SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
To donate by check, phone, or other method, see our More Ways to Give page.
In Washington no bad idea stays dead long. Therefore it should not be surprising that U.S. President Donald Trump is planning to move forward with plans to privatize Fannie Mae and Freddie Mac, the mortgage giants that have been in government conservatorship for almost two decades.
As with many of the moves undertaken by Trump, it is not clear what problem this is meant to solve. For the period they have been in conservatorship, Fannie and Freddie have been securitizing mortgages at a low cost and have not faced any substantial management problems.
There is of course one problem that privatizing Fannie and Freddie would solve. This is yet one more way that the financial industry can run up some profits and high pay for top executives at the expense of the rest of us.
The Congressional Budget Office calculated that having private institutions, rather than Fannie and Freddie in their current form, would add roughly 20 basis points, 0.2% to the cost of securitizing mortgages. With around $1 trillion in mortgages being securitized each year, that comes to $2 billion annually. That is not huge in the context of the federal budget (0.03%), but it is four times the annual appropriation for the Corporation for Public Broadcasting that got Trump so upset.
Trump is giving a green light to his finance buddies to find every more creative ways to rip off businesses and ordinary people.
And in the case of privatizing Fannie and Freddie, we literally get nothing for it except a less efficient mechanism for securitizing mortgages. This is similar to the plans for privatizing Social Security. We have an extremely efficient public system, but many people in the Trump administration see the opportunity to make trillions of dollars in fees by turning it into a private system.
As with a privatized Social Security system, we would also be exposing ourselves to needless risk by privatizing Fannie and Freddie. The basic problem is that we would be allowing a private corporation to operate with a government guarantee against losses. This guarantee gives a private securitizer an enormous incentive to securitize bad mortgages in order to increase volume and make more profits. That was the story of the housing bubble and the subsequent collapse and financial crisis in 2008-09.
If a private securitizer is carefully regulated, it can limit the risk of reckless lending. But does anyone believe that the Trump administration is going to have careful regulation of the financial industry?
The basic story here is that in order to give donors in the financial industry still more money, Trump is planning to privatize a perfectly well-functioning public system for securitizing mortgages. This move will almost certainly increase the cost of mortgages for homebuyers, the only question is by how much. And it raises the risk for future financial crises and government bailouts.
Making the financial sector less efficient in order to hand money to contributors is very much front and center in the Trump administration. This is the same story with his decision to promote crypto currency, which is making Trump and his friends tens of billions of dollars; as opposed to letting the Federal Reserve Board issue a digital currency, which would save us tens of billions in bank and credit card fees.
The evisceration of the Consumer Financial Protection Bureau follows the same pattern. Trump is giving a green light to his finance buddies to find every more creative ways to rip off businesses and ordinary people.
That’s how we should understand the drive to privatize Fannie and Freddie. How could anyone oppose it?
U.S. President Donald Trump moved Saturday morning to fire Consumer Financial Protection Bureau Director Rohit Chopra, who had earned the praise of consumer advocates and the ire of Wall Street for his efforts to return more than $6 billion to ordinary Americans.
Chopra announced his firing on social media, also sharing a letter to the president in which he touted the work of the CFPB and outlined possible priorities for his successor.
"Every day, Americans from across the country shared their ideas and experiences with us," Chopra wrote to his followers. "You helped us hold powerful companies and their executives accountable for breaking the law, and you made our work better. Thank you."
In his letter, Chopra mounted a full-throated defense of the CFPB, which has often been attacked by Republicans and pro-Trump figures, including billionaire Elon Musk. He wrote that the 2008 financial crisis "made Americans question whether regulators and law enforcement would hold companies and their executives accountable for their mismanagement or wrongdoing," especially since many of the companies responsible for the crash only got larger and more powerful following a taxpayer-funded bailout.
"That's what agencies like CFPB work to fix: to make sure that the laws of our land aren't just words on a page," he wrote, adding that "with so much power concentrated in the hands of a few, agencies like the CFPB have never been more critical."
Chopra, who was appointed by former President Joe Biden to head the CFPB in 2021, said that he was "proud the CFPB had done so much to restore the rule of law" during his tenure.
"Since 2021, we have returned billions of dollars from repeat offenders and other bad actors, implemented dormant legal authorities and long-overdue rules required by law, and given more freedom and bargaining leverage to families navigating a complex and confusing financial system," he wrote.
"If civil society does its job, every person unnecessarily taken advantage of by a financial institution will attribute the blame to the right person—Donald Trump."
Chopra also touted the CFPB's regulation of junk fees, inaccurate medical bills, and digital surveillance by Big Tech. Under Chopra, the CFPB sued major financial institutions such as Bank of America and JP Morgan Chase and finalized a rule to strike around $49 billion worth of medical debt from credit reports, according to CNN.
With Chopra in charge, the bureau "has fought against junk fees, repeat offenders, big tech evasions, and corporate deception. It has championed competition, transparency, accountability, and consumer financial health," Adam Rust, director of financial services for the Consumer Federation of America, said in a statement reported by NPR.
