Congress’ Solution to AIG, Fannie Mae and Freddie Mac: A Supertrustee

The present financial crisis – probably the worst in decades – is making the lawmakers in Washington, D.C., strongly consider the need to dust off a 1980’s era plan to help save the banking industry and stabilize the economy.

The idea of setting up a government corporation to deal with toxic assets has invoked strong interest among both Democrats and Republicans. Lawmakers are eager to find some solution to the crisis. Eleven banks have already failed this year, and there are questions surrounding the major financial institutions. On September 6, the federal government took over mortgage lending giants Fannie Mae and Freddie Mac as they teetered near collapse. Lehman Brothers has filed for bankruptcy. Merrill Lynch & Co agreed to sell itself to Bank of America. And the government has just bailed out American International Group, Inc., a financial behemoth.

The bailout of AIG, one of the world’s biggest insurers, cost the government $85 billion. Doubts remain whether the bailout will effectively help stem the ripple effect that failing banks and financial institutions are having on the economy. AIG’s cash squeeze is driven in large by losses in a unit separate from its traditional insurance business – the financial products unit, which sold credit default swap contracts designed to protect investors against default in an array of assets including subprime mortgages.

The Treasury Department is planning to sell bonds for the Federal Reserve in an effort to help it deal with the unprecedented borrowing needs resulting from the present financial crisis. And lawmakers are now appearing open to the idea of creating a government entity akin to the Resolution Trust Corporation (RTC). The RTC was formed amid the savings and loan crisis in the 1980’s. The RTC resolved and liquidated the assets of 747 thrifts with total assets of $394 billion.

What is needed is an institution or a mechanism of a supertrustee to handle incredibly large financial institutions which may be allowed to fail and how those assets get managed and ensure they are handled in an expeditious manner. The absence of such an institution or mechanism could in the future result in one failure after another. The failures will keep blossoming. Many lawmakers are calling the creation of such a mechanism a legitimate idea that merits consideration.

The creation of a new federal agency would only put taxpayers at risk for billions of dollars in bad debts. The parallels with the 1980’s are inexact. The mission of the RTC was to dispose of the assets as quickly as possible for maximum value and reduce taxpayer exposure. Unlike now, the government had no choice but to acquire the assets from savings associations because they were backed by federal deposit insurance. The mortgages, which are at the heart of the present crisis, are not backed by federally insured deposits.

4 comments to Congress’ Solution to AIG, Fannie Mae and Freddie Mac: A Supertrustee

  • Kerry Dunn

    You clearly have not read the deal the Fed cut with AIG if you are calling it a “bailout” and claiming that it “cost” $85 billion. It is a loan which approaches extortion and from which the government stands to profit handsomely.

  • J.D. Seagraves

    A “loan” backed by the Fed’s monopoly power on the creation of credit and money, and the Treasury’s monopoly power to extort tax dollars (via gunpoint) from citizens and legal residents.

  • J.D. Seagraves

    If the government stood to “profit handsomely,” then why doesn’t some private interest step up and take on the role of profiting somewhat less handsomely? This is a theft from the citizenry of the United States.

  • Poorsinner

    Joe a poor sinner writes:
    Americans to stupid, to scared, to weak, to enforce the Laws to stop
    Financial Disaster.
    CEOs Fed Congress make statements they conspired took bribes and unjustly
    enrich them self. Corruption believe the few American that will demand
    Justice can be over looked or payed off. To many violation to count. Here
    Are 2. From CEOs Fed and Congress own mouth
    . 1] ” Many parties are to blame” Law Dictionary; A conspiracy exist when
    the parties use legal means to accomplish an illegal result
    2] “The Bail Out is Bribery” Encyclopedia; Any item of value to
    influence the actions of an official in discharge of a public or legal duty

    Solution ; Unjust Enrichment
    Knowledge is immaterial under the law of unjust enrichment
    Wed, 4 Jan 2006 17:23:00 -0500
    Re: Unjustly enriched executive
    “Former HealthSouth Corp. chief executive officer Richard Scrushy has been
    ordered by a judge to repay his former company more than $47.8 million in
    bonuses, according to published reports. … Judge Allwin E. Horn III of
    Jefferson County Circuit Court in Birmingham, who made the ruling as part of
    a summary judgment in a shareholder lawsuit, determined that Scrushy is not
    entitled to the payments whether or not he participated in the fraud or knew
    about the scheme.”
    Prosecution evidence
    Fed lowers Interest to prop Fannie and Freddie
    2001 to mid 2003 the Federal Reserve lowered its interest rates 13 times,
    from 6.25 to 1.00% overnight rate averaged 0.68% June 2004,
    the Federal Reserve System target interest rate continued to do so 17
    straight times
    In March 2006, the Federal Reserve ceased to make public M3, arguably the
    most reliable means of measuring the money supply.
    Fed declared that the costs of collecting this data outweighed the benefits
    Here’s the kicker
    The Fed needed to increase rates not lower them
    Quote”. overnight overdrafts (more than three occurrences in any 12-month
    period), the overnight overdraft rate increases by one percentage point for
    each additional occurrence.”
    American Demand Law Enforcement and Remove ,the Corrupt CEOs, Fed,
    .Recover $500+B, Honor and make corruption look stupid.
    American have no choice but to take the Law in there own Hands or the
    corrupt have take control of America
    Rem; Congress did not fail they scammed,
    Rem; Congress had many red flags about the credit problem
    Use the war to decoy American focus
    Congress , Falsely accused, made statements of treason and stopped much
    funding to protect our Military.
    Congress disrespected the position they held to the point of treason.
    The rule ; one is judged on how they have judged then they need to go to
    prison for life and hell for eternity.
    Rem; Corrupt CEOs, Fed and Congress believe they are above the law and
    Americans to stupid,

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