About all that Fannie and Freddie stuff . . .

[carltonplace]

JMO, but I think the government needs to drop F&F and let them behave like true corporations. Maybe BOA will buy them, they have plenty of "assets" right now.

[bokworker]

Ultimately CP that is what is going to happen.. it won't be just one player, BOA in your example, but a small number of very large private players that control the mortgage market. No one can argue that the mortgage market is better served when it is not a regionall market where access to money and the cost of that money is different from one region to the next but, it is also so large that the capital required to effectively and efficiently handle this business limits the number of players that can do it.

I find it ironic that in the aftermath of the financial crisis we have not spread out or diversified the risks in our financial system at all. Perversly, we have done just the opposite. We now have a smaller number of even larger players holding an ever increasing percentage of the loans and deposits in the US. Cost savings are a good reason to consolidate in any business line but while  smaller more diverse financial firms might increase costs to consumers, it would lessen the systemic risk in which we continue to find ourselves today.

[we vs us]

I find it ironic that in the aftermath of the financial crisis we have not spread out or diversified the risks in our financial system at all. Perversly, we have done just the opposite. We now have a smaller number of even larger players holding an ever increasing percentage of the loans and deposits in the US. Cost savings are a good reason to consolidate in any business line but while  smaller more diverse financial firms might increase costs to consumers, it would lessen the systemic risk in which we continue to find ourselves today.

This is, IMO, one of the biggest failures of Obama's administration -- and one of the reasons we are still having contrafactual and highly ideological discussions about Fannie and Freddie (among other things).  There has been no prosecution of wrongdoing.  No daylight has been shown on any of the goings on leading up to the bubble bursting, and hence 1) it's kept the facts of the what actually happened out of the public sphere and 2) kept us distracted from true reform.

[Conan71]

This is, IMO, one of the biggest failures of Obama's administration -- and one of the reasons we are still having contrafactual and highly ideological discussions about Fannie and Freddie (among other things).  There has been no prosecution of wrongdoing.  No daylight has been shown on any of the goings on leading up to the bubble bursting, and hence 1) it's kept the facts of the what actually happened out of the public sphere and 2) kept us distracted from true reform.

They've been to preoccupied with investigating Bush era rendition and other important things like that rather than making sure a major financial collapse which affects ALL Americans won't happen again.

Should the priorities be to impugn the Bush administration or be working to protect the people from more financial malfeasance?  I think you can guess my preference.

[carltonplace]

Anyone watch "Too Big To Fail" on HBO? I realize it was a dramatacized version of the events to make these incredibly banal proceedings (who'd want to watch a show about ledger entries?) compelling, but I had no idea how close we came to the cliff. 

[Gaspar]

They've been to preoccupied with investigating Bush era rendition and other important things like that rather than making sure a major financial collapse which affects ALL Americans won't happen again.

Should the priorities be to impugn the Bush administration or be working to protect the people from more financial malfeasance?  I think you can guess my preference.

I think they need to spend some money examining Sarah Palen's emails!

I'm certain that "Sheesh" is just code for "I want to starve old people."

[carltonplace]

I think they need to spend some money examining Sarah Palen's emails!

I'm certain that "Sheesh" is just code for "I want to starve old people."

That wouldn't cost very much...she's more of a tweeter. I also doubt that she knows how to be covert.

[Gaspar]

That wouldn't cost very much...she's more of a tweeter. I also doubt that she knows how to be covert.

The Russians have been spying on her for years.  After all, they can see her house!

[nathanm]

JMO, but I think the government needs to drop F&F and let them behave like true corporations. Maybe BOA will buy them, they have plenty of "assets" right now.

Historically, they have been just another corporation.

However, now would be a bad time for the government to dump their equity position. Fannie and Freddie have had a bunch of writedowns in their mortgage book, but the majority of the $120 billion or so taxpayers dumped into them were to cover paper losses that would have made them insolvent on an accounting basis.

Past early 2007, you'll note that the guarantees they and FHA provide have been the only thing allowing anyone in this country to get a mortgage. Private investors are still spooked.

