David Kellerman, the Chief Financial Officer of Freddie Mac, appears to have committed suicide. Here's a quote from a news story about it. The link to the story is below.
"Kellermann, 41, had has been with Freddie Mac for more than 16 years.
He had been named acting chief financial officer in September 2008, taking over after Anthony "Buddy" Piszel resigned. Freddie Mac's CEO David Moffett resigned last month.
Government-controlled Freddie Mac, based in McLean, has been criticized heavily for reckless business practices. Some say those practices contributed to the nation's housing and financial crisis. Freddic Mac owns or guarantees about 13 million home loans.
As CFO, Kellermann was responsible for the company's financial controls, financial reporting and oversight of the company's budget and financial planning."
http://www.wtopnews.com/?sid=1657033&nid=25
It's interesting that this guy's predecessor, Anthony "Buddy" Piszel, suddenly started making political contributions when he became CFO of Freddie Mac in 2006.
http://www.campaignmoney.com/political/contributions/anthony-piszel.asp?cycle=08
Maybe, that's not surprising though, because according to his employment agreement that I found on the web (but can't seem to link to) Piszel was given a $7.5 Million signing on bonus for taking that job in 2006. And his employment contract guaranteed him $1.2 Million in severance pay, so that's probably what he got when he resigned last fall after two years there. There's nothing wrong with that, except for the fact that it's a bit more than odd to give a fellow a $7.5 Million signing bonus for a job that pays only $650,000 in salary per year, and it's an interesting coincidence that such a fellow should suddenly become very interested in making big political contributions.
Paul G. George, who signed Piszel's employment contract, made only $7,400 in political contributions in 2008, so I'm guessing he's a relatively little fish at Freddie Mac even though his title is Executive VP of Human Resources. He signed the Piszel contract; but my guess is that it was negotiated by someone else with a whole lot more clout.
http://www.freddiemac.com/bios/exec/george.html
http://www.campaignmoney.com/political/contributions/paul-george.asp?cycle=08
Checking around the web I find that David Kellerman doesn't appear to have made many political contributions at all - those I found were just little ones. So he was probably a regular up from the ranks accountant type guy and not a wide awake political hanger on like most of those who have run Fannie Mae and Freddie Mac over the past few years while tens of billions have been squandered.
Accounting can apparently be a dangerous profession, just like lawyering, as Vince Foster learned. You want to be very judicious about opening up musty file drawers when you work in a place that serves as a cash machine for the politically powerful. You never know what you're going to find. You might find yourself falling forward onto the floor after a double tap to the back of the head; or you might find that you're being set up to take a fall and get depressed.
People have killed and been killed over a whole lot less money than the amount of loot that was laundered through Fannie Mae and Freddie Mac over the past couple of decades.
Showing posts with label Fannie Mae. Show all posts
Showing posts with label Fannie Mae. Show all posts
Wednesday, April 22, 2009
Monday, September 29, 2008
An eight minute tutorial on how politics works
Here's an eight minute video of clips from a congressional hearing in late 2004 that tells you all you need to know about who's most responsible for the fact that the financial crisis is as bad as it is. Even President Clinton now recognizes the truth.
The main fault that lies with Republicans is that they should have forced this issue to public consciousness in 2005.
http://www.youtube.com/watch?v=_MGT_cSi7Rs&eurl=http://5.gmodules.com/ig/ifr?pid=dell&url=http://www.google.com/ig/modules/youtube_videos.xml&nocache=0&up_pre
The main fault that lies with Republicans is that they should have forced this issue to public consciousness in 2005.
http://www.youtube.com/watch?v=_MGT_cSi7Rs&eurl=http://5.gmodules.com/ig/ifr?pid=dell&url=http://www.google.com/ig/modules/youtube_videos.xml&nocache=0&up_pre
Thursday, September 25, 2008
A brief note on this credit crisis
Everybody is trying to capsulize what caused this credit crisis, and both political sides are trying to minimize their role. Here are some simple facts.
In the 1990's some congresscritters, mostly Democrats, noticed that many inner city people could not qualify for mortgages because they could not provide a record of income sufficient to justify a mortgage. So they passed a law with some Republican votes requiring banks to provide so called "no document" mortgages without checking the borrowers income. Furthermore the law required Fannie Mae and Freddie Mac to buy those mortgages from the banks. A former law had established Fannie and Freddie as quasi arms of the government, which allowed them, in turn to borrow money from the Treasury and from others at lower interest rates than usually required for such things as mortgages. The Federal Government thus became sort of responsible for the debts of Fannie and Freddie.
