I’m generally not big on government conspiracies, unlike other skeptics. But, the 2012 election is upon us, and the Barack Obama administration really needs some good economic news; an upbeat story about housing would be very beneficial to the BO campaign. The only problem is that optimism relating to the housing market is not warranted.
Where might BO go for a positive story about housing when there are so few positive things to discuss? The New York Times is one place that comes to mind. In a significant piece in Wednesday's Business Section, the reporter writes about a breakthrough in the housing market and then dramatically hedges her “Twin Reports Stoke Cautious Optimism for Rebound in the Housing Market" article.
Fannie Mae and Freddie Mac, which own or guarantee about $5 trillion in American home mortgages, have reported positive operating results. Earnings for the second quarter were $5.1 billion and $3 billion, respectively, up from significant losses in the previous year. And, they repaid a total of $4.7 billion to the federal government. Since monstrous losses have already occurred and assets have been written down, the companies should begin to have positive results from their remaining assets. Moreover, both companies have stopped paying dividends to public preferred stockholders as part of their recapitalization, further diminishing losses and increasing cash flow.
Note: Many “widows and orphans” and other unsophisticated investors who invested in Fannie preferred stock lost billions when Fannie was bailed out. A large percentage of investors believed that they were investing in a quasi-government entity, and their money was “guaranteed” by the federal government, not so. This misrepresentation is tantamount to fraud that has gotten very little attention from the media.
The reporter offers the first of many flip-flops to the title of the article by quoting Fannie Mae’s CEO, “In the long run, we’re encouraged by what we see, but it’s going to be driven by factors that are bigger than we are.” The reporter notes that these factors include unemployment and consumer confidence, both of which are not currently improving. Ironic? The CEO instills optimism, and then he flip-flops.
The article states, “The mortgage giants have moved into the black as American home prices have increased, . . .” In the next paragraph, CoreLogic, a real estate data firm, indicates that housing prices increased 2.5 percent over a year ago. Keep in mind that housing prices dropped over 30 percent since 2006, so the base is low in calculating the aforementioned increase. Such a benign increase gives me little confidence that the situation has improved in any meaningful way.
Then, another flip-flop, “Housing experts caution that the increase in home prices might not augur a housing turnaround- and that further losses might still lie ahead for [Fannie and Freddie].” And, “Though [housing] prices increased in June, home sales declined by 5.6 percent, the biggest drop in 16 months.”
The next paragraph states, “The housing recovery is held back by broader economic sluggishness . . . Unemployment remains stuck above 8 percent. Wage growth is sluggish. Many American households are saddled with debt. Consumer confidence is low.” Please note the title of the Times article. The question is what is giving the reporter all her confidence.
For the record, “Fannie and Freddie have required about $190 billion in federal assistance.” They have paid back about $46 billion in dividend payments to the government and nothing to public preferred stockholders.
This article is irresponsible. I have never before read a piece in which the body of the article completely refutes the implications of its title.
Back to conspiracy. Did the BO administration ask the paper to write the article? I wonder. In any case, the story did not do BO any favors as a casual reading of it will not give any voters confidence in BO’s ability to turn around the housing problem.