On How Fannie Mae and Freddie Mac (More than Likely) Contributed to the Financial Collapse
1) Fannie and Freddie purchased billions of risky loans (nearly 3/4 of new mortgages were going through F & F by 2008) and bundled them to investors. The money that went to these banks allowed them to make even more risky loans. The end-result was that a lot more mortgage lending than would have otherwise taken place DID take place (the bubble argument, in other words).............2) Being that Fannie and Freddie were at least quasi governmental entities, most investors and lenders (justifiably, as it turned out) took for granted that the lines of credit would more than likely be unlimited....AND that they (Fannie and Freddie) would probably be bailed out if necessary.............3) Fannie was deeply involved in the highly political move of lowering lending requirements in an attempt to more adequately meet the needs of disadvantaged groups. They specifically eased the credit requirements on the mortgages that it was purchasing from banks - the end-point being (this, according to the New York Times, September 1999) to encourage banks to extend home mortgages to individuals whose credit hadn't been good enough to qualify for conventional homes......So, no, me-buckos, nobody was "holding a gun to these bankers' heads" (and, yes, there were in fact some very questionable practices - no doubt), but if the government is a) enabling you and b) encouraging you AND you're more than likely going to get bailed out in a worst case scenario, wouldn't you also (in the words of Congressman Frank) be willing to "roll the dice a little"?
"nobody was holding a gun to these bankers' heads"
ReplyDeleteTrue but isn't it true that there was another form of coercion?
As I see it, when I sign a loan contract, I make it with the understanding that it will remain with the original lending entity... Seems that is where the shenanigans get ugly.
Ya' know, it's amazing how you guys are such useful idiots for Wall Street.
ReplyDelete2006, the worst year for the sub-prime lending, F&F only backed 6% of those loans. 6%.
God, you just couldn't be more wrong.
Should F&F had been more careful? Yes. Were both Clinton and Bush too pushy trying to get more people into their own homes? Yes.
But where there was enabling it was in laizzez faire governance. F&F were not pushing bad loans. Period. They simply were not looking closely enough - as was the SEC, FHA, and other government entities. The bad loans were enabled by a system without rules! Without checks and balances! This is what happens when you let markets run amok! This is the perfect example of why conservatives and libertarians are WRONG, and they can't accept that FACT, and so they turn it around and blame the government for doing too much! It's SOOOOOOOOOOOOOOOOOOOOOOOOOOOOO shamelessly sleazy.
JMJ
Yes JMJ, progressivism is soooooooooooooooooo shamelessly sleazy, and you're sooooooooooooooooo hopelessly unable to recognize it.
ReplyDeleteThis is not true.
ReplyDeleteWhat isn't true Grung? Enlighten please. Or perhaps it is more a matter of interpretation? Oh, I know...
ReplyDeleteJersey, if F & F was such a bit player in this, then why was their bailout the largest of them all, $154,000,000,000? I mean, I don't know where you got that 6% figure, but Thomas Woods in his book, "Meltdown", claims that F & F had gained a hand in nearly half the country's mortgages and nearly 3/4 of the new mortgages. He certainly doesn't think that they were a bit player.
ReplyDelete"Should F & F been more careful?" Careful? According to a 1996 study by the Congressional Budget Office, it was found that mortgage behemoth Fannie Mae had pocketed about a third of the subsidy which the government was providing (this, as opposed to them passing it on to the homeowners). This same study also goes on to say that James Johnson, the initial executive at Fannie Mae, personally took home nearly $100 million (his successor, Franklin Raines, didn't do too badly, either). Yeah, I should say that F & F should have been more careful.
ReplyDeleteReference.............http://www.nytimes.com/2011/05/29/books/review/book-review-reckless-endangerment-by-gretchen-morgenson-and-joshua-rosner.html?pagewanted=all
ReplyDeleteYou refuse to address the facts, Les. You just hold your hands up to your ears and shout, "La la la, la la la! Freddie Mac! Fannie Mae! La la la, la la la!"
ReplyDeleteIt doesn't matter to you that F&F only backed 6% of those loans that year - the year that led to the collapse. Unregulated, unaccountable mortgage betting doesn't matter to you. The only thing that matters to you is to assuage your rigid ideology by blaming GSEs for what the private sector was doing. The facts are irrelevant to you. Your ideology is more important to you than this country or even reality.
Not all corruption is borne of power. Money does the corruption too, Les, and it wields plenty of power in and of itself, and by "money" I'm talking about the capitalist free market system. It's interests wield tremendous power, often more power than the government can resist.
Money is just another way to attain power, like sex or expertise, though usually you need the money first. Power is an expensive whore.
JMJ
JMJ, please read. This is excerpt from the link that Will gives.
ReplyDelete---------------------------------
To entrench Fannie’s privileged position, Morgenson and Rosner write, Johnson and Raines channeled some of the profits to members of Congress — contributing to campaigns and handing out patronage positions to relatives and former staff members. Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self-protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. A few years later, according to Morgenson and Rosner, Fannie hired Kenneth Starr, the former solicitor general and Whitewater investigator, who intimidated a member of Congress who had the temerity to ask how much the company was paying its top executives.
All this gave Fannie’s executives free rein to underwrite far more loans, further enriching themselves and their shareholders, but at increasing risk to taxpayers as lending standards declined. A company called Countrywide Financial became Fannie’s single largest provider of home loans and the nation’s largest mortgage lender. Countrywide abandoned standards altogether, even doctoring loans to make applicants look creditworthy, while generating a fortune for its co-founder, Angelo R. Mozilo. Meanwhile, Wall Street banks received fat fees underwriting securities issued by Fannie and Freddie, and even more money providing lenders like Countrywide with lines of credit to expand their risky lending and then bundling the mortgages into securities they peddled to their clients. The Street, Morgenson and Rosner say, knew lending standards were declining but maintained the charade because it was so profitable. Goldman Sachs even used its own money to bet against the bundles — making huge profits off the losses of its clients on the very securities it had marketed to them. Eventually, of course, everything came crashing down.
jmj - I do not recall making many comments {or posts }relative to the irresponsible Fannie and Freddie} duo.
ReplyDeleteI've left that to others with greater expertise in this area., of which you certainly are not one.
La,la,la,la,la,la. Find the cliff yet jmj?
How 'bout the 154 billion dollar bailout fact, Jersey? Maybe you could address that one for us.
ReplyDelete