Live from Austin!

Once upon a time, the US government set up three agencies to provide home loans to people.

The Federal National Mortgage Association (FNMA) was founded by FDR to improve the liquidity of the mortgage market. It sits in between the mortgage borrower and the lender. Its job is to assume the risk of mortgage default, in return for a fee. In the 1960s, part of it was removed from the federal balance sheet by spinning it off into a private corporation. It was replaced by…

The Government National Mortgage Association (GNMA), part of the Department of Housing and Urban Development (HUD). GNMA bundles mortgages into securities which it guarantees even if the mortgages default, and then sells them on to big investors. It handles mortgages for veterans and native Americans.

The Federal Home Loan Mortgage Corporation (FHLMC) was set up in 1970. It basically does the same job as the FNMA, and was set up to provide competition for that organization.

In addition, the The Federal Agricultural Mortgage Corporation (FAMC) provides loans for agricultural real estate and rural housing.

Finally, the Student Loan Marketing Association (SLM) was set up to provide federal student loans.

Before long, people working in the housing industry came up with names that were easier to say and remember than the abbreviations the government used. FNMA became known as Fannie Mae, after the candy company Fannie May. GNMA became known as Ginnie Mae, and someone came up with Freddie Mac for FHLMC, presumably because the H is silent.

By the mid 80s, all the government agencies were called Mae or Mac; the FAMC became known as Farmer Mac and SLM became known as Sallie Mae.

Once the slang names became sufficiently entrenched, several of the organizations decided to officially change their names to the slang versions. Hence, FNMA’s logo officially says FannieMae, and FHLMC’s says Freddie Mac.

Before long, some private corporations worked out that they could suggest that they were big government-backed outfits by naming themselves something ending in "Mae" or "Mac", without technically lying to customers. Hence a bank in Pasadena called itself IndyMac, and one in Brea called itself ResMae.

Fannie Mae and Freddie Mac have ended up guaranteeing almost half of the mortgages in the US, for a total of around $5.3 trillion. Since they were officially run as private corporations, they were able to spend a lot of money ensuring that they remained unregulated and able to invest in subprime mortgages–i.e. mortgages that the borrowers would never be able to pay back, in quantities large enough to ensure that the CEOs and shareholders of the lending companies would get rich.

So as the housing bubble has started to collapse, so has Fannie Mae’s stock price. (Check the 1 year or 5 year graph.) Freddie Mac’s stock price has been just as ugly.

Now, as already mentioned, Fannie Mae is (strictly speaking) a private corporation. However, over the years they have bent the rules and implied that the US government backs their loans. It wasn’t true, but by lending unwisely they’ve become so big that the government now thinks it can’t afford to let them fail. So last weekend, the the Treasury Department and Federal Reserve announced that they would make funds available as necessary to keep Fannie Mae and Freddy Mac solvent.

In other words, last weekend the US government effectively added up to $5.3 trillion to the national debt, which is an increase of 50%.

So ironically, by a year or two ago the situation had become so dire that IndyMac and ResMae found themselves with names that had negative connotations. ResMae collapsed last year, and now IndyMac has collapsed.

Now, in the event of a US bank’s collapse, individual consumers are protected by the Federal Deposit Insurance Corporation or FDIC. Basically, the government guarantees your money won’t disappear if the bank collapses, up to a limit of $100,000 per person.

Unfortunately, the FDIC doesn’t actually have enough money to bail out all the banks that are expected to crash. In fact, before IndyMac crashed they had funds to cover just 1.19% of the total insured deposits. After IndyMac, they dropped below the legal mandatory minimum of 1.15% coverage.

Theoretically, the FDIC gets its money by charging premiums to banks who wish to assure investors that they are FDIC guaranteed. So the problem of bailing out the FDIC will be passed on to the average taxpayer, in the form of higher bank fees. And if that fails, the taxpayer will be forced to bail out FDIC directly.

Some analysts are now comparing the fiasco to ENRON. Except this time, it’s an ENRON where the taxpayer has to bail out the crooks. So, another great victory for reduced government regulation and the free market.

