All Hail The Grand Poobah; Blank Checks For Fannie and Freddie

Losses continue to mount at Fannie and Freddie where Obama has virtually declared no loss is too big for taxpayers to pay.

Please consider U.S. Move to Cover Fannie, Freddie Losses Stirs Controversy.

The Obama administration's decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.

The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.

Unlimited access to bailout funds through 2012 was "necessary for preserving the continued strength and stability of the mortgage market," the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.

"The timing of this executive order giving Fannie and Freddie a blank check is no coincidence," said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed "to prevent the general public from taking note."

In exchange for the funding, the Treasury has received preferred stock in the companies paying 10% dividends. The Treasury also has warrants to acquire nearly 80% of the common shares in each firm.

The companies on Thursday disclosed new packages that will pay Fannie Chief Executive Officer Michael Williams and Freddie CEO Charles Haldeman Jr. as much as $6 million a year, including bonuses. The packages were approved by the Treasury and the Federal Housing Finance Agency, or FHFA, which regulates the companies.

At Freddie, annual compensation will total as much as $4.5 million for Bruce Witherell, chief operating officer; $3.5 million for Ross Kari, chief financial officer; $2.8 million for Robert Bostrom, general counsel; and $2.7 million for Paul George, head of human resources.

Excuse me for asking the obvious question but how in the hell can the head of human resources for a company that is losing hundreds of billions of dollars a year be worth anything, let alone $2.7 million.

This is precisely the problem with regulation. Fannie and Freddie should not exist at all, it was an act of regulation that created them, it is an act of regulation that keeps them in business, and it is regulation that defends its policies that lose taxpayer money to the tune of hundreds of billions of dollars, and it is regulators that are approving ridiculous salaries for a company that should not even be in business.

The only thing that makes any sense is to shut down Fannie and Freddie totally, yet regulation and regulators have not taken step one in that direction. Yet, people scream for more and more regulation.

The latest proposal is to create a regulator of regulators, some sort of systemic risk all knowing wizard who supposedly would have prevented this crisis.

Never mind that thousands of people knew Fannie and Freddie would blow sky high, including some Fed governors. Ironically, we cannot even get rid of the GSEs after they have blown sky high and losses continue to mount.

Never mind that regulators continually get into bed with those they are supposed to regulate.

All Hail The Grand Poobah

Instead we can look forward to the creation of the post Grand Poobah of regulators.

Grand Poobah is a term derived from the name of the haughty character Pooh-Bah in Gilbert and Sullivan's The Mikado (1885). In this comic opera, Pooh-Bah holds numerous exalted offices, including "First Lord of the Treasury, Lord Chief Justice, Commander-in-Chief, Lord High Admiral... Archbishop of Titipu, and Lord Mayor" and Lord High Everything Else. The name has come to be used as a mocking title for someone self-important or high-ranking and who either exhibits an inflated self-regard or who has limited authority while taking impressive titles.

The term "Grand Poobah" was used on the television show The Flintstones as the name of a high ranking elected position in a men's club. Fred Flintstone and his friend Barney Rubble were members of the Loyal Order of Water Buffaloes Lodge No. 26. The lodge is a spoof of men's clubs like the Freemasons, the Shriners, the Elks Club and the Moose Lodge.

The only regulation we need is a sound currency, no fractional reserve lending, and a balanced budget amendment. Instead we can look forward to the the creation of some sort of regulatory Grand Poobah, an idiotic waste of time and money.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Healthcare Reform Sausage Not Fit For Consumption

As healthcare "reform" heads for passage, president Obama will soon have bragging rights for getting legislation passed that no one has before.

Although the Senate and House versions are different, the odds are something will pass. Moreover the odds are very high the final bill will resemble legislation passed by the Senate.

Senate House Clash

Please consider Senate Democrats Move Toward Clash With House on Health Measure

Senate Democrats, after securing a hard-fought Christmas Eve victory on health-care legislation, now move toward a battle over taxes and other issues with the U.S. House as lawmakers look to merge their differing bills.

