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Crony Socialism Strikes Back: Geithner Retaliates Against DeMarco; Accelerates Wind Down Of GSE Treasury Backing

Tyler Durden's picture


Two weeks ago we reported in Geithner To DeMarco: "I Do Not Believe [Un-Socialism] Is The Best Decision For The Country" that TurboTax Tim did not take lightly to FHFA head Ed DeMarco's snubbing of the worst treasury secretary ever, when DeMarco refused to comply with Tim Geithner's "proposal" for mortgage principal reduction in effect forcing responsible taxpayers to bail out irresponsible ones. Lots of media posturing and free-market bashing ensued. Today, Tim has once again taken the offensive, and is announcing plans that the Treasury is accelerating the winddown of its backing of Fannie and Freddie and that going forward instead of a 10% dividend, the Treasury will be entitled to a "full income sweep" of the GSEs on behalf of the US Treasury. One can only hope that the loan loss reserve reduction which was the sole source of Fannie and Freddie "profit" (see Bank of America) will continue. And since it won't, it is once again Tim Geithner who ends up with the short end of the stick in his idiotic attempt to escalate a matter which is far beyond his meager comprehension skills. And here is the kicker: "The agreements require an accelerated reduction of Fannie Mae and Freddie Mac’s investment portfolios. Those portfolios will now be wound down at an annual rate of 15 percent – an increase from the 10 percent annual reduction required in the previous agreements. As a result of this change, the GSEs’ investment portfolios must be reduced to the $250 billion target set in the previous agreements four years earlier than previously scheduled." Oops MBS market, unless of course there is someone who will miraculous step up and buy the "excess investment portfolio"... who could that be... who could that be? Ah yes: Giethner just greenlighted the MBS purchases (sorry MBS twist - no cookie for you) portfion of QE3. And finally, following today's unambiguous renationalization of the GSEs, does this mean that US debt is now $16+6 trillion or over $22 trillion courtesy of the GSEs which are now on the US balance sheet?

From Bloomberg:

The U.S. Treasury Department today announced plans to accelerate its winddown of its backing of Fannie Mae and Freddie Mac.


Treasury amended its terms as conservator of the government-sponsored-enterprises. Treasury said the plan also includes a “full income sweep” for Fannie and Freddie.


The GSEs have been under conservatorship since 2008. Both Fannie Mae and Freddie Mac reported second quarter profits earlier this month.


Republicans in Congress have called for an end to the two taxpayer-owned companies, which now own or guarantee about 60 percent of U.S. home loans. Treasury Secretary Timothy F. Geithner has said he will propose a plan to overhaul housing finance that could include dismantling or altering Fannie Mae and McLean, Virginia-based Freddie Mac.

From the official statement:

The U.S. Department of the Treasury today announced a set of modifications to the Preferred Stock Purchase Agreements (PSPAs) between the Treasury Department and the Federal Housing Finance Agency (FHFA) as conservator of Fannie Mae and Freddie Mac (the Government Sponsored Enterprises or GSEs) that will help expedite the wind down of Fannie Mae and Freddie Mac, make sure that every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market.

