FacebookTwitterGoogle+RedditEmail

Who Needs Regulations When You’ve Got a Golden Parachute?

When Members of Congress or the Administration or the corporate CEOs or the empirically starved right-wing ideologues start whining about regulation the right-wing echo chamber goes wild. When the absence of adequate regulation lets an industry wreak havoc, Congress and the Administration meekly admit a bit of regulation might have averted disaster. The corporate CEOs, expelled with their lucrative golden parachutes, have “no comment.”

The taxpayers, who are too often the guarantors of last resort and who are stuck with the tab, are asking each other why their public watchdogs were asleep at the switch. The Washington merry-go-round is something to behold.

As the recent headlines note, the Federal Government has taken over the giant companies Fannie Mae and Freddie Mac. The Federal Housing Finance Agency (FHFA) is using the legal process of a “conservatorship” to “stabilize” Fannie Mae and Freddie Mac. Talk about regulation!

On Sunday, September 7, 2008, U.S. Treasury Secretary Henry Paulson said, “Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers – both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.”

Nice words – but they will provide little comfort to the many common shareholders who have seen the value of their Fannie Mae and Freddie Mac stock collapse to pennies per share. And more than a few taxpayers are wondering what the Fannie/Freddie debacle will end up costing them.

We and others have been telling members of Congress, government regulators and members of the media about the structural and operational problems of Fannie and Freddie for years. I have written many columns about the lack of proper regulation of Fannie and Freddie. I testified before Congress about the need to focus Fannie and Freddie and my long-time associates Jonathan Brown and Jake Lewis have spent countless hours advocating that federal regulators push Fannie and Freddie to meet housing goals that would benefit under-served populations.

In 1991, lawyer Tom Stanton, a former colleague, warned about the risks and non-regulation of Fannie and Freddie in his prophetic book—A State of Risk (Harper Business).

In May of 1998, we even held a conference dedicated to Fannie and Freddie. In my welcoming statement to the conference participants, I noted that we would be discussing the adequacy of capital required of Fannie and Freddie and the efficacy of regulation of the two GSEs. I noted that both corporations had been enjoying good times. And, I cautioned that one of the unintended consequences of fat profits over a long period is the tendency of governments and private corporations to start believing in fantasies about living happily ever after in the glory of ever-rising profits.

My statement asserted that, “Taxpayers have learned that contingent liabilities such as those inherent in the GSE structure do, at times, become quite costly. It wasn’t long ago–in the high interest rate period in the late 1970s and early 1980s – that Fannie Mae was having serious financial troubles. And the Farm Credit System, another GSE, required a bail out of approximately $5 billion in the 1980s when the agricultural industry had a severe downturn.”

In July of this year I lamented the fact that Fannie and Freddie have been deeply unregulated for decades which allowed their capital ratios to be lower—far lower—than they should have been, adding:

Over at the multi-trillion dollar companies Fannie Mae and Freddie Mac, the shareholders have lost about 75 percent of their stock value in one year. Farcically regulated by the Department of Housing and Urban Affairs, Fannie and Freddie were run into the ground by taking on very shaky mortgages under the command of CEOs and their top executives who paid themselves enormous sums.

These two institutions were set up many years ago to provide liquidity in the housing and loan markets and thereby expand home ownership especially among lower income families. Instead, they turned themselves into casinos, taking advantage of an implied U.S. government guarantee.

The Fannie and Freddie bosses created another guarantee. They hired top appointees from both Republican and Democratic Administrations (such as Deputy Attorney General Jamie Gorelick) and lathered them with tens of millions of dollars in executive compensation. In this way, they kept federal supervision at a minimum and held off efforts in Congress to toughen regulation.

So here we are. On Monday September 8, 2008, the value of common Fannie and Freddie stock dropped to under one dollar – just one day after Secretary of the Treasury announced the government takeover. White House Press Secretary Dana Perino said, “[F]or years we have encouraged Congress to put in place a strong, independent regulator to oversee the institutions. We believe the actions will help to improve conditions in the housing market.”