The two chambers took different paths toward covering tens of millions of uninsured Americans. And when they begin reconciling their measures next month, they’re likely to clash over issues that include whether to set up a new government-run insurance program to restricting federal funds for abortion.

Finding agreement on financing the legislation “may be the toughest of all,” said Senator Charles Schumer, a New York Democrat.

The House adopted a 5.4 percent income surtax on individuals earning more than $500,000 and couples earning over $1 million to pay for its $1.05 trillion bill. Senate Democrats would fund their $871 billion bill, which passed on a final vote of 60-39 yesterday, in part by placing a 40 percent excise tax on the costliest health-insurance policies. That provision is opposed by labor unions, which are among the party’s strongest backers.

Because it required all 58 Senate Democrats and two independents to stick together to get the 60 votes needed to secure passage of the chamber’s health-care bill, Thurber said it’s likely the Senate will win out on most issues. “The narrow majority in the Senate makes it almost a necessity to go with the Senate position,” Thurber said.

House negotiators “will have to capitulate on most main differences,” agreed Rogan Kersh, a public policy professor at New York University.

Drugmakers including Whitehouse Station, New Jersey-based Merck & Co. have a number of fights on their hands. Lawmakers are pushing for the industry to spend more than the $80 billion that it promised to help patients in the Medicare program for the elderly afford prescription drugs.

Negotiating Power

The House measure calls for the government to capitalize on its buying power to negotiate prices for medicines; the Senate bill calls for $2.3 billion in yearly industry fees.

“This fight isn’t over,” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said. “My colleagues and I will work to stop this bill from becoming law.”

Healthcare Bill Flaws

• The bill does not open up competition between states.
• The Senate version of the bill does not provide for group bargaining of drugs by Medicare and that is what will likely pass.
• The bill does not allow drug imports in from Canada.
• Drugmakers won a 12-year period of exclusive sales for brand-name drugs before facing competition from generic rivals. This will benefit companies like Amgen and Genentech while driving up costs for consumers. President Obama wanted a 5-7 year period.
  
• The bill will hurt struggling small business owners who already are reluctant to hire.
• The bill does allow states to opt out of paying for abortions. This is folly given the huge ongoing costs of unwanted births.
• The senate bill granted special favors to senators from several states to buy their vote.
  

Arguably, the one of the few good things in the bill is coverage of preexisting conditions. The rest looks like rancid sausage. The biggest problem is there is not a single thing in the bill guaranteed to lower health care costs. We have to take it on faith that the plan will save money.

It won't.

However, when your goal is to get something (anything), passed it should be no surprise that the package is as flawed as it is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Congress Increases Debt Limit To 24 Quadrillion Dollars

Congress did not really increase the debt ceiling to $24 quadrillion but it may as well have. If every increase is a foregone conclusion, then it is a waste of time debating approvals.

On Thursday, with little fanfare, Congress Increased The Debt Limit.

Congress's move to lift the federal government's borrowing limit by $290 billion -- enough to last about two months -- sets the stage for a contentious debate early next year on government spending.

The Senate on Thursday approved the increase in a 60-39 vote that was largely along party lines. The House passed the measure last week.

The additional $290 billion in borrowing ability lifts the total public debt the federal government can hold to about $12.4 trillion and will allow the government to keep borrowing through February.

Treasury officials had warned that the current limit of $12.1 trillion was close to being breached. Congressional leaders scrambled to raise the ceiling before they began the holiday recess.

An increase in the debt ceiling is largely symbolic as it represents money already spent by the U.S. government.

Year in and year out, and sometimes multiple times a year, Congress stages a carnival act for public display where the representatives all get together and pretend to be shocked at the size of the deficit and vow to do something about it next year.

Of course next year never comes.

If Republicans in general do not like deficit spending and Democrats in general do not like deficit spending then why does the deficit go up every year? The only conclusion is members of both parties are liars.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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