If congress had just restricted such "no doc" mortgages to cheap housing in the inner cities all would have stayed manageable. But noooooooooo! The congresscritters, Democrats and Republicans, quickly figured that it would be unfair to only let poor people take advantage of the system like that - so they quickly raised the limit on such mortgages to middle class and even wealthy people. After that it became all the rage for banks to offer everybody who couldn't or didn't want to prove their income "no doc" mortgages.
As a result pretty soon banks were writing big mortgages on first homes and even on second and third, fourth and fifth home mortgages on a "no doc" basis. This all resulted in a very enjoyable party wherein folks were buying and selling homes like sausages, especially in Florida and California. If you doubt this you can turn on the TV and find a show called Flip That House which is all about how everybody can get rich by buying houses, fixing them up a bit and then selling them for big profits. Naturally all this game playing drove the price of housing up to the sky in the hot markets.
It all worked quite nicely while home prices continued to go up fast because people could take out a new mortgage to pay their old mortgage. But then in the early part of this decade the nasty old Grinches, like Warren Buffet, tried to spoil Christmas by pointing out the old Chinese proverb that "No tree grows to the sky."
So, in 2005, some congresscritters (mostly spoil sport Republicans this time, including John McCain) noticed that Fannie and Freddie were writing an awful lot of bad mortgages, and they were also fostering a market in blindingly complex bonds and betting pools called "derivatives" which were being sold and kept in bank and insurance company vaults as assets just as though they were real money. The Republicans were shouted down in 2005 because they were gutless wimps and because nobody wanted to leave off drinking the champagne and eating the caviar that came of writing and trading and betting on all these interesting new "derivatives" even though nobody could really understand them.
So there you have it. High finance in a few paragraphs. That is what brought us to where we are now, when even the smartest financial wizards don't know what those "derivatives" are worth, and when if the government doesn't bail out all the dumb banks and insurance companies the whole shebang will come apart.
As an aside, practically every well known congressman and senator except John McCain was on the Fannie and Freddie payroll to keep the party running as long as possible. And even McCain is not blameless because he should have shouted his concerns from the rooftops in 2005 instead of letting the Democrats kill the bill which would have at least moderated the crisis. But, of course, if he had done that he wouldn't have been able to run for president because nobody likes a Grinch. His opponent, Barack Obama, is trying his darndest to wriggle out of his share of responsibility for all of this, but that's pretty hard when it's a simple fact that he took the third biggest money envelope Fannie and Freddie handed out last year.
In the 1990's some congresscritters, mostly Democrats, noticed that many inner city people could not qualify for mortgages because they could not provide a record of income sufficient to justify a mortgage. So they passed a law with some Republican votes requiring banks to provide so called "no document" mortgages without checking the borrowers income. Furthermore the law required Fannie Mae and Freddie Mac to buy those mortgages from the banks. A former law had established Fannie and Freddie as quasi arms of the government, which allowed them, in turn to borrow money from the Treasury and from others at lower interest rates than usually required for such things as mortgages. The Federal Government thus became sort of responsible for the debts of Fannie and Freddie.
If congress had just restricted such "no doc" mortgages to cheap housing in the inner cities all would have stayed manageable. But noooooooooo! The congresscritters, Democrats and Republicans, quickly figured that it would be unfair to only let poor people take advantage of the system like that - so they quickly raised the limit on such mortgages to middle class and even wealthy people. After that it became all the rage for banks to offer everybody who couldn't or didn't want to prove their income "no doc" mortgages.
As a result pretty soon banks were writing big mortgages on first homes and even on second and third, fourth and fifth home mortgages on a "no doc" basis. This all resulted in a very enjoyable party wherein folks were buying and selling homes like sausages, especially in Florida and California. If you doubt this you can turn on the TV and find a show called Flip That House which is all about how everybody can get rich by buying houses, fixing them up a bit and then selling them for big profits. Naturally all this game playing drove the price of housing up to the sky in the hot markets.
It all worked quite nicely while home prices continued to go up fast because people could take out a new mortgage to pay their old mortgage. But then in the early part of this decade the nasty old Grinches, like Warren Buffet, tried to spoil Christmas by pointing out the old Chinese proverb that "No tree grows to the sky."
So, in 2005, some congresscritters (mostly spoil sport Republicans this time, including John McCain) noticed that Fannie and Freddie were writing an awful lot of bad mortgages, and they were also fostering a market in blindingly complex bonds and betting pools called "derivatives" which were being sold and kept in bank and insurance company vaults as assets just as though they were real money. The Republicans were shouted down in 2005 because they were gutless wimps and because nobody wanted to leave off drinking the champagne and eating the caviar that came of writing and trading and betting on all these interesting new "derivatives" even though nobody could really understand them.
