July 24, 2008 (LPAC)--Rep. Ron Paul of Texas stressed today that the U.S. House, in order to pass the monster "housing bill" of Treasury Secretary Hank Paulson and Financial Services Chairman Rep. Barney "Bail-out" Frank, had to include a provision raising the U.S. Federal debt ceiling by $800 billion, from $9.8 trillion to $10.6 trillion. The provision was "buried," Paul said, in a bill of more than 600 pages in length, which amounts to the largest bank bail-out commitment of potential taxpayer funds which Congress has ever contemplated.
Some 149 Republicans voted against the bill being pushed hard by a desperate Paulson and President George W. Bush. Three Democrats voted no despite Frank's and Nancy Pelosi's orders, including Reps. Peter DeFazio (OR) and Marcy Kaptur (OH), who are hardly Blue Dog fiscal conservatives.
The amount of the bank bail-out is like an advanced calculus problem: "$300 billion + unlimited." An unlimited Federal Reserve/Treasury credit line is extended for Fannie Mae and Freddie Mac, who issued nearly $2 trillion in mortgage-backed securities (MBS) held by banks, securities firms, and hedge funds as well as foreign governments. These banks and funds, and their securities, are the intended beneficiaries of the "unlimited" part of the bail-out -- not Fannie and Freddie, who are effectively the only issuers of MBS still left standing (momentarily) by the massive financial collapse and mortgage meltdown.
In another part of the bill, $300 billion in Federal Housing Administration (FHA) guarantees are offered to any and all financial firms, who write off old mortgages and sell new mortgages to delinquent or distressed homeowners at 85-90% of the market value of their homes. This bail-out, designed for Frank by Credit Suisse bank, is also for banks and other mortgage lenders. It is supposed to put a floor under their losses at the 85% level of the home price collapse; below that level, the FHA "nationalizes" all their further losses. (Average home prices in April were already down 18% from Fall 2006.)
The Congressional Budget Office estimate of the Federal taxpayer liability here is, officially, $300 billion + unlimited = $25 billion. Members of Congress know this is delusional, and protested against Paulson's "unlimited" credit line last week; but then fearfully accepted that anything less than unlimited bail-out plus super-low interest rates = a bank panic. In the Senate, Republicans are now holding up all legislation by demanding offshore oil drilling first -- but, they are making a single exception, the unlimited bail-out bill.
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