Delaware Bay's Hindes on Fannie Mae and Freddie Mac: "THE MYTH OF PRIVATE GAINS AND PUBLIC LOSSES (Turns out the opposite is true.)"

NEW YORK, Sept. 6, 2016 /PRNewswire/ -- If you repeat a lie often enough, lots of people will end up believing it.  As Joseph Goebbels, the German Government's Minister of Propaganda and Public Enlightenment advised during the Nazi era, "when one lies, one should lie big, and stick to it."  And thanks to the internet, the number of times a lie can be repeated and spread around the world has increased exponentially, making it even more believable to the masses.  As an example, consider Fannie Mae and Freddie Mac (hereinafter, the "GSEs" or "the twins").  Even though it has been disproven, many people have been snookered into believing that they caused the 2008 financial crisis.  Pure bunk.¹ (Or as Joe Biden would put it, "malarkey".)

There has also been a constant drumbeat out of Washington that the two mortgage insurers had been operating under a "broken business model" of "private gains and public losses." Unfortunately, with few exceptions, this shibboleth has also been accepted pretty much without question by numerous journalists (think the Wall Street Journal editorial page), as well as politicians, most notably, U.S. Sens. Bob Corker (R-TN); Mark Warner (D-VA); U.S. Rep. Ed Royce (R-CA), and, sadly, even President Obama himself.

Except it isn't true.

As I explained last month², the so-called "bailout" of Fannie Mae and Freddie Mac during the financial crisis of 2008 was anything but:  it was actually a "stick-up".  Using the then-raging financial crisis as cover,³ Treasury Secretary Henry Paulson put into effect a carefully-crafted and highly-confidential plan to nationalize the two companies without compensating their owners.  Contrary to widespread belief, it was hardly a "fog-of-war" decision; it was meticulously pre-planned.  And there can be no doubt that President George W. Bush was himself in on the scheme.⁴  (Link to full article: http://delawarebayllc.com/images/The_Myth_of_Private_Gains_and_Public_Losses.pdf

¹ "We conclude that these two entities contributed to the crisis, but were not a primary cause.  Importantly, GSE securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis."  Report of the Financial Crisis Inquiry Commission (at page xxvi).  See https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwib-IL3g7rOAhXmIcAKHW0EAx4QFgggMAA&url=https%3A%2F%2Ffcic-static.law.stanford.edu%2Fcdn_media%2Ffcic-reports%2Ffcic_final_report_conclusions.pdf&usg=AFQjCNELzKqgbHant83M5fXhV7IRCYQ1Zw

² HINDESight, August 4, 2016 http://delawarebayllc.com/images/Physician,_Heal_Thyself.pdf

³ As then-U.S. Rep. (currently mayor of Chicago) Rahm Emanuel put it at the time, "you never let a serious crisis go to waste.  And what I mean by that (is) it's an opportunity to do things you think you could not do before."

⁴ "'Do they know it's coming, Hank?' President Bush asked me.  'Mr. President,' I said, 'we're going to move quickly and take them by surprise.  The first sound they'll hear is their heads hitting the floor'."  Henry M. Paulson Jr:  On the Brink © 2010 Hachette Book Group, excerpted at http://abcnews.go.com/GMA/Books/book-excerpt-brink-henry-paulson-jr/story?id=9713451.  To his credit, the President may not have known the full extent of what Paulson and the Treasury Department had in mind, for he also reports that Bush's final words were "we have to make clear that what we are doing now is transitory, because otherwise it looks like nationalization."  (Emphasis added.)

SOURCE The Delaware Bay Company, LLC