So there you have it. High finance in a few paragraphs. That is what brought us to where we are now, when even the smartest financial wizards don't know what those "derivatives" are worth, and when if the government doesn't bail out all the dumb banks and insurance companies the whole shebang will come apart.
As an aside, practically every well known congressman and senator except John McCain was on the Fannie and Freddie payroll to keep the party running as long as possible. And even McCain is not blameless because he should have shouted his concerns from the rooftops in 2005 instead of letting the Democrats kill the bill which would have at least moderated the crisis. But, of course, if he had done that he wouldn't have been able to run for president because nobody likes a Grinch. His opponent, Barack Obama, is trying his darndest to wriggle out of his share of responsibility for all of this, but that's pretty hard when it's a simple fact that he took the third biggest money envelope Fannie and Freddie handed out last year.
Friday, July 18, 2008
The biggest financial scandal in the history of the world
The biggest financial scandal in the history of the world is now unfolding so there are sure to be some interesting political games played over the next few months and years. Democrats are the chief scalawags involved and they probably have laundered and stashed most of the loot, but since the thievery has been proceeding more or less in plain site for 16 years it's sure that at least some Republicans have managed to glom onto some goodies as well, if only to keep them quiet during the times when they have controlled the congress.
In some ways it's a complicated scandal, and the politicians are sure to make it seem very complicated indeed as they select the five or six designated fall guys to take the rap, but at base it's very simple.
In 1992 Federal Regulators appointed and controlled by the then Democratic Congress gave Freddie Mac and Fannie Mae a special dispensation to continue to operate like banks and keep all of the profits they made on loans, but without the troublesome necessity of being responsible for most of the risk on the loans and with extra special super-duper permission to violate all normal rules of banking by maintaining only a thin facade of cash reserves in their vaults. Armed with those advantages over other banks Fannie and Freddie, as they are affectionately know by political bag men, proceeded to grow like weeds.
Now I'm not a financial analyst but it's possible even for a schlub like me to make a rough estimate of how much those special regulatory perks were worth to Fannie and Freddie as they and their political contacts gorged and swilled over the past 16 years. Right now, you see, is when the chickens are finally coming home to roost and crap all over the heads of the two special banks. And the Wall Street Journal today helpfully printed a chart which shows that between the two of them they have about $80 Billion in Reserves whereas two normal banks heir size would be required to have over $180 Billion in Reserves. The special dispensations mean that Fannie and Freddie are short $100 Billion, and they've been able to be short of reserves for 16 years.
Now it's not fair to estimate the extent of the loot based on the current $100 Billion of missing reserves because the two banks have been growing fast during all of those 16 years, so I'm going to give the thieves the benefit of the doubt and assume the average shortfall of reserves has only been $50 Billion during each of the 16 years. And I'm going to assume that being allowed to be short of all that cash in the vaults only resulted in a 5% bottom line advantage for Fannie and Freddie. That would make the value of those special dispensations 5% of $50 Billion which is $2.5 Billion times 16 years for a total of $48 Billion. But that $48 Billion has a time value, just like all other cash. If we assume a conservative 6% rate of return it's actually worth about $96 Billion in current 2008 dollars.
Now Fannie and Freddie surely didn't give all of that loot to the politicians in envelopes, they only gave them a commission. How much of a commission? In this regard most politicians are actually pretty cheap in my estimation, they're mostly too stupid to be sharp negotiators. I doubt they got more than 6% or $6,000,000,000* or so, and it may well have been less even though this was the ultimate sweet deal - thievery in plain site, a very long time frame before the theft was noticed by the public, plenty of time to launder the loot, and even testimonial dinners and awards praising those politicians and Fannie and Freddie executives as public spirited citizens.
The great train robbers in London only got about $6 Million and they got a movie made about them. Here we have politicians hauling off something like one thousand times that much. It's worth at least a movie. I say it should have a cast of hundreds and be set on Devil's Island with whips, chains, snarling dogs and a special iron time out box in the sun for anyone who talks back to the warden. But, given the way politics works, the movie about this crime of the millenium will end with four or six or eight** peripherally involved folks spending a few years at a special resort whose main inconvenience to them will be lack of a masseuse on call down by the prison pool.
*$6,000,000,000 is $6 Billion. That's about five hundred big suitcases full of $20 bills neatly packaged in bank wrappers like the ninety large they found in Democratic Congressman William Jefferson's freezer down in New Orleans. It's probably a thousand or more suitcases of loose used $20's stuffed in there the way Democratic Congressman Patrick Kennedy would do it while, uh, disoriented, or the way Congressman Wilbur Mills and Fannie Foxe would have done it before going for a swim. Note - Fannie Foxe is not related to Fannie Mae even though they may appear to have more in common than their first names.