With today’s announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market,” said Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy.  “As we continue to work toward bi-partisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition, and protect taxpayer interests.”
The modifications to the PSPAs announced today are consistent with FHFA’s strategic plan for the conservatorship of Fannie Mae and Freddie Mac that it released in February 2012. The modifications include the following key components:
Accelerated Wind Down of the Retained Mortgage Investment Portfolios at Fannie Mae and Freddie Mac
The agreements require an accelerated reduction of Fannie Mae and Freddie Mac’s investment portfolios. Those portfolios will now be wound down at an annual rate of 15 percent – an increase from the 10 percent annual reduction required in the previous agreements. As a result of this change, the GSEs’ investment portfolios must be reduced to the $250 billion target set in the previous agreements four years earlier than previously scheduled.
Annual Taxpayer Protection Plan
To support a thoughtfully managed wind down, the agreements require that on an annual basis, each GSE will – under the direction of their conservator, the Federal Housing Finance Agency – submit a plan to Treasury on its actions to reduce taxpayer exposure to mortgage credit risk for both its guarantee book of business and retained investment portfolio.
Full Income Sweep of All Future Fannie Mae and Freddie Mac Earnings to Benefit Taxpayers for Their Investment
The agreements will replace the 10 percent dividend payments made to Treasury on its preferred stock investments in Fannie Mae and Freddie Mac with a quarterly sweep of every dollar of profit that each firm earns going forward.
This will help achieve several important objectives, including:
·        Making sure that every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit taxpayers for their investment in those firms.
·        Ending the circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury.
·        Acting upon the commitment made in the Administration’s 2011 White Paper that the GSEs will be wound down and will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.
·        Supporting the continued flow of mortgage credit by providing borrowers, market participants, and taxpayers with additional confidence in the ability of the GSEs to meet their commitments while operating under conservatorship.
·        Providing greater market certainty regarding the financial strength of the GSEs.


* * *

This means that the offloading of GSE inventory has just increased by 50%. Goodbye housing market.

But more importantly, today's news brings up an interesting question: with the Treasury in effect announcing it is the beneficiary of the entire Fannie and Freddie's Income Statement, does that mean the Treasury is also on the hook for their $6+ trillion in debt?

Inquiring minds want to know.

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Fri, 08/17/2012 - 08:42 | 2713694 diogeneslaertius
diogeneslaertius's picture

gotta keep dem slaves on the economic plantation!

Fri, 08/17/2012 - 12:38 | 2714454 pd45
pd45's picture

"Put y'all back in the chains"

Fri, 08/17/2012 - 08:44 | 2713697 diogeneslaertius
diogeneslaertius's picture

bitch betta have my money etc.

does that mean the Treasury is also on the hook for their $6+ trillion in debt?


i love how you say that as if you didnt already essentially consider it tantamount XD

Fri, 08/17/2012 - 14:07 | 2714369 LMAOLORI
LMAOLORI's picture



Treasury has been on the hook for that debt since they nationalized the GSE's it's just been kept off the budget


Obama's Budget Has One Small, Missing Piece.... For $6.3 Trillion Dollars


I always chuckle when I see people saying they should nationalize the banks they don't seem to understand it socializes the losses. Another thing people should understand is they allowed the banks to offload those crap mortgages onto taxpayers using the GSE's


Unlimited credit for GSEs seen as backdoor bailout



The few lawsuits that were brought were settled for pennies on the dollar


Is Fannie bailing out the banks?


And the tax cheat is probably angry with DeMarco not only about his decision on Emminent Domain but because he actually fights the banks he is bringing more lawsuits against the banks over sub prime loans. 


FHFA to Seek 3-for-1 Damages Against 'High Risk' Lenders



Ed DeMarco’s Fight Against Banks Over Repurchases




Subprime Rally Building As Dealers Sop Up Supply: Credit Markets








Fri, 08/17/2012 - 15:24 | 2715016 diogeneslaertius
diogeneslaertius's picture

the tale of the tape is all there for anyone who wants to look at it

great post

Fri, 08/17/2012 - 08:44 | 2713699 diogeneslaertius
diogeneslaertius's picture

Full Income Sweep

(corzine hedge fund name)

Fri, 08/17/2012 - 08:45 | 2713700 Inthemix96
Inthemix96's picture

Sorry geithner, we dont believe you, you little cock sucking, inbred, fury brained, fucking piece of shit on the face of humanity, cunt.

Why dont you fuck off and die you chickenshit bastard?  Do the world a favour and eat a bullet you pathetic fucking excuse of a human waste of space.

History will judge you as the cunt you most surely are.


Fri, 08/17/2012 - 08:48 | 2713705 america4me2
america4me2's picture

How do you REALLY feel?

