The Housing and Economic Recovery Act of 2008: An Analysis by Catherine Austin Fitts
Part I – Overview
I have had several requests to comment on the Housing and Economic Recovery Act of 2008.
This afternoon, I read hundreds of pages of bill language. Essentially, my take on the bill is that Fannie Mae and
Freddie Mac have issued more debt than can be paid back, so the "solution" is to have the United States government
essentially assume responsibility for this debt until the fact that the government cannot service its own debt is
By clearly signaling to the market that the U.S. government stands behind Fannie Mae and Freddie Mac, this new law
increases the national debt from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed
to the $800 billion increase provided for in the debt-limit increase accompanying the bill). Not surprisingly, a lot of
pork needs to be added to pay a lot of people to go along.
A more appropriate bill title would be the Housing and Economic Takeover Act of 2008. Rather than declaring the New
World Order, we are apparently going to legislate it sector by sector.
Here is the bill language:
Here is a rosy summary from the Senate Finance Committee:
The best overview so far is from Larry Lindsey
. Lindsey was one of the more excellent governors of the Federal Reserve. Lindsay had to resign from the Bush
Administration in 2002 as director of the National Economic Council when he had the good sense to warn that the Iraq War
would be expensive.
As Lindsay points out, the number of porky add-ons in this bill are stupefying. Bloomberg provides a review of one:
Part II – Nation State or Investment Syndicate?
One of the instructive features of the housing bill is the nature of creditor politics that is a subtext on housing and
mortgage politics these days. One investment newsletter this weekend reported that there are $947 billion of Fannie and
Freddie paper listed as being held in foreign exchange reserves worldwide, of which $100 billion is held by Russia.
That sounds low to me. However, since these are "reported" figures, we will work with them. Can you imagine the politics
of a Fannie Mae or Freddie Mac bankruptcy when their largest investor also has nuclear bombs, submarines, and
satellites? Also, can you imagine the politics if the Russians bought their Fannie Mae and Freddie Mac securities with
IMF and other foreign-engineered "bailout" loans arranged contingent on a secret agreement that a portion of the
proceeds would be used to buy Fannie Mae and Freddie Mac debt?
I once had a senior Russian official encourage me to switch sides, so to speak. I told him that no one ever accomplished
anything by betraying their country, and that working inside is the best way to address policies gone off kilter. It was
not until we parted company that I realized that I had been speaking with a representative of one of Fannie Mae's
Report on Foreign Portfolio Holdings of U.S. Securities
, as of June 30, 2007, published April 30, 2008 by U.S. Treasury, Federal Reserve Bank of New York, Board of Governors
of the Federal Reserve System
Part III – Your House Is Bigger Than My House
When I was Assistant Secretary of Housing and Federal Housing Commissioner, then Secretary of HUD Jack Kemp asked me to
his office for a private discussion. He explained that he was concerned that I was standoffish and did not socialize
with the other political appointees, the "principal staff," at the agency.
I was surprised and noted that I had invited the principal staff to my house for cocktails or brunch five times, and
with one exception none of them had ever reciprocated. I noted, in fact, that I had invited Jack all five times and he
had never once come. He looked at me with shock and said,
"I would never come to your house. Your house is bigger than my house. I would find it castrating."
I tell you this story because it is very difficult for hardworking, busy people who are subject to the discipline of
market forces to fathom what is going on in Washington these days.
It is not in most people's experience to witness a complete breakdown of financial controls that does not impair one's
ability to continue to borrow more money—indeed, access to more money is near infinite (see "The Military Holds the Dollar Up
"). And this situation is combined with decision making driven by personal profit and imagined sexual potency.
This state of affairs can exist only when it serves the interests of those who are quite clear-thinking and far more
powerful than those who work in the Administration. You can attack and take over a country. Or you can simply let it
borrow itself to death in a financial coup d'etat. Recent history suggests that the second is infinitely more profitable
for the victor.
Part IV – The Profits of Playing Ball
The housing bill brings up a number of important questions about the risks and rewards that result from government
subsidy and bailouts.
One recent market commentator pointed out that Fannie Mae and Freddie Mac executives were allowed to keep the big
bonuses they made engineering the housing bubble and bankrupting the companies.
One of the examples given was Jamie Gorelick, (1
) who joined Fannie Mae as vice chairman from 1997 to 2003 after engineering the move to private for-profit prisons
as deputy attorney general in the Clinton Administration. Gorelick's name received national attention as a member of
the 9-11 Commission and close advisor to Hillary Clinton.
Gorelick got Fannie Mae compensation and bonus payments of $26 million, which she gets to keep.
However, the bill stipulates that Americans at risk of foreclosure who get a mortgage workout must share future equity
capital gains with the government.
Mapping The Real Deal
is a column on Scoop supervised by Catherine Austin Fitts. Ms Fitts is the President of Solari, Inc. http://www.solari.com/
. Ms. Fitts is the former Assistant Secretary of Housing-Federal Housing Commissioner during the first Bush
Administration, a former managing director and member of the board of directors of Dillon Read & Co. Inc. and President of The Hamilton Securities Group, Inc.