Update:

On 2008-09-08, the US government formally took FNMA and FHLMC into public ownership making the bailout official. While not every loan is going to be defaulted on, the taxpayer is potentially on the hook for the entire amount; it’s on the balance sheet as a liability.

With Ashcroft’s departure, George W. Bush has a chance to make a symbolic gesture towards uniting the nation. Instead, he has chosen Alberto Gonzales as the new Attorney General.

That’s the Alberto Gonzales who wrote the memo urging that the president declare the US exempt from the Geneva Convention, because otherwise US behavior could lead to war crimes prosecutions. If you had any doubt that a vote for the Bush administration would be rewarding those who supported torture, that doubt should now be dispelled.

It was also Gonzales who ignored a subpoena to turn over documents relating to Enron. Not exactly surprising, since he was one of Enron’s corporate lawyers when he worked for Vinson & Elkins.

Gonzales was appointed to the Texas Supreme Court by Bush in 1999, where he took cash from Halliburton while overhearing a case against them. Surprise, surprise, the case was denied. He also defended the Texas practice of not bothering to alert consulates when foreign nationals were arrested in Texas, stating that international law did not apply to Texas.

Finally, Alberto Gonzales was the guy Bush relied on to summarize the death penalty cases in Texas for him, so he could decide whether to grant clemency or just have ‘em executed. We all know how that turned out.

So, let the healing commence!

The 9/11 Commission recommended setting up an organization to help safeguard civil liberties. Sure enough the Bush administration has gone ahead and created a President’s Board on Safeguarding Americans’ Civil Liberties.

Ignoring for the moment the issue that civil liberties should, constitutionally, be protected for everyone and not just US citizens, I thought it would be interesting to take a look at the people who are being put in charge of safeguarding your freedoms.

• The Deputy Attorney General, James B. Comey.

  Quote from Comey: A court of the United States has no jurisdiction…to enjoin the president in the performance of his official duties.

  He also explained at length why he thought it was right that Jose Padilla was thrown in a military jail indefinitely and not allowed to talk to a lawyer, even though he is a US citizen and was not officially charged with any crime. Comey’s position was overruled by the Supreme Court, thank goodness.

• The Assistant Attorney General (Civil Rights Division), R. Alexander Acosta.

  Acosta seems to be one of the Good Guys, having (amongst other things) defended a Muslim student’s right to wear her head scarf at school.

• The Assistant Attorney General (Office of Legal Policy), Daniel J. Bryant.

  Bryant is a strong supporter of a Constitutional amendment to ban flag-burning. Need I say more?

• The Under Secretary for Border and Transportation Security at the Department of Homeland Security, Asa Hutchinson.

  Hutchinson was formerly head of the DEA, that bastion of concern for the civil liberties of the individual. He pushed the “drugs support terrorism” angle, and favored intensifying the War On (Selected) Drugs. He also supports Constitutional Amendments to ban flag burning and allow official school prayer, and supports banning abortion and gay adoption.

• The Assistant Secretary for Information Analysis at the Department of Homeland Security, General Patrick Hughes. He was a member of the 9/11 Commission, and wrote a series of articles on the theme of global threats to the USA and its interests abroad, for various audiences. His major focus in recent years has been building a massive information sharing network to ensure that law enforcement, homeland security and private contractors at federal, state and local level share information freely, so I’m sure he’ll have something to say about preserving your privacy.

• The Assistant Secretary (Policy), Directorate of Border and Transportation Security, part of the Department of Homeland Security; that would be a Mr C. Stewart Verdery, I believe.

  Quote from his nomination speech: We all remember well the bipartisan effort which spawned a host of responses to the terrorist attacks, including the PATRIOT Act and the creation of the Transportation Security Administration. Those days exemplified the kind of public service which is truly gratifying.

  His department is responsible for visa policy, and is pushing biometric passports—including forcing foreign countries to use biometric passports if they wish to take part in US visa waiver programs.

• The Officer for Civil Rights and Civil Liberties at the Department of Homeland Security, Daniel W. Sutherland. He’s another of the good guys, having written in favor of immigration reform and against mandatory biometric national IDs.