Fri, 08/17/2012 - 08:50 | 2713711 Inthemix96
Inthemix96's picture


Pissed off mate, the whole world is fucked, and this little cunt doesnt have a clue whats going down.

I would love to crack the fucker in the mouth.

Fri, 08/17/2012 - 09:00 | 2713741 lakecity55
lakecity55's picture

With a fuckin' aluminum baseball bat!

Remember, Turbo's dad was closely associated with Soetoro's mother in Indonesia. Lots of unknown history there.

Corrupt does not even start to describe the evil of these bastards.

Fri, 08/17/2012 - 09:04 | 2713749 Inthemix96
Inthemix96's picture

Thats the ticket 55,

I hearby condone aluminium baseball bats as the ideal weapon of choice for banksters mouths.

Followed up by a good fucking hard crack with either your fist or your foot.

Now we be cooking on gas folks, lets get this fucker on


Fri, 08/17/2012 - 09:12 | 2713771 papaswamp
papaswamp's picture

I'm old school , 'nothing like a good piece of hickory'.

Fri, 08/17/2012 - 08:49 | 2713709 Biosci
Biosci's picture

Dude, it's too early im the morning for that. My coffee is acidic enough already.

Fri, 08/17/2012 - 08:51 | 2713713 Dr. Engali
Dr. Engali's picture

I'm not sure I fully grasp how you feel about Turbo Timmy. Do you care to elaborate a bit?

Fri, 08/17/2012 - 08:58 | 2713734 Inthemix96
Inthemix96's picture


Have you ever had the feeling someone is taking the piss out of you?  Insulting your intellegence?  Down right lying?

Have you never wondered what it would be like to peel the fucker alive with a blunt potatoe peeler for dupeing the whole fucking world?

I have, and I do believe I am not alone.  When this fucker comes down, you do realise it will affect each and every one of us?  Our world is going to be a different place, and I for one will not accept anything other than all out revenge against the bastards who done this to us.  Lets vent a bit, it calms the soul.

Fri, 08/17/2012 - 09:19 | 2713789 Dr. Engali
Dr. Engali's picture

Oh I know they are lying through their teeth, and I also know that they are prepping up for the takedown. Why else would they have every department ordering over a combined total of a billion hollow point bullets. They want the fast easy take down. There are a lot of fire arms that people have but very few bullet proof vests.


My prefered way of dealing with it is to accept the lies for what they are and quietly prep away. I have found ,for myself that getting angry is a waste of energy. We all deal in different ways.


Fri, 08/17/2012 - 09:27 | 2713822 Inthemix96
Inthemix96's picture

Fair play doc.

I am not angry, far from it, but I now know why we are where we are, and to be honest its through sites like ZH.

Now we know who they are, what they have done, and how they done it.

Revenge mate, is a dish best served cold

Fri, 08/17/2012 - 09:57 | 2713934 mick_richfield
mick_richfield's picture


I know exactly what you mean.

Let me tell you why you're here.

You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad.

It is this feeling that has brought you to Zero Hedge.


Fri, 08/17/2012 - 09:09 | 2713762 azzhatter
azzhatter's picture

I don't like the little shitbag either

Fri, 08/17/2012 - 08:49 | 2713706 lizzy36
lizzy36's picture


Geithner is gone in 2 months. He ain't working on anything except his rolodex.

There was suppossed to be a plan for FNM and FRE 3 years ago. Crickets.

Fucking Geithner, doing a bang up job for everybody BUY his actual bosses (the American People).

Fri, 08/17/2012 - 09:00 | 2713739 Rainman
Rainman's picture

FHA doubled its low-down payment lending action these past 5 years.....now running at a 9% default rate. Bad Bank #3 is never discussed.


Fri, 08/17/2012 - 08:49 | 2713707 ejmoosa
ejmoosa's picture

Not even a reason now to pretend to earn a profit......