Senate Banking Committee Chairman Christopher J. Dodd , D-Conn has questions for the Administration, so there is more to be revealed. And, reporters are spilling buckets of ink talking about the takeover of Fannie and Freddie and the lack of proper oversight by regulators and Congress which brought us to this day of appreciation for regulation. Too bad it is all a little late for the small shareholders, and pensioners and taxpayers who pay the bill for speculators and executives, many of whom seem to escape with lots of money.

RALPH NADER is running for president as an independent.

 

Your Ad Here
 

 

 

 

More articles by:

Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

Weekend Edition
January 18, 2019
Friday - Sunday
Melvin Goodman
Star Wars Revisited: One More Nightmare From Trump
John Davis
“Weather Terrorism:” a National Emergency
Jeffrey St. Clair
Roaming Charges: Sometimes an Establishment Hack is Just What You Need
Joshua Frank
Montana Public Schools Block Pro-LGBTQ Websites
Louisa Willcox
Sky Bears, Earth Bears: Finding and Losing True North
Robert Fisk
Bernie Sanders, Israel and the Middle East
Robert Fantina
Pompeo, the U.S. and Iran
David Rosen
The Biden Band-Aid: Will Democrats Contain the Insurgency?
Nick Pemberton
Human Trafficking Should Be Illegal
Steve Early - Suzanne Gordon
Did Donald Get The Memo? Trump’s VA Secretary Denounces ‘Veteran as Victim’ Stereotyping
Andrew Levine
The Tulsi Gabbard Factor
John W. Whitehead
The Danger Within: Border Patrol is Turning America into a Constitution-Free Zone
Dana E. Abizaid
Kafka’s Grave: a Pilgrimage in Prague
Rebecca Lee
Punishment Through Humiliation: Justice For Sexual Assault Survivors
Dahr Jamail
A Planet in Crisis: The Heat’s On Us
John Feffer
Trump Punts on Syria: The Forever War is Far From Over
Dave Lindorff
Shut Down the War Machine!
Glenn Sacks
LA Teachers’ Strike: Student Voices of the Los Angeles Education Revolt  
Mark Ashwill
The Metamorphosis of International Students Into Honorary US Nationalists: a View from Viet Nam
Ramzy Baroud
The Moral Travesty of Israel Seeking Arab, Iranian Money for its Alleged Nakba
Ron Jacobs
Allen Ginsberg Takes a Trip
Jake Johnston
Haiti by the Numbers
Binoy Kampmark
No-Confidence Survivor: Theresa May and Brexit
Victor Grossman
Red Flowers for Rosa and Karl
Cesar Chelala
President Donald Trump’s “Magical Realism”
Christopher Brauchli
An Education in Fraud
Paul Bentley
The Death Penalty for Canada’s Foreign Policy?
David Swanson
Top 10 Reasons Not to Love NATO
Louis Proyect
Breaking the Left’s Gay Taboo
Kani Xulam
A Saudi Teen and Freedom’s Shining Moment
Ralph Nader
Bar Barr or Regret this Dictatorial Attorney General
Jessicah Pierre
A Dream Deferred: MLK’s Dream of Economic Justice is Far From Reality
Edward J. Martin
Glossip v. Gross, the Eighth Amendment and the Torture Court of the United States
Chuck Collins
Shutdown Expands the Ranks of the “Underwater Nation”
Paul Edwards
War Whores
Peter Crowley
Outsourcing Still Affects Us: This and AI Worker Displacement Need Not be Inevitable
Alycee Lane
Trump’s Federal Government Shutdown and Unpaid Dishwashers
Martha Rosenberg
New Questions About Ritual Slaughter as Belgium Bans the Practice
Nicky Reid
Panarchy as Full Spectrum Intersectionality
Jill Richardson
Hollywood’s Fat Shaming is Getting Old
Nyla Ali Khan
A Woman’s Wide Sphere of Influence Within Folklore and Social Practices
Richard Klin
Dial Israel: Amos Oz, 1939-2018
David Rovics
Of Triggers and Bullets
David Yearsley
Bass on Top: the Genius of Paul Chambers
Elliot Sperber
Eddie Spaghetti’s Alphabet
FacebookTwitterGoogle+RedditEmail