By Charles Payne, CEO & Principal Analyst
I see Hollywood has resurrected another Freddy Krueger film and you have to wonder if he will ever die on screen or film. But a scarier Freddie lurks out there and I wonder what will die first, the ability of taxpayers to keep pumping money down this rat hole or the entity itself, which could teach the movie version a thing or two about defying logic, reason, and commonsense. News that Freddie Mac needs another $10.6 billion wasn’t even a blip on the general media, but this is frightening stuff. This comes out of everyone’s pockets. The WSJ says that the government sponsored entity (now in conservatorship) has lost more in the past 11 months as it made in the preceding 30 years….-$82.0 billion.
At some point, it’s time to cut the losses or risk the kind of disaster that makes the current housing slump look like a walk in the park. As it stands now FRE, FNM, and the VA (along with an assortment of alphabet organizations) are serving to simply make loans available to the masses, including high risk loans with high risk of default. According to Inside Mortgage Finance, 97% of home loans were backed by FRE, FNM, and the VA in the first quarter. The never-ending circus of public hearings in Washington makes me sick when real culprits and serious dangers aren’t addressed. Where is the public flogging of Fannie Mae? Are we really going to close the free market spigot even tighter so only the government is left to dictate how money is invested?
Some people wonder why the free pass for these GSEs, which have gotten $136.5 billion in taxpayer funds and could get as much as $400.0 billion (or more since there is no cap on how much it can loot after a fast Christmas bill passed with nobody looking). Try politics. For years, the agency was shielded by Barney Frank for a variety of reasons. But he wasn’t the only one throwing our hard earned money into this cesspool.
Fannie Mae Political Donations: 1989-2008
The kind of risk that we are browbeating Wall Street banks for are nothing compared to the artificial housing market propped up with taxpayer money that is keeping out real investment capital. At what point will Washington become honest and really take risk out of the system?
At what point will we taxpayers stop funding risk? Franklin Raines, a Clinton cabinet member and advisor to President Obama, made $90.0 million running FNM. He should be on Capitol Hill explaining the merits of his pay. This is why there is an effort to portray TARP as a success because there will be so many more bailouts mentioned as solutions, it has to be considered palatable. The whole thing left a bad taste in my mouth. While Freddy Krueger is a good comparison, what’s happening is more akin to deadbeat J. Wellington Wimpy also taking and promising to payback somewhere down the line. Tuesday will never come for taxpayers.
Productivity
It’s irritating to hear people talk in glowing terms about the economy by pointing to the stock market. First off, the phonies couldn’t come to grips with giving former President Bush credit at Dow 14,000 but now the stock market is a reflection of White House business acumen. I think that the stock market is a reflection of four things.
* The massive rebound in economies outside the United States
* Massive job cuts and increases in productivity
* Zero interest rates
* Consumers are spending money they only just put in the bank a few months ago
1Q10 productivity came in at 152.4 from 141.8 in 1Q08, while unit labor costs were 122.2 from 126.4.
Summary
The market needs to blow off recent gains and also put the element of fear back into the game. Now that we are there it will make reactions to news purer and less speculative. On that note, there is no doubt that a large pool of would-be investors are ready to pounce. We saw them yesterday make a late move to buy weakness. In addition to fear there is also a bit of commonsense coming back into play. Wimpy has been conning Popeye and others since 1931, or almost as long as Fannie Mae (1938) has been around to prop up housing by redistributing tax revenue. At some point they both have to pay up.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
