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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