The Ghost of Freddie Mac

Remember in 2008 after the financial crisis hit and it was considered raaaaaaycist to criticize Freddie Mac’s part in it? You may recall this from Dakinat’s coverage of it at The Confluence in the fall of 2008. Remember how fast the prog factions supporting Obama tried to smack her down, saying that The Confluence was stoking racism?

Well, now that Freddie Mac can be used against white, conservative politicians (Gingrich, and increasingly Romney), it’s no longer racist. It went through the Democratic laundry machine and came out sparkling clean. Not a hint of racist smell at all! Let’s take a walk down Memory Lane and recall the details, so the about-face is all that much more dramatic, shall we?

It all started with Dakinat’s post called Back to the Roots of the Problem. The post was originally published at The Confluence, but has since been flushed down the memory hole there. Luckily, Dakinat preserved a copy at her own blog, Sky Dancing. Thanks in no small part to her, the narrative of Freddie Mac’s reckless practices began to make its way into the news cycle, at which point Barney Frank was appointed the dog to bark this idea out of the yard. Racism was his bark of choice. Here’s coverage of his comments circa September of 2008:

Frank said Monday that Republican criticism of Democrats over the nation’s housing crisis is a veiled attacked on the poor that’s racially motivated….

“They get to take things out on poor people,” Frank said to a mortgage foreclosure symposium in Boston. “Let’s be honest: The fact that some of the poor people are black doesn’t hurt them either, from their standpoint. This is an effort, I believe, to appeal to a kind of anger in people.”

Frank’s comments are in response to widespread criticism of Fannie Mae and Freddie Mac, the two government-backed mortgage-bundling giants that played fast and loose with both risk and their bookkeeping.

The debate got so heated that even our friends at Hot Air were reporting on this at the time:

Barney Frank’s latest defense of Congress over the financial meltdown could be predicted based on the success of Barack Obama’s campaign in using the same defense.  According to Rep. Frank, any attempt to pin the blame for the collapse of Fannie Mae and Freddie Mac on the activities of both, as well as Congressional policy that fueled it, is now officially racist.  Frank says conservatives want to blame minorities for the collapse:

Frank charged that conservatives aim to shift blame for the market meltdown away from Wall Street and toward minority-lending laws like the federal Community Reinvestment Act.

“The bizarre notion that the Community Reinvestment Act . . . somehow is the cause of the whole problem, (conservatives) don’t mind that,” the lawmaker said. “They’re aware that the affordable-housing goals of Fannie Mae and Freddie Mac (and) the Community Reinvestment Act (aim to help) poor people. And let’s be honest, the fact that some poor people are black doesn’t hurt either from their standpoint.”

Let’s keep score.  Criticizing Obama means we’re racists.  Criticizing Congress means we’re racists.  Getting angry at Congress for pushing Fannie Mae and Freddie Mac into buying bad loans and infecting the entire financial system with essentially fraudulent paper — at a cost of up to $700 billion in taxpayer money and potentially trillions in lost investments — means we’re racists.

That’s the back story. Clearly criticizing Freddie Mac and Fannie Mae was just racist code for not wanting poor black people to have homes (end snark).

Now we’re three years into Obama’s presidency and my how things have changed. Here’s Pro Publica, in a joint effort with progressive media mainstay NPR reporting on the fact that Freddie Mac has a serious conflict of interest that is leading to–wait for it–cash-strapped poor people paying far more for their mortgages than those outside the Freddie/ Fannie portal. And they are actually waging bets that they can make this work (through their own policies, of course!), betting once again AGAINST the interests of everyday Americans:

 Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

The report is rather damning:

“We were actually shocked they did this,” says Scott Simon, who as the head of the giant bond fund PIMCO’s mortgage-backed securities team is one of the world’s biggest mortgage bond traders. “It seemed so out of line with their mission.”

The trades “put them squarely against the homeowner,” he says.

Those homeowners have a lot at stake, too. Many of them could cut their interest payments by thousands of dollars a year.

Go, read the whole thing. Freddie Mac (and Fannie Mae) has been an immoral disaster for a long time, and now this tax-payer owned organization is in charge of making sure struggling families can’t refinance their mortgage so that Freddie’s bets pay off.

Now THAT’S racism, considering the volume of people of color a) struggling financially, and b) in the Freddie Mac holding pen. But that’s not how this story is designed to play out. It’s designed to play out as a way to label the likes of Gingrich and Romney as racists, even though the Freddie Mac machine was built by Democrats to serve Democratic constituencies and to enrich the pockets of friends of Democrats. They own this albatross, but they will hang it around the GOP’s neck.

