Donald Trumps budget directors Fannie Mae and Freddie Mac bill would socialize risk and privatize

[applegrove]

Donald Trump’s budget director’s Fannie Mae and Freddie Mac bill would socialize risk and privatize profit

by Matthew Rosza at Salon

http://www.salon.com/2016/12/22/donald-trumps-budget-directors-fannie-mae-and-freddy-mac-bill-would-socialize-risk-and-privatize-profit/

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“Most strikingly, the bill would bar Treasury from charging the companies for the remaining $258 billion the government has pledged as ongoing support for the companies,” The Wall Street Journal wrote. “Which means Fannie and Freddie would enjoy an explicit government backstop in perpetuity for which they would pay nothing.”

As it later added, “The current dividend amounts to a perpetuity owned by taxpayers. Under standard financial calculations, at an assumed discount rate of 4 percent, the present value of $15.8 billion annual payment would be $395 billion. Under the bill, Treasury surrenders that for nothing.”

When combined with the price of the prohibition on charging the backstop, the total cost of Mulvaney’s bill will equal roughly $405 billion. The beneficiaries would be investors in Fannie Mae and Freddie Mac.

In September, the same month that it was first reported that Mulvaney was working on this bill, employees of Perry Capital — a major shareholder in Fannie and Freddie — as well as lawyers from Gibson Dunn, which lobbies for Perry Capital, donated $4,500 to Mulvaney’s political campaigns.

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[Imperialism Inc.]

1. There was an article in the Intercept a while back about Freddie and Fannie.

Hedge Fund Managers Expect a Return on Their Investment in Donald Trump
https://theintercept.com/2016/11/22/hedge-fund-managers-expect-a-return-on-their-investment-in-donald-trump/

After these maneuvers, shareholders were thought to have been wiped out. But hedge funds continued to buy stock in the companies. They wanted to force the government to recapitalize Fannie and Freddie and release them back into the private sector. In that event, the stock price would shoot up (before the financial crisis, each traded at $60 a share), giving investors an astronomical return on their investment. Hedge funds don’t have to disclose their stakes in individual stocks, but reports indicate that just one, Bill Ackman’s Pershing Square Capital, has $475 million invested in the companies.

The hedge funds mounted pressure on several fronts to ensure they’d win their bet. They lobbied Congress to privatize the mortgage companies. They built advocacy groups to argue for their position. They fought Treasury’s profit sweep in a series of lawsuits. And this year, they embarked upon buying themselves a president.

John Paulson, one of the largest investors in the Fannie and Freddie play, has a history of getting rich off the housing market. He famously worked with Goldman Sachs in 2007 to short subprime mortgage bonds, without informing investors on the other side of the bet about the poor quality of the underlying loans. That was worth $4 billion.

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Paulson cozied up to Trump. He hosted a $50,000-a-plate fundraiser in New York City. He served as an economic adviser to the Trump campaign. And he personally gave $330,000, the maximum donation, to the effort. Since the election, the market has recognized that this close relationship to Trump likely equals an end to the Fannie and Freddie profit sweep, a partial or total privatization of the mortgage giants, and a personal benefit for John Paulson.

[applegrove]

2. Such a huge transfer of wealth from middle class people, who pay most of the taxes, to the rich.

Last edited Fri Dec 23, 2016, 04:54 AM - Edit history (1)