Despite the fact that Chopra was originally appointed by Trump in 2018 to serve on the Federal Trade Commission, Chopra's firing was expected as soon as Trump took office, with both major banks and tech companies urging the new president to oust him.
While anticipated, the move was criticized by progressive advocates and lawmakers.
"For all the claims Trump and the GOP have made about being the voice of working-class voters, firing Chopra and attacking the CFPB only satisfies unscrupulous corporations and unelected billionaires like Elon Musk," Revolving Door Project founder and executive director Jeff Hauser said in a statement. "If civil society does its job, every person unnecessarily taken advantage of by a financial institution will attribute the blame to the right person—Donald Trump."
Rep. Pramila Jayapal (D-Wash.) called his firing "an enormous loss for the American people."
"My friend Rohit Chopra has done an incredible job leading the CFPB—standing up to big corporations, protecting consumer data, and saving money for poor and working families," Jayapal said on social media.
Former Labor Secretary Robert Reich wrote on social media: "Under Rohit Chopra's tenure, the CFPB continued to serve as a shining example of government working on behalf of the people. Chopra took on corporate greed, unnecessary junk fees, predatory lending, and other financial shenanigans. It's telling that Trump just fired him."
According to The New York Times, the CFPB under Trump is expected by financial industry officials to roll back some of Chopra's regulations and to issue fewer new rules and weaken enforcement.
However, Sen. Elizabeth Warren (D-Mass.) pointed out that this would run counter to Trump's own campaign rhetoric.
"President Trump campaigned on capping credit card interest rates at 10% and lowering costs for Americans. He needs a strong CFPB and a strong CFPB director to do that," she said in a statement. "But if President Trump and Republicans decide to cower to Wall Street billionaires and destroy the agency, they will have a fight on their hands."
Chopra himself, in his farewell letter to Trump, suggested steps the CFPB could take under new leadership. These included:
"We have also analyzed your promising proposal on capping credit card interest rates, and we see a path for enacting meaningful reform," he wrote to Trump. "I hope that the CFPB will continue to be a pillar of restoring and advancing economic liberty in America."
Pension plans never really went away—despite beliefs to the contrary that they are fatally flawed, with 401(k)s being the only sustainable retirement plans. The reality is that there are still 50,000 financially healthy pension plans in the United States. Most public sector workers, for sure a minority of all workers, still have pension plans. The other reality, though, is that progressively fewer workers since the early 1980s have had access to traditional pensions plans.
The general experience in American workplaces has been that once gone, pension plans do not come back. Here and there the trend has been bucked with pension plans returning to replace 401(k)s. In 2008, West Virgina public teachers voted to return their pension plan that had been taken away by the state legislature in 1991. The 401(k)-like plan that replaced it had produced such poor returns that participants were facing poverty in retirement. In 2012, after a long campaign, Connecticut state employees were allowed on a voluntary basis to switch out of a 401(k)-like plan into the state’s traditional pension plan.
More recently, there have been developments of potential large-scale replacements of 401(k)s with pension plans that may portend the beginnings of a significant pension comeback.
There is plenty of evidence that a dollar invested in a traditional pension plan delivers far more retirement income than one invested in a 401(k).
In 2006 the Alaska state legislature took away the pension plan for schoolteachers and replaced it with a 401(k). School teachers and their union never accepted the change and continually fought to reverse it. This year they may succeed. The Alaska Senate has voted to reinstate the pension plan. If the House of Representatives, where the fight will be tougher, follows suit, the plan will be reinstated.
Proponents of the reinstatement argued that Alaska was having a hard time keeping teachers who were quitting and leaving for teaching positions in states that had pension plans, which most do. Opponents of the change have argued, as they usually do, that it would be too expensive. But there is plenty of evidence that a dollar invested in a traditional pension plan delivers far more retirement income than one invested in a 401(k). Further, consulting New School economist Teresa Ghilarducci showed that Alaska would actually save $76 million annually by making the change.
If that can occur in Republican-dominated Alaska, union-strong Michigan, where state employees lost their pension plan in 1997, would seem to be a candidate for a similar development.
Meanwhile, in corporate America where pension plans have dwindled to near extinction, IBM has announced that it may develop a cash balance plan, a kind of quasi-pension plan, to replace its 401(k). Cash balance plans do not deliver as much retirement income as traditional defined-benefit pension plans, but they do have three advantages for workers over 401(k)s. Collective plan contributions are professionally invested, producing higher returns than the often-amateur investments of 401(k) participants. Once credited to participant accounts, contributions remain regardless of future market activity unlike with 401(k)s. And, by law, cash balance plans are required to offer life pensions from their funds that deliver significantly more retirement income than life annuities that life insurance companies sell to 401(k) participants.
IBM’s accountants are exploring the cash balance model mainly because it offers tax advantages over 401(k)s. At the same time investment risks, as with 401(k)s, are shouldered by participants, unlike with traditional pension plans.
The great 401(k) experiment of do-it-yourself retirement plans was always a better deal for the financial services industry that profited handsomely from managing them. For employers it was less of a good deal. Some are now beginning to do until recently the unthinkable and explore readopting the P word.