Conan, your point makes no sense. There are six times as many homeowners as people living in public housing or receiving section 8 assistance, and the vast majority of those homeowners now receive or have received government assistance in the form of the mortgage interest deduction, which, by the way, is a much larger cost than public housing and section 8. HUDs entire FY2010 budget request was $46 billion, which is up significantly relative to historic norms thanks to the housing crisis and crappy economy. The mortgage interest deduction cost $100 billion.

[Gaspar]

Historically, they have been just another corporation.

However, now would be a bad time for the government to dump their equity position. Fannie and Freddie have had a bunch of writedowns in their mortgage book, but the majority of the $120 billion or so taxpayers dumped into them were to cover paper losses that would have made them insolvent on an accounting basis.

Past early 2007, you'll note that the guarantees they and FHA provide have been the only thing allowing anyone in this country to get a mortgage. Private investors are still spooked.

Conan, your point makes no sense. There are six times as many homeowners as people living in public housing or receiving section 8 assistance, and the vast majority of those homeowners now receive or have received government assistance in the form of the mortgage interest deduction, which, by the way, is a much larger cost than public housing and section 8. HUDs entire FY2010 budget request was $46 billion, which is up significantly relative to historic norms thanks to the housing crisis and crappy economy. The mortgage interest deduction cost $100 billion.

That's not completely true. 

Way back in the Clinton days, Clinton appointee Franklin Raines, who ran Freddie Mac, issued over one-and-a-half trillion dollars in loans, and by the '00s they were in trouble.  Back in 1997 Republican members of congress called for an investigation because Freddy Mac had begun to borrow hundreds of millions from the federal government and invest it in the bond market (at 7%), gambling on the perception that the loans they were providing to consumers were government backed, but knowing that they weren't . 

Many of the bonds they purchased were corporate bonds from Phillip Morris with 10 year maturities.  They had a mess on their hands because the value of their issued loans was trash and they knew it!  The program of increasing home ownership was a powerful vote machine for Democrats though, and Fanny and Freddy had become massive contributors, so much so that they were able to encourage banks to provide ever increasing loan amounts to individuals who otherwise could never afford them, backed by promise of penalties from the Janet Reno justice department.  In return they funneled millions of dollars right back to the very politicians that propped them up. 

In 2003 after multiple warnings from the new administration, an agency was set up to monitor them. This was a huge failure.  Why?

Well, after several attempts to persuade Barney Frank and other members of the Committee on Financial Services of their impending doom, and the affect it would have on the economy, President Bush attempted to circumvent congress by creating an agency to monitor them called The Office of Federal Housing Enterprise Oversight.  This was huge because it, in essence, would circumvent the defense of Fanny and Freddy in congress.  Melvin Watt, Democrat, North Carolina, accused Bush of wanting this oversight committee so he could weaken the bargaining power of poorer families by forcing them to qualify for loans.  This was insanity, but it ruled the roost, and continued to buy votes.

Finally embracing the idea of the commission with some alterations to its charter, our friends Barney and Chris Dodd made sure the new commission had little authority.  By the time they were done, it was "their" commission, and could only make recommendations.  Basically it became an entity without teeth. It had over 200 employees responsible for monitoring Fanny and Freddy, without the authority to do anything but join the president in issuing impotent warnings to members of congress that refused to listen. 

This was an abject failure on Bush's part!  He was incapable in getting any meaningful regulation passed, but he and other members of his administration continued to warn Congress (a total of 17 times), and got the same response: Barney Frank, "They're not facing any kind of financial crisis" and other democrats agreed.

What Bush failed to embrace is there was no regulation that could FIX the problem.  Fanny and Freddy were so tied up in funneling money to politicians from big companies with one hand, and in turn, buying votes with the other by issuing unsecured loans, that it was unstoppable.

It is now a prime example of why government does not need to be in business.  The entities themselves became tools, and in turn made tools of politicians. 

One of the most important tenants of our constitution is the separation of church and state.  To some degree we need to start to recognize the value of the separation of bank and state.  Regulation to some degree is fine, but the federal government's involvement in Freddy and Fanny are prime examples of why politicians are politicians and bankers are bankers.  When you mix them, you get a volatile concoction.