About Woke Lola

Bitch, please.
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51 Responses to The Ghost of Freddie Mac

  1. HELENK says:

    this is off topic
    If anyone is interested there is a website on the fast and furious investigation

  2. HELENK says:

    back on topic
    anything said against democrats and backtrack is now racist. If republicans do the same things it is criminal.
    Understand that and you will be ok.

    We government is using your own tax money against you there is something really wrong
    fannie and freddie are taxpayer funded. If some of the people could refinance, the taxpayer would get their money back in the long run. This way the home buyer loses, the taxpayer loses and the homes sit vacant and get vandalized. everybody loses

  3. DandyTiger says:

    Honk, honk!!

  4. myiq2xu says:


    Demonstrators from the Occupy Wall Street movement threw condoms on Catholic schoolgirls, refused to allow a Catholic priest to give a closing prayer, and shouted down a pro-life speaker at a Rhode Island right to life rally on Thursday, according to its organizer. The event marked the third time protesters associated with the movement have disrupted a pro-life meeting in a week.

  5. yttik says:

    This is good post, Lola. Uhg, the stupid, it just burns sometimes.

  6. I am tired of being called racist for Republican views. They called Newt racist for proposing that kids could have janitor part time jobs at schools. Al Sharpton twists that into Newt says black kids should scrub toilets. I have news for Al and the democrats: I was a high school teacher inner city black schools for 33 years and these kids and parents here in Miami WOULD LOVE AND BE THRILLED TO HAVE A JOB LIKE THIS. All the dropouts would take such an opportunity and schools would be giving them a marketable skill. Next step would be to have business be source of these jobs esp disadvantaged kids. Oooops. Did I say disadvantaged? I guess I am racist.

  7. ks says:

    Good post on the hypocrisy but, the problem with Danikat’s original post wasn’t that it was racist which, it certainly wasn’t, it was that the analysis was limited. “This” really started when Salomon Brothers and First Boston invented the CMO for Freddie Mac back in ’83 which made them all rich by securitizing one bond into many and reducing credit risk. Large CMOs were insured against default by the GSEs. Nice racket, huh?

    Much like The Blob, the beast must be fed. So it was fed and fed with the brothers of the CMO, CDOs, MBSs, Swaps, etc. until the whole thing almost collpased.

    While “K Street” and very shady practices and Freddie and Fannie certainly share blame, it was mostly a Wall St. fail. It wasn’t just subprimes that were failing druing the heightened phase of the crisis. ARMs were in bad shape too and the key point with subprimes is that the worst ones were originanted and securitized by non-GSE independent originators and investment banks. (e. g. Countrywide, Merrill, etc.)

    The CRA stuff is just political noise and game playing. In the big scheme, it’s a pittance. It’s been around since ’77 and the idea that it was the main driver of the crisis that culminated 2008 is far fetched. Also, around that time the largest players in the subprime market were private sector firms that were not subject to the CRA’s rules and regulations. Overall the trillions of dollars of the junk that was and is floating around, I’d be stunned if “CRA loans” were a big part of the subprime total and they were probably not even a rounding error of the overall total..

    • ks says:

      Oops, should read…

      “Out of the trillions of dollars of the junk that was and is floating around, I’d be stunned if subprime “CRA loans” were a big part of the subprime total and, “all CRA loans” (subprime and non) were probably not even a rounding error of the overall total..

  8. Three Wickets says:

    Great post Lola, thx. GSEs still behaving badly…what a surprise. Housing hole must still be deep. Although GSEs have always been in the middle of the food chain. Plenty of moral hazard downstream with lenders and borrowers, and plenty upstream with investors and gamblers. Meanwhile the Fed is doing most of the bailing out these days, not taxpayers. Fed has $1 trillion in iffy mortgages on its balance sheet.

    In any case, none of the federal agencies have been very useful on the housing front, and Obama is punting housing into the next term with more words than action, as usual. But if ProPublica is doing exposes on Freddie in 2012, then maybe not much has changed since the days when Freddie’s CEO hung himself. That was three years ago.

  9. Three Wickets says:

    @davidaxelrod: How loving owners transport their dogs.

    Guess he’s getting ready for Romney.

  10. Three Wickets says:

    BO on Google Hangout this afternoon.

