rssFive Reasons Obama Won’t Touch Fannie or Freddie With a Ten-Foot Pole
Thursday, March 11, 2010 at 5:25 pm
- 4 Comments
Long before the financial crisis, Fannie Mae and Freddie Mac were synonymous with moral hazard in the minds and classrooms of most economists. Everyone (including Fannie and Freddie) believed that if they got into trouble by making risky investments, the government would bail them out. Of course, the feeling that they wouldn’t be allowed to fail led to them making risky investments and then, naturally, to a government bailout.
But unlike most of their private sector counterparts, Fannie Mae and Freddie Mac — and the half of the U.S. housing stock that they either own or back — are still owned by the federal government, and despite the administration’s promises, Zachary Goldfarb of The Washington Post says they’re going to stay that way. Why?
- The administration is “too busy” with other reform efforts.
- The administration has little desire to wade into another political screaming match this close to an election.
- Wall Street thinks it could destabilize the housing market even further.
- The administration plans on using Fannie and Freddie as part of its ongoing efforts to prop up the housing market.
- Fannie and Freddie have been behind the majority of mortgages made since the housing crisis began.
Of course, critics of Fannie and Freddie and the moral hazard they embodied have been calling for reform for years, to little avail. If, in the midst of government ownership and $125 billion (and counting) in bailout money, the administration can’t reform them now, it never will — and that’s likely just what Fannie and Freddie are counting on.
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4 Comments
Comment posted March 12, 2010 @ 1:18 am
oh, i see, so bailing out Fannie & Freddie risks moral hazard, but bailing out 30- and 60-to-1 over-leveraged Citi & BofA, and AIG swaps & CDO's is no problem — for, quote, “most economists.” really? thanks for clarifying.
clearly, Fannie & Freddie share blame, but mostly because housing bubble-headed private investors in these 2 public/private hybrids demanded “higher returns” like, oh, i don't know, Citi, BofA and AIG…? sheesh. (by the way, you forgot to mention CRE and Acorn. it IS part of the right-wing litany that includes Fannie & Freddie, after all. Fox Noise will never hire you unless you chant it in full, dearie…)
Comment posted March 12, 2010 @ 4:30 pm
Fannie Freddie did not create the Toxic Mortgages.
They acquired them from banks and Countrywde
Late getting in herd of mortgage enrichment.
They lost heavily in Derivatives.
Fannie Freddie owned by Stockholders..
Maximize profits at any cost.
Original purpose diverted when made them private for profit.
clarence swinney
Comment posted March 12, 2010 @ 4:58 pm
Fed Reserve Catalyst for Housing Disaster.
Took Clinton 6.5% Interest rate and 1% for Bush.
In first five of Bush increased Total Money Supply by twice as much as in prior ten years
Greenspan a die hard Republican.
Market will regulate itself. Ho Hum.
Most economists saw Housing prices go into orbit
70% Increase in 5 years. Red Light Red Light
Developers got almost free interest money to build homes Too Large-Too Expensive for Middle Class staganted Incomes..
Big boom in California–Arizona– Neveda– Florida.
Certainly not poor sections.
23% of Foreclosures as of 1-08 were on Speculative Mortgages,.
Speculators bought entire developments.
Countrywide told agents take any mortgage, Any.
$14,000 income got a man a $700,000 home.
Refinancing agent made $20,000 per week and head man witht 70 agents made 5 million per rmonth. In California- Arizona.
subprime used to imply POOR. Nonsense
Subprime was –could not afford it/
Developer in California built a dvelopment with $700,000 homes.
Couple years later built excat same blueprint nearby for $400,000,
Being sued by ones bought $700,000 homes.
AIG was issuing Insurane Policies for $4,000 with $100 in the pocket
Simple analogy but true.
WWII to Reagan most average size homes cost 2.5 years of an average Income. Bush capped it with 5.4 years.
Fed created easy money with plentiful supply.
Banks rushed to borrow max. Some lied on assets to get more.
Fed set up conditions then sat quietly and watched their diaster unfold but continued to believe Free Markets Self Regulate.
Greenspan relented and admitted we blew it.
OIC would send many to prison
Our Federal Finances are handled by former Wall Street Xperts.
Paulson got fithy rich off Hedge Fund Bets
Geither came out of Goldman S as did many others.
.
Why not hire academia like Krugman-Stiglitz-Phillips?
Get rid of pal pal pal buddy buddy buddy
Pals gave pals 700 Billion.
clarence swinney
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