or so. Then, as the dot-com bubble burst, Wall Street began casting around for new sources of profit and decided that Fannie Mae and Freddie Mac had a very lucrative business. Back in 2002 and 2003, Wall Street ramped up its own MBS business and simultaneously started raising a big stink about how Fannie and Freddie posed a "systemic risk" to the U.S. financial system and should be "reined in." Wall Street and the Republicans pushed for and did manage to get some legislation passed which put significant limits on the business of Fannie and Freddie. There were also trumped-up "accounting scandals" which were really simply the fact that the nature of their business simply did not fit in well with traditional accounting standards, especially given their mission to promote homeownership and their implicit backing by the U.S. government. Such efforts to shackle Fannie and Freddie were only partially effective, so Fannie and Freddie continued to prosper with the securitization of prime or so-called "conforming" mortgages, which were fairly low risk. Having failed to completely push Fannie and Freddie out of the MBS market, Wall Street focused on non-conforming mortgages, including Alt-A and so-called subprime mortgages, as well as jumbo mortgages that Fannie and Freddie were prohibited against from even considering. Then the housing market boomed in 2003 though 2005, with subprime lending really taking off as Wall Street created a huge demand for higher-yield, higher-fee subprime MBS and variants that somehow magically could be rated AAA and almost as "solid" as U.S. Treasury securities. Fannie and Freddie were not a significant player in that subprime boom. They may have had some relatively minor exposure, but their overwhelming focus remained safe, conforming mortgages.

With the housing boom turning to bust and the husing market entering recession, even Fannie and Freddie were starting to see a higher rate of defaults and foreclosures, but nowhere near the levels seen by the non-prime MBS created by Wall Street. Fannie and Freddie were doing reasonably well up through the Spring of 2008.

Then, the hedge funds and others decided to target Fannie and Freddie and short and talk down their stock and bonds, utilizing all manner of rumors and innuendo. Everybody has always known that the U.S. government was implicitly guaranteeing the debt of Fannie and Freddie, but the rumormongerers on Wall Street persisted in claiming that it was not so.

With rising foreclosures earlier this summer, Fannie and Freddie were believed to need to raise additional capital to maintain the reserves that Wall Street had conned Congress into placing on them back in 2002 and 2003. But, with their stock under intense pressure in July and August, raising capital by selling stock began to look less likely.

Fannie and Freddie probably should have sought a capital infusion ("bailout") from the U.S. government back in July, but the truth is that the Republican administration was all to eager to see Fannie and Freddie go the way of the Dodo bird, and the sooner the better.

Finally, with the rest of the financial system on the verge of implosion, the U.S. Treasury did in fact help out Fannie and Freddie by putting them into a conservatorship.

Now, Fannie and Freddie are completely protected from the shortsellers on Wall Street, although even today there are people who talk as if the debt securities of Fannie and Freddie were not fully backed by the U.S. government when they really are.

Ironically, the U.S. Treasury has had to do very little to keep Fannie and Freddie running, despite the mortgage-related disasters everywhere else. In fact, Fannie and Freddie are a key component of the U.S. Treasury's plans to bailout the mortgage market. For example, without any additional capital, Fannie and Freddie have been instructed to buy $40 billion in MBS on the open market every month.

Fannie and Freddie are in much better shape than the shortsellers ever claimed.

To be clear, Fannie Mae and Freddie Mac are not currently a systemic risk to the financial system.

In fact, if the hedge funds and shortsellers had not attacked the stock of Fannie and Freddie, they would both be relatively healthy even today with everything else that has happened in this crisis.

The simple fact is that Fannie Mae and Freddie Mac are two of the remaining pillars of our financial system.

If Wall Street and the Republicans had not sought to shackle Fannie Mae and Freddie Mac and if Wall Street had not gone after non-prime mortgages with such wild abandon, the current financial crisis would have been completely avoided.

Fannie Mae and Freddie Mac did nothing to create the current mortgage mess. Wall Street and its Republican apologists are completely and 100% responsible.

The only thing I do not completely understand is why the Democrats stand by idly as Fannie Mae and Freddie Mac are vilified, when they know that Wall Street and the Republicans are completely responsible. My only answer is that the Democrats are collectively simply too clueless due to the complexity of MBS to be able to tell the difference.

-- Jack Krupansky

Am I losing my mind, imagining things that aren't really there?

Silly me, I actually did not know that they Staten Island Ferry was now free. I would walk past the ferry terminal down near the Battery every Saturday afternoon and never bother to take it, thinking I was saving a buck or two each time. I had taken the ferry once in the early 1990's and there was a fare, but according to the NYC DOT Web site:

The fare for passengers, which had been 50 cents for a round trip between St. George, Staten Island, and the Whitehall Terminal in lower Manhattan, was eliminated in 1997.

I was reading something a month ago and only then found out about the fact that the ferry was free now.

I have taken the ferry round-trip each of the past three Saturday's.

On my first trip, September 27, it was a bit foggy and visibility was rather mediocre. Still, as the ferry approached Staten Island, I was sure that I could see the vague profile of the USS Intrepid aircraft carrier which was being refurbished, or so I thought. Through the mist I could see the tower and the various aircraft on the high deck, including the Lockheed A-12 "Blackbird" spyplane. All very cool. If I hadn't seen the ship before many times, I probably would not have recognized it at all. I was explaining to another passenger, a tourist, what it was, but I suspected that he had no idea what I was talking about and may even have thought I was making it all up. Incidentally, the Will Smith character in I Am Legend was hitting golf balls off the tail of the Blackbird spy plane on the Intrepid's deck, so that will give you a frame of reference that you can check out.

On my second trip, the next Saturday, October 4, visibility was much better. Except, I looked where the Intrepid was the previous weekend, and it was not there! I looked and looked again, but it was not there. At that point I began to wonder if I had really seen the ship the week before. Sure, they could have moved it, but since it was being refurbished I didn't think it was likely that I just happened to catch the precise week it was moved. I debated asking another passenger who was a SI local, but I felt too embarrassed that maybe I had imagined it in all that fog. It does happen, but not usually to me. Besides, I did not have a clue where on SI the ship was supposed to be moored for refurbishment. Oh well. Whatever.

Something that got me thinking was that this past Sunday I was walking along the Hudson near Riverside park and after I saw three cruise ships depart, the last of which was the new Eurodam, I thought I could see the tower of the Intrepid sticking up above the buildings on the piers north of the Intrepid Museum. But, since I was lacking in confidence of what I had or had not seen two weeks before, I just filed away that memory.

Just a few minutes ago, I recalled the ship for some strange reason and decided to do a Google search on the Web and get THE answer. Surprise, surprise, sure enough, they did in fact move the Intrepid on Thursday, October 2, 2008, so I really was not imagining that I saw it the Saturday before and then did not see it the next Saturday.

So, it really was there at SI three Saturdays ago and really was back at the museum this past Sunday.

Therefore, I can safely conclude that I am not losing my mind.

Note: If I had an iPhone I probably could have checked the Web on the spot and not felt so confused.

-- Jack Krupansky