Posted by: dinainsuburbia | September 11, 2008

Fannie and Freddie….

I’ve been getting Newsday delivered Thursday through Sunday.  I know, I know.. Newsday… not exactly the Financial Times or even NYTimes.  It’s shameful to admit, but I actually don’t mind the paper so much anymore.  For one thing, being that it’s written on a third-grade level, it’s incredibly easy to read; I can get through the entire paper (minus sports, which I don’t read) in 1 1/2 cups of coffee.  

This morning, I was thumbing through and stopped at the opinion page.  I have a think about Op-Eds.  They are, oftentimes, more interesting than the actual stories! 

Onto the title of this blog…. today, I read an opinion piece about Fannie & Freddie.  The author being one Jonathan Tasini, executive director of the Labor Research Association, a nonprofit labor strategy organization (whatever that means).  Barring the fact that I have no idea who this man is and I have never heard about his organization, I completely agree with what he wrote, and think that more people should be paying attention to the government bail-out that’s currently taking place…

So, here are the finer points of the article:

• As the public is footing the bill for the bail-out of these two companies, the public should also have a say in how these companies are run.  Fannie and Freddie got into trouble because the were run to enrich the executives and shareholders instead of focusing on the primary mission of stabilizing the housing market and making sure average Americans could get loans.  

• The board of Fannie & Freddie should be run by and for the public (as The Home Owners’ Loan Corp of 1933).  Congress should require that the board be structured as 1/3rd of elected officials appointed by the President, 1/3rd from the ranks of non-elected officials, including unions whose pension funds are deeply involved in housing investments, and consumer advocates, and finally 1/3rd from private industry, free of inherent conflicts of interest (i.e. not benefiting from the rise or fall of the stock’s price).  

• Each person earning less that $65k a year should be issued one share of stock in the company, in payback for the bailout.  The broadly distributed shares would reduce the chance that Wall Street speculators could engineer unwise investments.  

Finally, Tasini writes, “Public control over Fannie Mae and Freddie Mac will not only reassert control over a piece of our economy- a piece that is synonymous with the American dream.  It will be a clear statement that the people have an interest, and a right, to set the rules in the marketplace.”

 

I completely agree.. I may not have gotten an A in business-school finance, but what the leaders of these companies (as well as the banks) was wrong and, more importantly, wasn’t even sound business or math sense.  It doesn’t take a specialization in risk-management to know that loans given to people in the sub-prime market were risky… if a person does not have the money today, chances are they won’t have the money tomorrow and will not be able to repay the loan.  While I do believe in personal responsibility as well, it just doesn’t seem to me, from a pure business-policy standpoint, that what was done was a good idea.  I always though ability to repay was the MAIN INDICATOR of a loan (well, it is now, but wasn’t 2 years ago).  

Thousands of people got rich off the backs of the “regular joe” and now the “regular joe” is gonna be stuck footing the bill.  I think the thing that pisses me off the most is that we still rent.  We were responsible enough to know that we couldn’t comfortably afford a house, and now we are punished for that by having to foot the bills for so many others that were irresponsible and uninformed.

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