Congressional Scam

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When an event renders you speechless, I suppose that writing is the only way to express thoughts about it. Just such an event has happened.

Rep. Barney Frank (D-MA) stunned the investment world recently when he issued a warning about the risk of the debt of Freddie Mac and Fannie Mae. As reported by the Washington Post (March 6), he said that investing in these companies—meaning, presumably, either lend- ing them money or buying any of the massive amounts of paper they now own — should not be considered as safe as investing in the federal government. In his words, “People who own Fannie and Freddie debt are not in the same legal position as [those who own] Treasury bonds, and I don’t want them to be.”

In case anybody misunderstood what he was getting at, he added that these failed government-sponsored entities (GSEs) should be restructured in such a way as to “pre- serve the right to give people haircuts.” In other words, the feds should just rip off the victims who invested in these scam companies. Or at least (as he clarified later) the government shouldn’t guarantee any of the paper those scams issued before the government seized them.

Now, there are two big reasons why this announcement is so amazing.

First, it is directly contrary to what Obama dictated when (last Christmas Eve) he unilaterally chose to remove the cap on the federal government’s liability for Freddie and Fannie. That implicitly promised investors that the federal government was backing the whole crap sandwich. And indeed, Frank’s statement prodded the Treasury Department to issue an immediate statement, explicitly committing the federal government to backing those companies.

Second, Frank is the number one villain in the whole Freddie-Fannie scam. This vile reptile fought Bush and others bitterly every time they suggested that those companies be reined in. He used the companies as tools to give people “affordable housing”; that is, he used the money sucked into those companies from private investors to buy votes by letting the GSEs back risky loans. The money was invested only because Freddie and Fannie were government sponsored, with what was called an “implied” back- ing. Frank got the votes, and now he wants to give the original investors the shaft.

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