**It has to be an even number because the rules of Washington are that an equal number or Democrats and Republicans have to take the fall for any sizable scam, especially one that involves as unindicted co-conspirators every Congressman, Senator, Federal Judge, Treasury Department official and Securities and Exchange Commission manager who hasn't gotten around with a seeing eye dog since 1992. Come to think of it a thousand big suitcases wouldn't have been nearly enough for all the payoffs, they must have used medium sized ones.
In some ways it's a complicated scandal, and the politicians are sure to make it seem very complicated indeed as they select the five or six designated fall guys to take the rap, but at base it's very simple.
In 1992 Federal Regulators appointed and controlled by the then Democratic Congress gave Freddie Mac and Fannie Mae a special dispensation to continue to operate like banks and keep all of the profits they made on loans, but without the troublesome necessity of being responsible for most of the risk on the loans and with extra special super-duper permission to violate all normal rules of banking by maintaining only a thin facade of cash reserves in their vaults. Armed with those advantages over other banks Fannie and Freddie, as they are affectionately know by political bag men, proceeded to grow like weeds.
Now I'm not a financial analyst but it's possible even for a schlub like me to make a rough estimate of how much those special regulatory perks were worth to Fannie and Freddie as they and their political contacts gorged and swilled over the past 16 years. Right now, you see, is when the chickens are finally coming home to roost and crap all over the heads of the two special banks. And the Wall Street Journal today helpfully printed a chart which shows that between the two of them they have about $80 Billion in Reserves whereas two normal banks heir size would be required to have over $180 Billion in Reserves. The special dispensations mean that Fannie and Freddie are short $100 Billion, and they've been able to be short of reserves for 16 years.
Now it's not fair to estimate the extent of the loot based on the current $100 Billion of missing reserves because the two banks have been growing fast during all of those 16 years, so I'm going to give the thieves the benefit of the doubt and assume the average shortfall of reserves has only been $50 Billion during each of the 16 years. And I'm going to assume that being allowed to be short of all that cash in the vaults only resulted in a 5% bottom line advantage for Fannie and Freddie. That would make the value of those special dispensations 5% of $50 Billion which is $2.5 Billion times 16 years for a total of $48 Billion. But that $48 Billion has a time value, just like all other cash. If we assume a conservative 6% rate of return it's actually worth about $96 Billion in current 2008 dollars.
Now Fannie and Freddie surely didn't give all of that loot to the politicians in envelopes, they only gave them a commission. How much of a commission? In this regard most politicians are actually pretty cheap in my estimation, they're mostly too stupid to be sharp negotiators. I doubt they got more than 6% or $6,000,000,000* or so, and it may well have been less even though this was the ultimate sweet deal - thievery in plain site, a very long time frame before the theft was noticed by the public, plenty of time to launder the loot, and even testimonial dinners and awards praising those politicians and Fannie and Freddie executives as public spirited citizens.
The great train robbers in London only got about $6 Million and they got a movie made about them. Here we have politicians hauling off something like one thousand times that much. It's worth at least a movie. I say it should have a cast of hundreds and be set on Devil's Island with whips, chains, snarling dogs and a special iron time out box in the sun for anyone who talks back to the warden. But, given the way politics works, the movie about this crime of the millenium will end with four or six or eight** peripherally involved folks spending a few years at a special resort whose main inconvenience to them will be lack of a masseuse on call down by the prison pool.
*$6,000,000,000 is $6 Billion. That's about five hundred big suitcases full of $20 bills neatly packaged in bank wrappers like the ninety large they found in Democratic Congressman William Jefferson's freezer down in New Orleans. It's probably a thousand or more suitcases of loose used $20's stuffed in there the way Democratic Congressman Patrick Kennedy would do it while, uh, disoriented, or the way Congressman Wilbur Mills and Fannie Foxe would have done it before going for a swim. Note - Fannie Foxe is not related to Fannie Mae even though they may appear to have more in common than their first names.
**It has to be an even number because the rules of Washington are that an equal number or Democrats and Republicans have to take the fall for any sizable scam, especially one that involves as unindicted co-conspirators every Congressman, Senator, Federal Judge, Treasury Department official and Securities and Exchange Commission manager who hasn't gotten around with a seeing eye dog since 1992. Come to think of it a thousand big suitcases wouldn't have been nearly enough for all the payoffs, they must have used medium sized ones.
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