The Former Treasury Secretary wrote a book bragging about the take over of Fannie and Freddie. In your FACE AMERICA!
Wise Man somehow wants to justify this. Hello! ??
Concrete Life Preserver
“Treasury Secretary at the time of the takeover, Henry Paulson, revealed in his later book On the Brink that the takeover of Fannie Mae and Freddie Mac was essentially a corporate decapitation (“the first thing they’ll hear is the sound of their heads hitting the floor”), the imagery of an assassination resonated with anyone who had been at Fannie Mae in 2008. Employees felt blindsided. Mr. Paulson’s description of the takeover as an “ambush” is spot on. The “bailout”/takeover was unrequested, unexpected, and wildly unpopular.”
The intended effect was to drown the GSEs in debt that they never needed—a “concrete life-preserver”.
“I'm a straightforward person. I like to be direct with people. But I knew that we had to ambush Fannie and Freddie. We could give them no room to maneuver.” Quoted from On the Brink.
Deferred Tax Assets fabricated losses...
FHFA and Treasury engineered these large and early losses deliberately. But without these engineered losses, Fannie Mae would never have run out of capital, and would have survived the financial crisis stronger than ever.
Fannie Mae
Form 10K For the fiscal year ended December 31, 2009
Quote: “The aggregate liquidation preference on the senior preferred stock will be $76.2 billion, which will require an annualized dividend of approximately $7.6 billion. This amount exceeds our reported annual net income for all but one of the last eight years, in most cases by a significant margin. Our senior preferred stock dividend obligation, combined with potentially substantial commitment fees payable to Treasury starting in 2011 (the amounts of which have not yet been determined) and our effective inability to pay down draws under the senior preferred stock purchase agreement, will have a significant adverse impact on our future financial position and net worth.” End of Quote Page 7
Link: https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2009/form10k_022610.pdf
Mr. Howard,
Quote: Once in conservatorship, the Companies’ managements had no role in negotiating the terms on which they would be offered assistance; Treasury and FHFA set these terms unilaterally. They included a requirement that any shortfalls in the Companies’ book capital be covered with “draws” of senior preferred stock that never could be repaid, meaning Fannie and Freddie had to pay a dividend to Treasury of 10 percent after-tax in cash, or 12 percent in kind, in perpetuity, on their highest amounts of senior preferred stock outstanding at any one time. This unprecedented non-repayment feature gave Treasury and FHFA an extremely strong incentive to make accounting choices for the Companies that accelerated or exaggerated their expenses and greatly increased their losses, in order to create a large and permanent flow of revenue to Treasury.
Between the time Fannie and Freddie were put into conservatorship and the end of 2011, well over $300 billion in non-cash accounting expenses were recorded on their income statements. These non-cash expenses, most of which were discretionary, eliminated all of the Companies’ capital and forced them, together, to take $187 billion from Treasury.
But because accelerated or exaggerated expenses cause losses that are only temporary, Fannie’s and Freddie’s non-cash losses began to reverse themselves in 2012. Coupled with profits resulting from a rebounding housing market, the reversal of these losses enabled both Companies to report in August 2012 sufficient second quarter income to not only pay their dividends to Treasury but also retain a total of $3.9 billion in capital.
As soon as it became apparent that a large percentage of the non-cash accounting losses booked during the previous four years was about to come back into income, Treasury and FHFA entered into the Third Amendment to the PSPA. The Third Amendment substituted for the fixed dividend payment a requirement that all future earnings—including reversals of accounting-related expenses incurred earlier—be remitted to Treasury. From the time the Third Amendment took effect through the end of 2014, Fannie and Freddie paid Treasury $170 billion, $133 billion more than they would have owed absent the Amendment.” End of Quote
Link: https://howardonmortgagefinance.com/2015/07/
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