  11. HELENK says:

    really interesting article on wind and solar energy. Wish the backtrack bunch had read it before spending OUR money on it.

  12. HELENK says:

    I guess this proves that the pen is mightier than the sword
    one book telling the public about congress and insider trading and now we have congress moving on the stock bill

  13. HELENK says:

    this Allen West redistricting is becoming an issue among conservatives. This could have an impact on Florida’s vote today

    • Lulu says:

      I think of stolen credit card numbers used to run up campaign coffers. Then banks having to write it off. Or worse trying to collect. Reminds me of 2008 and the foreign untraceable donations. This time they will just steal them.

      • myiq2xu says:

        The Obama campaign didn’t steal money for donations. They used bogus credit card numbers to launder donations.

        This only works if the banks are in on it.

        You create account numbers to make electronic donation (under the $200 minimum so they can remain anonymous) then use those numbers to send in thousands of small donations. You use banks in the Caymans and other places outside of government oversight.

        If you or me tried that the bank would reject the transactions because the account numbers are invalid. But the bank is in on the deal. They could automate the system so only a few trusted insiders are involved.

        Anti-fraud protection is designed to prevent stealing FROM the bank, not criminal activity BY the bank.

        • FembotsForObama says:

          A bit confused. Thought it had more to do with providing pre-paid credit cards for voter fraud. Did those fake #s appear on those pre-paid cards?

        • myiq2xu says:

          If you issue lots of prepaid card it complicates the crime. Those fake accounts can show up as prepaid cards, but the transactions don’t need to leave the bank.

          All these transactions are electronic. Use your imagination and you can see how easy it is for banks to launder money.

  14. foxyladi14 says:

    can’t have mine either. 😦

  15. Lulu says:

    Romney seems to be going after Newton’s ass. Wonder if he will do it to Obama with such vigor in a general election? Are we seeing Mitt the Malevolent Morman?

    • DeniseVB says:

      Heard a commentary this morning that the GOP doesn’t want to run a negative campaign against Obama for fear of losing the Independents. I almost ran off the road :=)

      • Lulu says:

        The Indies are the ones who want someone, anyone to go after Obama. But the creative class is who writes “commentary” and keep saying this stuff. It is about self preservation.

        • Lola-at-Large says:

          It’s so bad, it’s getting to the point where you can tell just by the headline if the news is being reported or manufactured. Perfect example: Yesterday Politico ran the headline “Obama Best Understands People, Poll Finds.”

          Of course there is no way in the world that a poll CAN actually find this. It can only measure opinion, not actual effect in a case like this. So Obama may (or may not) be the one whom voters think best understands them, but that’s not what the headline suggests. It suggests a measured “truth” about Obama that cannot be measured, and therefore cannot be “truth” either. It’s the very definition of “truthiness,” not that you’d ever see Politico called out for it on Colbert Report.

  16. HELENK says:

    GOP sources: Longtime Indiana Congressman Rep Dan Burton won’t seek election for a 16th term – @AP

    a lot of congress critters from both parties seem to want to retire this year. I wonder why

  17. HELENK says:

    it is only money honey.
    another trillion dollars spent

  18. HELENK says:

    contempt of congress charge being considered against the WH

  19. HELENK says:

    tweety tingles once again proves koolaid as powerful as LSD

  20. Rangoon78 says:

    On the other hand there’s this from one of the economists I respect most, Ives Smith:

    A new ProPublica story, “Freddie Mac Betting Against Struggling Homeowners,” treats the fact thatFreddie Mac retains the riskiest tranche of its mortgage bond offering, known as inverse floaters, as heinous and evidence of scheming against suffering borrowers.

    The storyline in this piece is neat, plausible, and utterly wrong. And my e-mail traffic indicates that people who are reasonably finance savvy but don’t know the mortgage bond space have bought the uninformed and conspiratorial ProPublica thesis hook, line, and sinker.

    • Three Wickets says:

      ProPublica is asserting that GSE loan modification programs post-crash have on balance been more regressive than progressive. The less creditworthy and more distressed you are, the more difficult it is to refinance. Yves seems to be arguing this is normal for the mortgage industry, which is probably true. Just as it’s probably true that the $1 trillion in bailout mortgage securities the Fed now has on its balance sheet has helped investors more than homeowners. Seems defending Freddie and Fannie is Yves and Co’s first priority. I stopped reading Yves when she took up in a big way with the MMT/OWS crowd.

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