Now watch the losses accelerate, and those that actually pay taxes get left with the bill.

Fri, 08/17/2012 - 08:52 | 2713716 Dr. Engali
Dr. Engali's picture

Taxes smaxes. Just call up Ben and have him print a few trillion.

Fri, 08/17/2012 - 12:54 | 2714545 pd45
pd45's picture

Well in fairness, it's the HARP that's been generating revenue for GSE's anyway. So I guess it's more like "easy come, easy go"

Fri, 08/17/2012 - 14:06 | 2714660 LMAOLORI
LMAOLORI's picture



"pd45 Well in fairness, it's the HARP that's been generating revenue for GSE's anyway. So I guess it's more like "easy come, easy go"'


umm no


 TBTF Banks Laughing All The Way Home Thanks To HARP



The Value of HARP Loans

HARP loans are particularly valuable in the eyes of investors due to prepayment friction. 

in full




Subprime Rally Building As Dealers Sop Up Supply: Credit Markets



The rally in U.S. home-loan securities without government backing is accelerating as investors wager the housing bust is over and supply is sopped up by bond dealers emboldened by new capital rules.

Gains on subprime-mortgage bonds from 2005 through 2007, the years that produced the most defaults leading to the worst financial crisis since the Great Depression, have soared to 5.4 percent in July, bringing returns for the year through last week to 21.6 percent, according to Barclays Plc data. Securities backed by option adjustable-rate mortgages jumped over the past month by 7 percent to the highest level since May 2011.

in full





Fri, 08/17/2012 - 08:51 | 2713714 Greenhead
Greenhead's picture

If the Treasury winds down Fannie and Freddie and won't permit them to return, who will buy up new mortgages and who will be the guarantor fo new mortgages going forward?  Did we just formally nationalize the entire mortgage industry?

Fri, 08/17/2012 - 08:55 | 2713719 Dr. Engali
Dr. Engali's picture

There won't be any new mortgages to speak of. Not unless you put 20% down and offer up your first born's labor for a down payment.

Fri, 08/17/2012 - 11:25 | 2714207 AGuy
AGuy's picture

"There won't be any new mortgages to speak of. Not unless you put 20% down.."

I have my doubts about that. There is too much at stake for Washington to reign in the mortgage market (no matter who wins in November). I suspect Timmy's actions are so they can take over the GSEs to do mortgage write-downs as Timmy wanted (or rather is Boss is demanding). The Fed will give them the money do it.


Fri, 08/17/2012 - 12:49 | 2714521 LMAOLORI
LMAOLORI's picture



Actually Ryan wants to privatize the mortgage market now depending on your out look that will be good if you don't believe the taxpayers should be on the hook or bad if you think the government is your nanny.

As far as 20% down perhaps people should have a stake in it look at how the sub prime went they ruined a lot of the homes they had nothing invested in.  How many of you have looked at foreclosed homes?  I did extensively people left them with holes in the walls, filthy, broken windows, etc. 

Put a little of your own money into it and it's doubtful a rational person would destroy it.  Saving 20% to put down also shows that you would be able to make the sacrafices necessary to be a homeowner.  Sub Prime was not only driven by the greed of lenders but by the greed of the people who thought they could get something for nothing and then sell it for more.


Fri, 08/17/2012 - 09:10 | 2713766 NotApplicable
NotApplicable's picture


Fri, 08/17/2012 - 09:12 | 2713773 RunningMan
RunningMan's picture

Guarantor will be the bank extending credit. As it should be. Mortgages should be a balance sheet product. Yes, homeownership will come down, and yes, this will increase the "cost" of borrowing. We should all be ok with that given the GSE system was an abject failure. Capital and political abitrage at its worst.

