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Thread: Fannie and Freddie Dont Deserve Blame for Bubble.

  1. #1
    Havakasha is offline

    Fannie and Freddie Dont Deserve Blame for Bubble.

    When you see the Republican party point to Fannie and Freddie as the cause of all our housing
    problems one should think deeply about why they boil a complex issue down to a simple talking point.

    http://www.washingtonpost.com/reales...y.html?hpid=z3

    By Mark Zandi, Published: January 24

    There is plenty of blame to go around for the U.S. housing bubble, but not much of it belongs to Fannie Mae and Freddie Mac. The two giant housing-finance institutions made many mistakes over the decades, some of them real whoppers, but causing house prices to soar and then crater during the past decade weren’t among them.

    The biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control. These included lenders who originated home loans, investment bankers who packaged them into securities, rating agencies that misjudged these securities, and global investors who bought them without much, if any, study.

    In other words, America’s mortgage securitization machine was fundamentally broken. It created millions of mortgage loans that, even under reasonable economic assumptions, stood little chance of being repaid — and were not. As a result, hundreds of billions of dollars were lost as defaults and write-downs brought the financial system, and the wider economy, to the brink, requiring a massive government bailout.

    Also to blame, of course, were regulators, who gave the private mortgage market little, if any, oversight. The market’s watchdogs were lulled to sleep by a misplaced view that self-interested private financial institutions would regulate themselves. This flawed thinking was most pervasive at the nation’s most important financial regulatory agency, the Federal Reserve.

    Getting history right for this dark economic period is critical if we are to design a better mortgage finance system for the future. If Fannie Mae and Freddie Mac are responsible for the debacle, then perhaps government’s role in a future mortgage finance system should be minimal. But if private lenders deserve most of the blame, the case grows for giving government an important role in backstopping and overseeing the system.

    “If it grows like a weed, it probably is a weed.” This age-old banking adage aptly applies to the private mortgage lending business during the housing bubble. Between 2004 and 2007, private lenders originated three quarters of all subprime and alt-A mortgage loans. These were loans to financially fragile homeowners with credit scores under 660, well below the U.S. average, which is closer to 700. But only a fourth of such loans were originated by government agencies, including Fannie, Freddie and the Federal Housing Administration.

    The dollar amount of subprime and alt-A loans made during this period by the private sector was jaw-dropping, reaching nearly $600 billion at the height of the lending frenzy in 2006. For context, this is about equal to the total amount Americans currently owe on bank credit cards. By contrast, government lenders made just over $100 billion in subprime and alt-A loans in 2006. Even in 2007, when the housing market was beginning its free fall, private lenders still handed out more than $300 billion via these very shaky mortgage loans.

    All this can be seen in the share of total residential mortgage debt insured or owned by Fannie Mae and Freddie Mac. At the start of 2002, before the housing boom got going, the two agencies’ market share accounted for almost 54 percent of all mortgage debt. By summer 2006, the bubble’s apex, their share had fallen to only 40 percent. It is difficult to see how the agencies could have been responsible for inflating the housing bubble at a time when they were losing a full 14 percentage points of market share. Indeed, the opposite was true, as their position in the housing market rapidly diminished.


    Click on link to 2nd page.
    Last edited by Havakasha; 01-29-2012 at 11:28 PM.

  2. #2
    Havakasha is offline
    Waiting for a response.
    Stunned silence.

    Of course when he does answer,
    He will not respond to the facts of this
    article. lol
    Last edited by Havakasha; 01-30-2012 at 10:46 AM.

  3. #3
    SiriuslyLong is offline
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    SiriuslyLong's Avatar
    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Defending the honor of two failed GSE's. LMFAO

    There is a lot of blame to go around including the greater fool theory.

    Here's a good retrospect, but I leave you with a gem to start.


    "It should come as no surprise that Fannie and Freddie's rivals on Wall Street wanted in on the profit bonanza of securitizing and investing in the portion of the mortgage market that the federal government had reserved for Fannie Mae and Freddie Mac. They found a way to do this through financial innovation, which was spurred on by historically low short-term interest rates".


    Fannie Mae, Freddie Mac And The Credit Crisis Of 2008

    http://www.investopedia.com/articles...#axzz1kxKxBRBI

    Enjoy learning about how the federal government phucks things up.

  4. #4
    SiriuslyLong is offline
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    SiriuslyLong's Avatar
    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Nice edit there...................

    Oh, I answered. It's right there in italics, and provided a link for more. If you read it, you will realize an additional criticism of government that helped the disaster.

  5. #5
    Havakasha is offline
    Thanks.

    I would like YOU to respond to the facts of this article.

  6. #6
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post
    Thanks.

    I would like YOU to respond to the facts of this article.
    Already have. Clearly you refuse to read it and accept it.

  7. #7
    Havakasha is offline
    I want YOU in YOUR OWN words to respond to the facts of the article on fannie and freddie.

  8. #8
    Havakasha is offline
    The fact that he is not able to personally refute anything in the article I posted should let you know that he doesnt havethe facts behind him. Come on SiriuslyWrong, take on the article point by point and tell us all what isnt true about what I posted here. There has been a awful lot of demagoguery on the part of the right on this issue

  9. #9
    Havakasha is offline
    David Frum, a Republican, just said a little while ago on NPR radio that its absurd to say that Fannie and Freddie cause the mortgage forelcosure crisis. He said they may have added fuel to the fire, but to call it the cause is to deny the facts.

  10. #10
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post
    David Frum, a Republican, just said a little while ago on NPR radio that its absurd to say that Fannie and Freddie cause the mortgage forelcosure crisis. He said they may have added fuel to the fire, but to call it the cause is to deny the facts.
    Boy did they ever. They INVENTED mortgage backed securities? Yeap.

    http://en.wikipedia.org/wiki/Mortgage-backed_security

    http://www.sec.gov/answers/mortgagesecurities.htm

    http://www.innovateus.net/content/mo...ked-securities

    More benefits from a "mixed economy" lol.

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