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Obama - Let's Do Another Fannie

Bruce Krasting's picture




 

 

wh

 

The Treasury Department came out with some proposals today on how to fund infrastructure investments. Nothing new; an infrastructure bank that would borrow money outside of the government using government guarantees, and a newfangled debt instrument called:

 

America Fast Forward Bonds

 

I love the name. AFFs will be the Street name. AFFs will be structured like BABS (Build America Bonds). This is a hybrid security that will be issued by a Muni. It will be taxable (unlike regular muni's), it will therefore have a premium yield to non-taxable muni paper. The Federal government will pay (1/3) of the interest due on the bonds. There will be no direct Federal Guarantee on the bonds, but there will be a perception that the Feds are behind the notes.

 

The Transportation Infrastructure Finance and Innovation Act (TIFIA) will be expanded and it will provide - "loan guarantees, and lines of credit to regionally or nationally significant transportation projects". Loan guarantees and lines of credit are off balance sheet financing. (Note: What is TIFIA? Never heard of it)

 

The infrastructure bank the President wants is also going to be involved with raising money outside of the Federal budget and debt limits. According to the White House the new bank will - "invest through loans and loan guarantees."

 

All of the proposed borrowing will be outside of what is defined at the Debt Limit. These new debts will not be included in the calculation of Debt to GDP. The President's proposals are gimmicks to hide debt. The description provided by the White House on how the infrastructure bank would work tells it all. I think there are at least two lies in this statement:

 

The Bank will operate as an independent, wholly owned government entity outside of political influence.

 

This language is very similar to Fannie Mae and Freddie Mac. F/F were supposed to be independent. They were quasi government entities, but politics dictated what they did.

The liabilities and guarantees of the proposed infrastructure bank, and the AFF bonds will be off of the federal balance sheet - identical to what happened with F/F. Every bond that F/F issued said in bold print on the front page: This Bond is not an Obligation of the USA.

Of course the USA was forced step up and assume all $6 Trillion of F/F debt that was issued before 2008. The outcome for the infrastructure bank will be no different. Who was it that said that repeating the same mistake over and over, and expecting a different outcome each time was the true definition of insanity?

 

MonkyBiz

 

 

 

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Thu, 02/21/2013 - 23:12 | 3265798 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I am so tired of paying for the consequences of other people's financial prolifigacy.  Get the government out of the debt markets altogether.  Let debtors suffer their own consequences for a change.

Thu, 02/21/2013 - 22:12 | 3265634 kchrisc
kchrisc's picture

The Latin acronym for these AFF bonds is probably LOL.

hujel

Thu, 02/21/2013 - 20:01 | 3265313 lindaamick
lindaamick's picture

Under the current debt is money arrangement, ie, that MORE money(debt) is always required to repay Debt + Interest, somebody has to be issued more Money (debt) otherwise the system freezes up.

Since consumers are tapped out (see all the screaming going on by Walmart Execs for example) SOMEBODY has to be spending AND the White House KNOWS that infrastructure (plus education and some other things) will yield growth via money being spent by contruction workers and money being spent on building materials etc, so it is as good an idea as any.

Better issuing more debt for infrastructure than giving it to the banks like has been done for the past 5 years.  Alot of good that has done.

Until the system is restructured fundamentally, the only option is to issue more money(debt) to provide the growth necessary to support the ponzi structure. 

Thu, 02/21/2013 - 21:15 | 3265489 Orly
Orly's picture

And that's exactly what Keynes said.  He didn't say to socialise the losses of for-profit enterprises. He said until you're out of the woods, build roads and schools and hire teachers and cops.

Don't know how such a sound, fundamental idea got so perverted as this.

:D

Thu, 02/21/2013 - 19:36 | 3265246 PiratePiggy
PiratePiggy's picture

In the 1930s, this type of arrangment was called FACISM.

Thu, 02/21/2013 - 18:12 | 3264982 mt paul
mt paul's picture

more walrus poop

on the iceberg..

Thu, 02/21/2013 - 19:09 | 3265142 nmewn
nmewn's picture

Something doesn't smell quite right here!

Thu, 02/21/2013 - 17:28 | 3264851 BullyBearish
BullyBearish's picture

When was the last time we got the government we pay for?

Thu, 02/21/2013 - 17:55 | 3264935 Nick Jihad
Nick Jihad's picture

Be thankful we're not getting all the government we're paying for.   - Will Rogers

Thu, 02/21/2013 - 16:21 | 3264576 tempo
tempo's picture

There is no mistake. Its just another way to fund entitlements and avoid social unrest. It will work for a few years.