Fri, 08/17/2012 - 08:52 | 2713717 youngman
youngman's picture

Those chumps that bought the stock thinking they were going to get the over and above 10% goodies in the future just got cleaned out....now you own a stock with no upside....and the buyout potential..probably not at a price you will like

Fri, 08/17/2012 - 09:10 | 2713765 Rainman
Rainman's picture

    FNM : 29 cents

    FMCC : 30 cents 

Fri, 08/17/2012 - 09:03 | 2713748 deez nutz
deez nutz's picture

going forward instead of a 10% dividend, the Treasury will be entitled to a "full income sweep" of the GSEs on behalf of the US Treasury.

hmmm...... can we get a "sweep" from GM too, timmah?

Fri, 08/17/2012 - 09:04 | 2713750 RogueFit
RogueFit's picture

I really dont understand...what does this mean?

Fri, 08/17/2012 - 09:17 | 2713787 Winston Churchill
Winston Churchill's picture

All your fake profits are belong to Uncle Sam.

Fri, 08/17/2012 - 09:14 | 2713778 LeBalance
LeBalance's picture

Orchestrated circle jerk between puppets.

Reminds me of the French chefs in a Bugs Bunny cartoon.

and folks did not think that was unscripted did they?

Fri, 08/17/2012 - 10:04 | 2713949 lamont cranston
lamont cranston's picture

"You mean Antoine of Nooooo Orleans???"

Fri, 08/17/2012 - 09:15 | 2713779 Unbezahlbar
Unbezahlbar's picture


So old hat.


Accountability is a concept in ethics and governance with several meanings. It is often used synonymously with such concepts as answerability, blameworthiness, liability, and other terms associated with the expectation of account-giving.



Fri, 08/17/2012 - 09:25 | 2713811 AU5K
AU5K's picture

if every dollar were 1 second, $1 million is 8 minutes.


$22 trillion is .... 352,000 *years*.


Fri, 08/17/2012 - 09:29 | 2713829 Snakeeyes
Snakeeyes's picture

This is nationalization, pure and simple. A backdoor way to mandate principal reductions in an election year.


Fri, 08/17/2012 - 09:42 | 2713882 XitSam
XitSam's picture

Is there no book about Geithner?  A biography, with particular emphasis on his financial work.

Fri, 08/17/2012 - 09:52 | 2713916 morning_glory
morning_glory's picture

Just buy the fucking dip.

Fri, 08/17/2012 - 09:56 | 2713928 GMadScientist
GMadScientist's picture

Nuclear Hot Potato!!

Fri, 08/17/2012 - 11:55 | 2714269 GoinFawr
GoinFawr's picture

Isn't that all the potatoes on the west coast these days?

Fri, 08/17/2012 - 09:57 | 2713935 Seasmoke
Seasmoke's picture

DeMarco vs. Geithner DEATH MATCH PAY PER VIEW....... deficit would go to ZERO

Fri, 08/17/2012 - 10:01 | 2713942 Lost Wages
Lost Wages's picture

DeMarco just got bitch slapped, but how does Bill Gross feel?

Fri, 08/17/2012 - 11:08 | 2714161 Elmer Fudd
Elmer Fudd's picture

Esta sheeple no comprende complicado goobermintas mierda.  Nos dan más dinero

But actually, Uncle Scam should check out how many wealthy Asian families in the USA are gaming the welfare system by putting the "poor" patriarch on the food stamps/medicare/dole programs while other members of the household hide the wealth.  Entire industries have sprung up to help these families get on the programs.

Fri, 08/17/2012 - 11:35 | 2714225 Jumbotron
Jumbotron's picture

"But more importantly, today's news brings up an interesting question: with the Treasury in effect announcing it is the beneficiary of the entire Fannie and Freddie's Income Statement, does that mean the Treasury is also on the hook for their $6+ trillion in debt?"


If not now....they will be.   (Or I should say...WE'LL be !)

Fri, 08/17/2012 - 12:26 | 2714250 GoinFawr
GoinFawr's picture

For all they do some people just need a high five. In the face. With a chair.

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