On CNBC's The Call, while discussing the Obama administration's Homeowner Affordability and Stability Plan, Larry Kudlow -- echoing remarks by Rep. John Boehner -- claimed that “the people who win here are Fannie and Freddie. The Americans who paid their taxes on time and their mortgages on time get hurt.” However, as economist Paul Krugman noted: "[T]he government took over F&F months ago."
During the February 20 edition of CNBC's The Call, while discussing the Obama administration's Homeowner Affordability and Stability Plan, co-host Larry Kudlow -- echoing remarks by House Minority Leader John Boehner (R-OH) -- claimed that “the people who win here are Fannie and Freddie. The Americans who paid their taxes on time and their mortgages on time get hurt.” In fact, as economists Paul Krugman and Dean Baker have noted, the government -- that is, the American taxpayer -- now owns most of Fannie Mae and Freddie Mac, or, in Baker's words: "[T]hese companies are currently in government conservatorship, with the shareholders having lost almost all their ownership stake, and the executives replaced by the government."
A September 2008 Congressional Research Service (CRS) report noted:
Stockholders' voting rights are suspended during the conservatorship, and both firms' CEOs have been replaced. Dividends on common and preferred stock have been suspended, although the shares continue to trade.
[T]he government has received warrants to buy up to 79.9% of GSE [government-sponsored enterprise] common stock for $0.00001 per share.
Kudlow's remarks were first noted on Media Matters for America Senior Fellow Duncan Black's blog, Eschaton.
Kudlow's remarks echo a February 18 statement by Boehner, who claimed of Obama's housing plan: “Why should we reward Fannie Mae and Freddie Mac with $200 billion in taxpayer dollars without first reforming these housing entities that were at the heart of the economic meltdown?”
In a February 19 post about Boehner's remarks, Baker wrote:
The [Washington] Post might have asked House Minority Leader John A. Boehner that question when he complained about the Obama administration's plans to raise the amount of capital put into the mortgage giants from $200 billion to $400 billion. Since these companies are currently in government conservatorship, with the shareholders having lost almost all their ownership stake, and the executives replaced by the government, it is not clear who Mr. Boehner thinks is being inappropriately rewarded by this action.
Similarly, in a February 20 blog post, Krugman wrote:
The most valuable lesson I learned from the year I spent in Washington (1982-1983, on the staff of the Council of Economic advisers -- I was the senior intl economist, the senior domestic economist was a guy named Larry Summers. What ever happened to him?) was the extent to which senior government figures have absolutely no idea what they're talking about.
So when I read something like this:
“Why should we reward Fannie Mae and Freddie Mac with $200 billion in taxpayer dollars without first reforming these housing entities that were at the heart of the economic meltdown?” House Minority Leader John A. Boehner (R-Ohio) said in a statement.
and people ask what on earth Boehner might mean when he talks about taxpayers “rewarding” institutions that are owned by taxpayers, I go for Occam's Razor: Boehner doesn't have some complicated notion in mind, he either doesn't know that the government took over F&F months ago, or he just doesn't get this “government-owned” concept. [emphasis in original]
On February 18, the Obama administration announced: “Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. ... Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.”
From the February 20 edition of CNBC's The Call:
RICK SANTELLI (CNBC Business News on-air editor): I guess my question is, how many people in that 10 percent that aren't current on their mortgages -- how many of those do you think are the case you describe versus investors that were looking at houses as investments -- trying to flip them -- and how can you separate the two?
JULIAN EPSTEIN (Democratic strategist): I don't think the majority were investors. And I agree with you, I don't have much sympathy for the speculators. But I do think a lot of families got into doing things like getting -- getting loans for additional kitchens and equity loans and that kinds of things and bathrooms. And --
KUDLOW: So why should we bail them out?
EPSTEIN: -- and I don't think --
KUDLOW: So why should we bail them out?
EPSTEIN: -- I don't think that we should --
KUDLOW: It's called personal responsibility.
EPSTEIN: That must be Larry.
KUDLOW: Let's put a little torque into this debate.
EPSTEIN: That's got to be Larry.
KUDLOW: It's called personal responsibility. It's called raising the safety net.
EPSTEIN: Because, Larry --
KUDLOW: It's called rewarding those who were irresponsible versus penalizing those who were responsible. By the way, can we go the nation's --
EPSTEIN: I don't think it's that simple, Larry.
KUDLOW: Can we -- I do think it's simple.
EPSTEIN: It's not that simple.
KUDLOW: But hold on a second. I want to go back to my pal Santelli. Let's check out this morning's National Review Online website, which has Rick Santelli featured once again with Sarah Palin. The Palin-Santelli ticket in 2012.
MELISSA FRANCIS (co-host): Why is he behind her? I think he should be in front.
KUDLOW: We can debate that. They may have to run off in a primary -- that is exactly right. Now coming back to my friend Julian Epstein -- who is a very good man and a great American -- the reality is, Julian, this mortgage bailout thing, which has given another Bronx cheer from Wall Street, doesn't even help to securitize mortgages. It is another welfare plan.
The people who win here are Fannie and Freddie. The Americans who paid their taxes on time and their mortgages on time get hurt. Come on, you know and I know this is a welfare entitlement transfer approach. It is not any economic growth. Just like the stimulus package.