Thu, 02/21/2013 - 15:27 | 3264294 delivered
delivered's picture

Great oxi-morons of the world. Military Intelligence. Where from the goverment and where here to help. Independent, wholly owned government entity outside of political influence. In fact the last one offers a double dose, independent and government owned and government owned an no political influence. It's hard to believe that anyone would fall for this again with the exception of all of the banks which are nothing more than proxies for the Fed and Washington. So instead of allowing capital to flow and be distributed through normal market conditions and mechanisms, the proxies will be crammed with even more governmental or quasi-governmental debt that further displaces the private sector and rewards the most inefficient user and deployer of capital in the market, the public sector. I can only think of one quote from a movie that sums this up, stated by Marlon Brando in Apocolypse Now - "The horror, the horror, the horror".

Thu, 02/21/2013 - 15:17 | 3264233 shovelhead
shovelhead's picture

"Yo Tony,

Time to dump the trash an go into asphalt, ya know what I'm sayin?"

"Fuckin A, Pussy, nuthin beats free money."

 

This ought to work out fine.

Thu, 02/21/2013 - 15:00 | 3264182 Mercury
Mercury's picture

So, building and maintaining infrastructure is now considered outside the direct resposibility of a system of government which consumes 38% of GDP?

Thu, 02/21/2013 - 14:59 | 3264181 q99x2
q99x2's picture

The president is a gimmick.

Thu, 02/21/2013 - 16:25 | 3264599 wonderatitall
wonderatitall's picture

this is true. if white racists would stop covering for the vacationer thepeople might see how truly awful kingbamama is and how fucked in the ass we are. excluding dc and the honchos and retards in the dem party

Thu, 02/21/2013 - 14:46 | 3264144 TBT or not TBT
TBT or not TBT's picture

AKA advancing fascism.

Thu, 02/21/2013 - 14:19 | 3264063 Joebloinvestor
Joebloinvestor's picture

Sounds like a variation on Iran Contra to me.

Accounts that ansewer to no one.

Thu, 02/21/2013 - 17:44 | 3264899 Just Ice
Just Ice's picture

Another funnel mechanism for cronies and self dealing.

Thu, 02/21/2013 - 18:14 | 3264990 DeadFred
DeadFred's picture

Line 307.B of the loan application form:

List all campaign contributions made by your organization and its officers __________

Thu, 02/21/2013 - 14:20 | 3264045 joego1
joego1's picture

I'm sure local govs will gobble them up with relish. Mmmmm more debt! We can pay for our retired 100k per year civil workers, none for pot holes though. We are still technically broke.

Thu, 02/21/2013 - 14:13 | 3264037 Yancey Ward
Yancey Ward's picture

The Democrats are desperate to find some way for the Federal Government to bail out the state and local governments that are under increasing debt problems.  The BABs and this new proposal are just the first attempts at this.  Money is fungible, fungible, fungible.  It may say "infrastructure", but will be something else.

Thu, 02/21/2013 - 15:06 | 3264204 SKY85hawk
SKY85hawk's picture

Americans always do the right thing, after they’ve tried everything else. W. Churchill

 

 

Thu, 02/21/2013 - 14:58 | 3264175 TBT or not TBT
TBT or not TBT's picture

Precisely!   California has crumbling infrastructure because tax receipts go to unionized public sector overpaid underworked perma-employees.    

The national democrat party is desparate to bail out the political machines in public-union captured states like California, to keep the Party going for a few more years.

Thu, 02/21/2013 - 17:59 | 3264948 Nick Jihad
Nick Jihad's picture

Yep - this is their plan to fund Jerry Brown's high-speed-rail-to-nowhere. Bacon Act all the way.

Thu, 02/21/2013 - 14:03 | 3264004 the grateful un...
the grateful unemployed's picture

 government agency without political influence is an oxymoron, with an a in front.

Thu, 02/21/2013 - 14:03 | 3264002 Diamond Jim
Diamond Jim's picture

sounds like another Barney Frank scam.......if the Feds (taxpayers) are on the hook for it...it has got to be another scam to spend $$$ we do not have.  simple as that, but I am sure Wall Street will have no problem selling it after rebundling it with other securities........

