The Housing and Economic Recovery Act of 2008 is the new bill passed by the Congress and signed into law that has been explained as providing government help to homeowners facing foreclosure, but which really illustrates just how closely connected Congress is with financial and business interests. The legislation is nothing more than more subsidies to the largest financial power centers, with the bills being paid through debt by the American people.
But this latest bill is the largest ever, and it is inconceivable how it will be paid. Five trillion dollars of Fannie Mae and Freddie Mac mortgage debt is now effectively guaranteed by the federal government in order to keep these companies from declaring bankruptcy. Average people will not see any return from this $5 trillion public investment, however, as the Federal Reserve will subsidize the GSEs in order to further privatize profits for investors in Fannie/Freddie.
Despite a financial system wide credit crisis, the bill means that Fannie and Freddie can continue borrowing everything they need to stay in business. Instead of obtaining funds by running a decent business and remaining credit worthy, however, they will simply use the coercive power of the federal government to steal from all of the people through taxes, borrowing, or inflation.
A new regulator has been appointed to oversee the Government Sponsored Enterprises, which effectively means the government can impose large amounts of control over the companies at will. Obviously, this is designed to provide slightly more ostensible accountability for the GSEs, while in reality it strengthens the ties between Congress, regulatory agencies, and Fannie Mae and Freddie Mac. So the businesses have been nationalized in all but name, with the new regulator running the company in whatever way Congress sees fit.
With their lines of credit to the Treasury and the Federal Reserve ready to step in and prop up their stock prices, the GSEs have become companies whose stock prices can be wholly determined by government subsidies. At trillions of dollars of cost to the American public, Fannie and Freddie can stay in business, keep taking on investment risks with moral hazard, and reward their investors and managers forever.
So what have the interested parties received from the new housing legislation? The GSEs receive their $5 trillion of debt guaranteed by the American public and their stock prices guaranteed by the Federal Reserve, with new regulatory oversight strengthening the ties between government and the banking interests that have met in the management halls of Fannie and Freddie. None of this money will ever be paid back, and more debt will further weaken the dollar through inflation. The American public, on the other hand, receive a $7,500 tax credit for first-time home buyers, a tax credit which must be paid back to the federal government over time. Sounds less than fair.
To find out more about the foreclosure process, visit the My Foreclosure Lender website, which provides services to borrowers trying to save their homes. Foreclosure loan and mortgage modification assistance can be found, as well as information on stopping a foreclosure before the public auction of the house transfer ownership away from the borrowers and into the hands of the bank. You can find the site on the web at the following: http://www.myforeclosurelender.com/
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