• The Privacy Officer at the Department of Homeland Security, Nuala O’Connor Kelly. She was the Chief Privacy Officer for…wait for it…DoubleClick. Joking aside, though, she seems to be on the side of light.

• The Counsel for Intelligence Policy, Department of Justice, James A. Baker III. You might recognize that name if you’ve seen Farenheit 9/11. He’s the Senior Counsel for the Carlyle Group, the 10th largest defense contractor in the US, heavily tied to ENRON and the Bin Laden family. He even has a bio page on the George Bush Foundation web site.

• The Under Secretary for Enforcement, Department of the Treasury, Stuart Levey. Coincidentally, he’s was a partner in James Baker’s law firm.

• The Assistant Secretary (Terrorist Financing), Department of the Treasury, Juan Zarate. His job focus has been on stopping the flow of cash to terrorists—while assuring Muslim charities that Bush administration policies were not intended to hurt them.

• The General Counsel, Office of Management and Budget. I think that’s Raymond J. McKenna. His office is part of the General Services Administration, responsible for helping to improve government efficiency by providing office space, office supplies, technology, and services.

  I must confess to being unclear why he’s on this particular committee.

• The Deputy Director of Central Intelligence for Community Management, Larry C. Kindsvater. He’s strongly in favor of reorganizing the US intelligence system, which is probably why he was picked.

• The Chair of the Privacy Council at the Federal Bureau of Investigation. I can’t find any record of a Privacy Council at the FBI; a search of their web site produces 0 hits.

• The General Counsel for the Central Intelligence Agency. These are the people who advise the CIA on the legality of their assassinations, foreign government coup attempts, and drug running.

  The CIA OGC web site doesn’t provide any information naming anyone who works there. They do mention that you can’t work for the CIA OGC in any capacity without a Top Secret clearance, polygraph test, and 6 month background screening. I believe the current General Counsel is still Scott W. Muller. Interestingly, Muller had no intelligence background before getting the job; his background was investigating white collar crime.

  Muller apparently thinks the PATRIOT Act didn’t go far enough. As he said at his nomination hearing:

  Well, let me start, Senator, by saying that I think the changes that were made in the U.S.A. Patriot Act were clearly necessary in light of the events of September 11 and I think have gone a long way toward creating at the operational level the kind of sharing and collaboration that this Committee and the Intelligence Community and the Bureau and law enforcement think need to occur. There’s a lot of work left to be done.

• The General Counsel for the National Security Agency. I believe this is still Vito T. Potenza, though obviously it’s very hard to find any information on who the NSA’s General Counsel is, or even who Mr Potenza is.

• The Under Secretary of Defense for Intelligence, Stephen Cambone. The Center for American Progress describe his qualifications as a fierce loyalty to Donald Rumsfeld and an unshakeable right wing ideology and note that he was responsible for sending Major General Geoffrey Miller to Iraq with orders to find more effective ways to interrogate prisoners.

• The General Counsel of the Department of Defense, William J. Haynes II

  Mr Haynes is the man who wrote the infamous memo listing “interrogation techniques” (i.e. torture) authorized for use at Guantanamo Bay, and was also involved in numerous other dubious legal arguments.

• The Legal Adviser at the Department of State, James H. Thessin. I can’t find much of anything about him.

• The Director of the Terrorist Threat Integration Center, John O. Brennan, a 23 year CIA veteran. His is the department which is supposed to glue together all the other departments and make sure that the left hand knows what the right hand is doing. It’s also the department that was blamed for embarrassing inaccuracies in the 2003 “Patterns of Global Terrorism” report. It was initially released to a fanfare of congratulation, as it showed that deaths from terrorist activity had fallen thanks to the Bush “War on Terror”. Then, the spurious figures were quietly revised to show that things had actually gotten worse. Brennan explained the errors by saying that their computers were too old and they were understaffed.

So, there we have it. Not a totally one sided panel, but definitely stacked carefully in a particular direction.

Found on Slashdot:

If you had bought $1000.00 worth of Nortel stock one year ago, it would now be worth $49.00.

With Enron, you would have $16.50 of the original $1,000.00.