Thu, 02/21/2013 - 15:00 | 3264187 TBT or not TBT
TBT or not TBT's picture

The money will go toward bolstering infrastructure in states where the infrastructure has been neglected by state government machines dominated by public sector unions, whose preferences lie toward their pay, working conditions, and retirement benefits.

Thu, 02/21/2013 - 15:07 | 3264206 SKY85hawk
SKY85hawk's picture

Americans always do the right thing, after they’ve tried everything else. W. Churchill

Thu, 02/21/2013 - 15:09 | 3264215 TBT or not TBT
TBT or not TBT's picture

The first thing we tried was limited government, i.e. the right thing first.

Thu, 02/21/2013 - 15:45 | 3264372 Accounting101
Accounting101's picture

Grow up man! There never was and never will be such a thing as limited government. The oligarchs love rubes like you because your infantile call for limited government allows them to extract wealth from the middle and lower classes without impediments.

Thu, 02/21/2013 - 16:50 | 3264711 Edmon Plume
Edmon Plume's picture

As opposed to the un-limited government we have now that, um, doesn't extract wealth from the middle and lower classes without impediments?

The only reason the US has big government is because of fiat.  That's the only reason.  The masses could demand as much cheese as they want, and the "leaders" could pass as many laws as they want, hire as many slackers as they want, and promise everyone 1000% pensions, but...

 

without fiat, the US government would be limited.

 

Implicit in limited governement is a money supply backed by PMs, preferably containing PMs in the currency itself.

Thu, 02/21/2013 - 22:22 | 3265661 Almost Solvent
Almost Solvent's picture

What nation isn't fiat right now other than some small outliers? 

 

Obviously FIAT via FED is bullshit and allows this to continue unabated (for now) along with every other central banker around the globe. 

 

The better point to make here is that government in any form is ALWAYS going to involve redistribution of something, the question is to degree and from whom to whom and for what purpose.

 

In terms of PM, EVERY government would be limited without fiat.

Thu, 02/21/2013 - 13:35 | 3263869 Bicycle Repairman
Bicycle Repairman's picture

"There will be no direct Federal Guarantee on the bonds, but there will be a perception that the Feds are behind the notes."

If the TBTF banks buy them, then they will be guaranteed; indirectly and only for the TBTF banks, of course.

Thu, 02/21/2013 - 14:04 | 3264009 the grateful un...
the grateful unemployed's picture

those who hold the paper are guaranteed, but the share holders get screwed

Thu, 02/21/2013 - 13:32 | 3263860 Encroaching Darkness
Encroaching Darkness's picture

Is there some sort of correlation between government desperation (to hide the truth, cover over bad debts, and keep the illusions alive) and the frequency / proliferation of bad ideas?

 

When the accountants say you're broke and breaking down, it's time to change the accounting. Actually changing the operations is unnecessary, at best.

Thu, 02/21/2013 - 13:26 | 3263840 SmittyinLA
SmittyinLA's picture

Sounds exactly like Kalifornia but seeing how the Mexican mafia runs SEIU and SEIU elected Obama it all makes sense. 

 

Amerika prepare to finance your street lightbulb replacement program. 

 

YOO TOO can have $700,000,000.00 high schools for Latino drop outs. 

$120,000,000.00 4 mile long busways to serve 400 riders 

Thu, 02/21/2013 - 13:35 | 3263868 Orly
Orly's picture

That's the real problem with infrastructure projects, besides what was mentioned above about lining the unions pockets: it's always some pol's pet project, for their district.

What about a nationally organised program overseen by real live construction engineers.  How about triaging the most dire?  How about keep politics out of it?

Man, am I naive, or what?

:/

Thu, 02/21/2013 - 15:54 | 3264411 Accounting101
Accounting101's picture

Right, the all powerful unions. The same unions whose membership has declined drastically over the last thirty years and the same unions who are being routed throughout state and local governments. So much for causal relationships.

The financial oligarchs love rubes like you. Keep up the intellectualism.

Thu, 02/21/2013 - 17:40 | 3264885 Orly
Orly's picture

Okay.  Substitute "union" for "graft entrepreneur" and you'll understand the point.

Why don't we hire companies based on performance?  They should come in on-time and on-budget.  Then they can build the next road.  Works here in Texas.

It seems most on here are ready to throw in the towel to our oligarchical overlords because we are simply "rubes" and simply not as "intellectual" as the "all-powerful" banks.
Speak for yourself.  There's a better way and ninety-nine percent of the people would like it better that way.

