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Fannie and Freddie Charitable Donations?

posted by Adam Levitin

I'm generally skeptical about corporate charitable donations.  My sense is that they are primarily a transfer of value from shareholders to managers, rather than a value-enhancing investment in goodwill.  So on the DC Metro, what did I see today, but a poster advertising the 2012 DC Servathon that featured the logos of a variety of corporate sponsors, including Fannie Mae and Freddie Mac.

Aren't Fannie and Freddie insolvent and in conservatorship?  Whatever one thinks of corporate charitable donations, they are a lot harder to justify when the corporation is insolvent.  Critically, as far as I can tell, the sponsorship is from Fannie and Freddie themselves, NOT their charitable foundations--at least there is no indication that it is the foundations, not the GSEs involved. If that is correct, then why on earth is FHFA permitting Fannie and Freddie to make charitable donations? It is practically a fraudulent conveyance.  It is also using taxpayer money for charitable donations outside the appropriations process.  That strikes me as really problematic.  It also raises the question why FHFA will let Fannie and Freddie spend taxpayer money on charitable donations, but not on principal writedowns that might actually save taxpayers money in the long run.  

So what are Fannie and Freddie doing with their corporate sponsorship?  At best, it is an attempt to build goodwill.  Remember that Fannie and Freddie do no business with consumers (other than foreclosing on them).  And given that they are in a duoposony situation, they hardly have to advertise for their bank customers.  So the only thing I can see this advertising as being about is currying political goodwill, which is lobbying in another form, something that Fannie and Freddie are forbidden from doing.

I'm all for charitable giving (with my skepticism about whether it is better done by corporate entities than individuals--there are obvious economy of scale issues for fund-raisers that cut the other way) and this is a good cause, but I really hope insolvent GSE aren't funding charities.    

Update 4.1.12:  A reader in the know directed me to this FHFA Office of the Inspector General report on the GSEs' charitable activities.  Two points of interest.  First, GSE charitable giving from 2008-2011 has totalled $219 million.  Small potatoes relative to the scope of federal assistance, but still.  Second, in October 2008 (months into the conservatorship), FHFA expressly permitted the GSEs to continue their charitable activities "because of the supporting role that such activities would play during the economic downturn." For real? That seems WAY outside of the FHFA's purview as conservator.  Since when does conservatorship mean doing macroeconomic policy? And if it does, then let's talk about those principal reductions...  Then in 2010, the FHFA ordered the GSEs to wind down their charitable activities by the end of 2013. It seems that there are complications in winding up the Freddie Mac Foundation.  That aside, it's not clear to me why three plus years were necessary. imho, the FHFA should have stopped all new charitable giving as of the date of the conservatorship and allowed the Foundations to wind-down. I'm glad to see the IG has been on this issue.  

Comments

This post speaks to one of several long-standing beefs of mine. I belong to the local Chamber of Commerce in our small town. Purportedly, this is an organization devoted to furthering the interests of small businesses. Unlike most of my fellow business owners, I am not a Republican. Imagine my surprise, upon joining this organization, that practically every government agency in town in a member! WTF, over? Plus, not only are they members, but they fill a variety of posts that require people to take time off work to fulfill them. Again, WTF, over? Why would a government agency be allowed to spend money in this way? And why is the taxpayer footing the bill for these people to do most of the "volunteer" work of a private business organization? Don't these government workers have JOBS to do? Isn't that why we're paying them a weekly paycheck, funding their benefits, vacation pay and great government health insurance? And why is it that my Republican business owners have no problem with this situation?

Also along these lines going in the opposite direction is the access we've allowed businesses into our public schools. Every time I go to our elementary, middle or high school, there are local business logos everywhere. They "sponsor" our schools. Excuse me, but isn't this integration of business and government known as fascism?

It seems to me that business and government should never be given the opportunity to become chums. Period. I'm all for compromise and working out reasonable solutions when it comes to things like regulation, but the parties should be strictly guarding their own hen houses.

We have spawned an economic octopu$, worse than the mafia! In its constrictive, multilegged character seeking out the terminal farthing it squeezes out every traditional feature of our superior culture until we are but a hollow(een) costume of Uncle Sam with no sinew or muscular capability to sustain our progeny through the resulting turmoil of the present.

Well put, both comments. Along with the ever problematic Mr. DeMarco, the FHFA continues on its course of damming (damning) the river of recovery. Apparently, many millions more citizens face the consequences of these GSE behemoths---foreclosure.

Unless a smart lawyer spends some time getting a solid case that holds these sleeze GSEs and their mortgage buddies (including former NY Fed chief and present OCC overseer Geithner whose housing "expert" still works at NY Fed) accountable for passing bad paper and inflating appraised values, America is a third rate Republic. 30-year no doc loans underwritten solely against expected liquidation value in 2 years? and at a teaser rate? Really? are you kidding? OCC "guideline" violation for sure, negligence, UDAP, fraud, you name it. Put someone - or many people - in jail or the poorhouse. On principal reduction, Freddie, in 2008, refused to sell my own mortgage back to me at the "market rate" (AAA trading at 90%) because they "just dont do that". Anyoen else can buy it though. Its a joke. Glad to see GSEs will be at the S&P housing conf/golf outing this year.

In a normal conservatorship, creditors would be screaming bloody murder. In these, though, the creditors are at the trough with the insolvents and the conservator.

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