Fannie, Freddie, and Private Equity

Monday, December 19, 2011

New York Times op-ed columnist Joe Nocera discusses news about Fannie Mae and Freddie Mac and explains what private equity firms actually do--all in the context of the GOP race.


Joe Nocera

Comments [10]

B. Rowe from Westchester County, NY

Joe Nocera's assessment of the OWS prolonged meet up is spot on.

Dec. 20 2011 08:46 AM
Eugenia Renskoff from Brooklyn, NY

Hi, No more slaps on the wrist for any banker. Accountability. I don't believe the Occupy Movement, leader less or no, will go away. The anger and frustration are too great. I myself would join them if I could. Mortgage fraud and foreclosure are just too much--way too much. Eugenia Renskoff

Dec. 19 2011 03:39 PM
Barbara Jaccoma

Joe Nocera's comments about the Occupy Movemnt are fair enough but he should recall that the "tea party" was 30 years in development-let's see what happens next. Also his understatement re Cuomo was great-look at the effect of the tax cap on non-city school districts and collective bargaining-it amounts to Wisconsin light.

Dec. 19 2011 02:52 PM
SEC fights Govt not Big Banks

The SEC claims it doesn't have the resources to fight the too-big-to-fail
banks in court. It jumps to give them
slap-on-the-wrist settlements which do not
require admission of guilt.

It then profligately spends its resources in
legal fights against the government (appealing the judge's recent Citicorp ruling), and the quasi-government agencies
(Freddie and Fannie).

This encourages future large bank misdeeds and sows the seeds for the
next crash and rescue.

If you stole a car and sold it for $1000,
and the state only required that you give
$250 back - no jail time, no remorse,
no admission of guilt - well what would
happen to the rate of car thefts ? It'd
go up.

If the state said, it's too expensive to prosecute, it'd cost $2000 to do so,
is that reasonable ? No, because it ignores
the importance of punishment as DETERRENT to future crime.

So, WHY does the SEC jump to settle ?
Perhaps, because too-big-to-fail banks donate extensively to the regulator's bosses ? Perhaps, because the too-big-to-fail banks will eventually hire most of the
SEC regulators - at least the ones who were helpful and cooperative ? Perhaps because the SEC has been seeded for years with Bush-era appointees who wanted to dismantle regulation or at least not enforce it against the wealthy and well-connected ?

The SEC needs a major change of policy and behavior. Its job is to enforce and by enforcing to deter. Instead, it is fighting the government.

Dec. 19 2011 12:43 PM

Re: Nocera's comment on tea party effectiveness and what the left has to learn, tea party has millions of corporate dollars and right wing organizational infrastructure behind it, not to mention an entire news network.

Dec. 19 2011 10:47 AM
amalgam from NYC by day, NJ by night

Capitalism and creative destruction; granted (for better or worse this is the process as described by Joseph Schumpeter).

The problem with Romney's characterization of the Obama admin.'s successful saving of the U.S. auto industry by cutting costs, dealerships, etc. was based on the American national interest, not based on the interests of personal wealth of Romney and his investors. This is especially true when equity firms make savage cuts, break up and repackage in pieces and/or force bankruptcy to reemerge with a cornered market, even when these steps are _unwarranted_, simply for their firm's own enrichment. Again, that might be the MO and raison d'etre of private equity firm, but they get no love for avarice.

Dec. 19 2011 10:46 AM
Ron from NYC

I believe Freddie and Fannie had lots to do with our economic woes, but the big companies trading mortgage backed securities had lots to do with it, as well as credit card companies giving out cards like candy canes at Christmas or holiday parties all around the country!

Dec. 19 2011 10:41 AM
Joel from Nyack

According to an article in today's Times, Romney was in charge of buying the company now known as Staples early on in his career at Bain.

Dec. 19 2011 10:39 AM
Donna Knipp from Manhattan


There is another way that private equity firms make money -- they buy a company in order to drive all of its competitors out of business, then they "set the price" for the company product at a higher level.

Let's say they buy a company that makes auto seat covers. Then they drop the price to an artificially low level, which drives their competitors out of business in pretty short order.

Once the competitors are gone, they can then set the price for auto seat covers at twice previous level, and they clean up.

Because they have deep pockets, they can stand to lose money for the year that it takes to drive the competitors out of business.

This is a very "anti-competitive" strategy and it is widely practiced.

Dec. 19 2011 10:38 AM

One of the things that has changed over the past 30 years is that risk-taking by the wealthy is increasingly _guaranteed_ by the US government (and by extension, us).Average risk-taking, say in the form of taking on a mortgage, is -- as we all now know -- not guaranteed at all.

Dec. 19 2011 10:37 AM

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