Berlusconi can keep his bribery is not a crime idiocy.  Doesn't mean we have to embrace it over here.

:D

Thu, 02/21/2013 - 15:05 | 3264197 TBT or not TBT
TBT or not TBT's picture

Oh god noes!   Engineers?   We are building and fixing political machines here, not the kind having to do with engineers. 

Thu, 02/21/2013 - 14:08 | 3264022 the grateful un...
the grateful unemployed's picture

yeah the pork barrel just got a lot bigger and a lot more vicious. with this sort of competition you can guess that only about 10% of the money will actually get to the projects, the rest wasted on bribes to lobbyists, elaborate campaign fund kickback schemes, inflated costs. i been wondering just how Obama would be remembered, i think rackateer in chief is pretty close.

Thu, 02/21/2013 - 14:05 | 3264012 Clowns on Acid
Clowns on Acid's picture

Orly -Who pays the real live construction engineers? How much are they paid? How much should the "project" cost ?

Yes...you are being terribly naive.

Thu, 02/21/2013 - 14:14 | 3264038 the grateful un...
the grateful unemployed's picture

it is possible, in CA they created an independent politcal agency to draw up new district lines, and so far it seems to be working.

Thu, 02/21/2013 - 17:52 | 3264924 BigJim
BigJim's picture

"An independent political agency" - new synonym for oxymoron

Thu, 02/21/2013 - 13:12 | 3263794 slightlyskeptical
slightlyskeptical's picture

How about kiling FRE and FNM and starting a new housing authority. Then buy every existing primary home mortgage in America. Refinance them at decent terms, even cutting some principal for those underwater. By the time they get paid off government will have recouped all their money plus about 25%-40% in profits. Use those profits to reduce our national debt.

Once you have everyone refinanced, then start a program where every new primary housing loan is issued by the government. Do it through social security, giving them a credible income stream and letting another government program finance what social security cannot. Profits the government makes goes toward paying off current debt, reducing the need for new debt.and will allow a lower tax rate. people thinking about stiffing the government better think again as any failure to pay your mortgage will reduce your social security benefits down the road.

Banks and investors? It will hurt them but they will get paid in full on their loans outstanding. They will still be able to make second property, personal and business loans but no more fleecing the people on mortgage loans. They would still be eligible to make money originating primary loans on behalf of the government and servicing them.

I can think of no downsides and the upside is more disposable income for families, less taxes and investors being forced into more productive endeavors in order to get their profits. All good for the economy.

Thu, 02/21/2013 - 17:50 | 3264915 BigJim
BigJim's picture

Look, when Fannie Mae and Fredie Mac were created, that pretty much was the government 'buying' every existing primary mortgage.

You want to refinance the mortgages at 'decent terms', which presumably means lower than market interest rates.

Has it occurred to you that our entire finance system is on the verge of collapsing because the cost of money doesn't match the availability of capital?

If the government directly owned the electorate's debt, how long do you think it would be before the ballot box overturned any kind of loan repayment discipline?

The system now is fucked, yes. But getting government even more involved would only make in fuckeder.

Thu, 02/21/2013 - 20:50 | 3265446 Orly
Orly's picture

The problem is too massive to fix without some sort of government involvement.  Let's just get an honest one and everything would be hunky-dory.

:D

Thu, 02/21/2013 - 14:43 | 3264134 Panafrican Funk...
Panafrican Funktron Robot's picture

Idea:  Maybe we don't borrow to pay for housing anymore.  Because maybe the actual problem is debt.

Thu, 02/21/2013 - 20:20 | 3265370 hooligan2009
hooligan2009's picture

Bingoooooooooooooooooooooooooooooooooo!!! you are spartaucs! maybe not quite so draconian, but perhaps a 25% deposit would ptu the right amount of skin in the game. 

it is very hard to kick those who took out jumbo option arm liar loans when that is precisely what the TBTF banks did..why bail out TBTF and not all homeowners? that could be means tested of course. maybe have a hurdle (not RICO) that says if you had a mortgage for a minimum of three years and made at least 30 monthly payments, you can get a refi'd mortgage at the same rate as the government guaranteed fraudie and funny rates..you know..60 bps over treaury rates for five and ten years.

all that needs ot be done then is to correct the massive rip-off that goes for home and contents plus building insurance at the actual values of homes and not the inflated values lying on fraudie and funnie's MBS portfolio and people might actually be better off.

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