With Worldcom, you would have less than $5.00 left.

If you had bought $1,000.00 worth of Budweiser (the beer, not the stock) one year ago, drank all the beer, then turned in the cans for the 10 cent deposit, you would have $214.00.

Based on the above, my current investment advice is to drink heavily and recycle.

Enron
Global Crossing
WorldCom
Xerox
Qwest

Who’s next? Google predicts Winstar and Broadwing.

Contributions to Republicans:
Worldcom: $4 million
Enron: $4 million
Andersen: $2.6 million
Qwest: $210,000

Let’s see who gets led away in handcuffs.

Today’s conspiracy theory: There are dozens more, but the government is making sure they only emerge one every couple of weeks, so as not to cause a 1929-style market panic and crash.

Time for another boring little news summary, culled from diverse mainstream media outlets, with links to sources…

Dick Cheney is being sued for possible involvement in accounting fraud while running Halliburton. The company is also being investigated by the SEC. Meanwhile, Halliburton has just won the contract to provide the support services for the US military in Afghanistan.

Halliburton took part in Energy Task Force discussions about building an oil pipeline from Turkmenistan through Afghanistan and Pakistan, to Dabhol in India, to allow the tapping of the Central Asian oil reserves. The pipeline construction was to be handled by a company called UNOCAL, also a member of the Energy Task Force. A third company in the task force was Enron, who just happened to have a power plant in Dabhol. [PDF]

UNOCAL began negotiating the pipeline construction. Pakistan was no problem, but Afghanistan wouldn’t play ball. When the Taliban made the mistake of supporting Osama bin Laden’s attack on the WTC, it became clear that there was a much easier way of getting the pipeline built: bomb Afghanistan, and install some friendly warlords as the new government. It seems to have worked—the new regime wants UNOCAL to start building the pipeline this year. Naturally it’s pure coincidence that Bush’s special envoy to Afghanistan is Zalmay Khalilzad, who was special advisor to UNOCAL in 1997 and carried out the risk assessments for the Afghanistan pipeline project—along with colleague Hamid Karzai, who is now interim president of Afghanistan.

We still don’t know exactly what Enron, UNOCAL and Halliburton discussed with Dick Cheney. Initially Cheney refused to hand over the meeting notes. After a subpoena, it was agreed to release some documents—but only if guarantees were given that their contents would not be made public. Why is it so important to protect the confidentiality of advice given by a bankrupt company that no longer exists? We might have found out from Enron Vice Chairman and whistleblower J. Clifford Baxter—but sadly, he was found in his car, dead from a gunshot wound. A suicide note was found near his body. Also, he’d made sure to still have his defunct Enron corporate ID in his wallet, even though he’d resigned five months previously, perhaps in case the people finding him might fail to realize who he was. Police have concluded that he went out for a drive to shoot himself. It’s a little curious that a suicidal man had talked about needing a bodyguard just two days earlier, but no doubt he was feeling confused. An autopsy uncovered chemical traces on Baxter’s left hand consistent with his having fired the gun, and concluded that he died from the bullet wound to his right temple. Toxicology results revealed residual traces of a cocktail of sedatives, antidepressants and and painkillers in his body. So, nothing suspicious there.

A second oil executive committed suicide last month. Charles Dana Rice was senior vice president at El Paso Corp. El Paso has worked with UNOCAL on pipeline projects. Probably just another coincidence.

Well, we didn’t have to wait long to find out who was going to be next after Enron and Worldcom. Congratulations to Disney and Xerox…

Worldcom have fired their CFO. Turns out they’ve been engaging in massive fraud.

Hmm… Enron, Global Crossing, Worldcom… Who’s next?

Federal investigations have turned up “smoking gun” documents showing that George W Bush’s favorite company, Enron, deliberately engineered the California power blackouts to boost profits.

It seems like only yesterday I was called a crackpot conspiracy theorist for suggesting this…

Remember that Enron exec who said he was going to cooperate with the authorities, who then suddenly committed suicide?

Well, it seems that according to the autopsy, he shot himself in the temple—using shotgun ammo, with two feet between his head and the muzzle of the gun.