Cap Wealth Management’s Tim Pagliara Explains the Purpose and Origins of Freddie Mac and Fannie Mae

Cap Wealth Management’s Tim Pagliara Explains the Purpose and Origins of Freddie Mac and Fannie Mae


Live from Music Row Tuesday morning on The Tennessee Star Report with Michael Patrick Leahy – broadcast on Nashville’s Talk Radio 98.3 and 1510 WLAC weekdays from 5:00 a.m. to 8:00 a.m. –  host Leahy welcomed financial advisor with Cap Wealth Management Tim Pagliara to the studio to discuss to outline the purposes of Fannie Mae and Freddie Mac.

Leahy: Our good friend financial advisor at Cap Wealth Management here in Franklin, Tennessee. You’ve been like the number one rated financial advisor in Tennessee by Forbes and several other groups for some time, haven’t you?

Pagliara: Yeah, we’ve been really blessed.

Leahy: Real blessed. He’s modest, folks. He’s very good. He’s very good at what he does. Also, the author of Another Big Lie: How the Government Stole Billions from the American Dream of Homeownership and Got Caught. This is crazy. I’m going to tell everybody what we got here. On yesterday, March 22, Tim as a chairman and chief investment officer of Cap Wealth, sent this letter to the clerk of the Supreme Court. His name is Scott Harris. And this is regarding Collins versus Yellen, and Yellen versus Collins. These are two cases your entire books about, right?

Pagliara: Yes.

Leahy: So here’s the letter:

Dear Mr. Harris, (Laughter) on March 18, Acting Solicitor General Elizabeth Prelogar sent the court a letter setting forth the government’s position that the Collins case has not been rendered moot by the post-oral argument Collins letter agreement amendment to the PSPA.

What’s the PSPA?

Pagliara: Preferred stock purchase agreement.

Leahy: Preferred stock purchase agreement.

(Continues reading letter) I won’t speculate about what the Solicitor General’s motives were in sending the letter to the court. However, as a private citizen, I would like to avail myself of the same courtesy extended to the Solicitor General. I’ve included nine copies of my recently published book, Another Big Lie: How the Government Stole Billions From the American Dream of Homeownership and Got Caught. I would appreciate you distributing them to the members of the court. With kindness. Personal regards, Timothy J. Pagliara. Chairman, Chief Investment Officer of Cap Wealth.

Well, now that’s a little bit of moxy there, my friend.

Pagliara: Isn’t this country great?

Leahy: Okay, so layout the story. Another Big Lie: How the Government Stole a Billion From the American Dream of Homeownership and Got Caught. What’s the story here?

Pagliara: Fannie and Freddie Mac.

Leahy: Okay, just stop. What’s Fannie Mae; what’s Freddie Mac?

Pagliara: They are the two largest mortgage packages of mortgages in the country. So they buy mortgages from small banks, other banks. They package them together and they sell them to investors.

Leahy: And they are quasi-governmental?

Pagliara: Right. Fannie Mae was set up by Roosevelt in 1938 in the Depression. Banks had a lot of bad loans on their books. Mortgages were about five years in duration. The average home price was dropping 50 percent. You had 25 percent unemployment and people were being put out in the street. And so they created Fannie Mae to buy those mortgages from the banks. Then they negotiated the 30-year mortgage.

Leahy: Ah ha! That’s where the 30-year mortgage was born!

Pagliara: That’s where it was born.

Leahy: In 1920. Home mortgages were five years?

Pagliara: That’s right. And so that compounded the problem. And so, Fannie Mae and Freddie Mac, every financial system has a flaw. It’s like the Death Star in Star Wars, where they always looking for that spot. And the flaw in our financial system is that it’s pro-cyclical meaning when things get bad, the regulators say, don’t loan money, pull it back, clean up your balance sheet. And so credit actually tightens at a time when you need credit.

And so, Fannie Mae is counter-cyclical. They pull loans off the books of banks in order to keep the flow of money moving in the mortgage market. They’ve done it since 1938. No one’s ever done it better. And that’s where it all started. The financial crisis, they were blamed and it doesn’t hold water. I’ve got it all in the book. 91 percent of all the mortgages that went bad in the financial crisis were issued by big banks.

Leahy: Big banks. So Fannie Mae, what about Freddie Mac?

Pagliara: Freddie Mac was created in the 60s to meet the same purpose that Fannie Mae did but they were the outlet for the savings and loans. They bought mortgages off the books of savings loans.

Leahy: I’ve already learned something here.

Pagliara: There we go.

Leahy: That’s good – Fannie Mae, Freddie Mac. So it’s an easy way to kind of understand what their purpose was.

Pagliara: So there was a lot of jealousy about these institutions from the big banks. And so it became very convenient to blame them for the financial crisis.

Leahy: Of 2008.

Listen to the third hour here:

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Tune in weekdays from 5:00 – 8:00 a.m. to the Tennessee Star Report with Michael Patrick Leahy on Talk Radio 98.3 FM WLAC 1510. Listen online at iHeart Radio.
Photo “Fannie Mae” by AgnosticPreachersKid. CC BY-SA 3.0.