A great article about the failure of Freddie and Fannie and the housing collapse

[Brother Mark]

It's coming out now... finally. The root cause to the housing collapse can be seen in this article. The article focuses on Rep. Barney Frank's role. However, there's plenty of blame to go around on this one for both Rep and Dem.

Here's a few lines to get us started.

WASHINGTON — When US Representative Barney Frank spoke in a packed hearing room on Capitol Hill seven years ago, he did not imagine that his words would eventually haunt a reelection bid.

The issue that day in 2003 was whether mortgage backers Fannie Mae and Freddie Mac were fiscally strong. Frank declared with his trademark confidence that they were, accusing critics and regulators of exaggerating threats to Fannie’s and Freddie’s financial integrity. And, the Massachusetts Democrat maintained, “even if there were problems, the federal government doesn’t bail them out.’’

Now, it’s clear he was wrong on both points — and that his words have become a political liability as he fights a determined challenger to win a 16th term representing the Fourth Congressional District. Fannie and Freddie collapsed in 2008, forcing the federal government to buy $150 billion worth of stock in the enterprises and $1.36 trillion worth of mortgage-backed securities.

Frank, in his most detailed explanation to date about his actions, said in an interview he missed the warning signs because he was wearing ideological blinders. He said he had worried that Republican lawmakers and the Bush administration were going after Fannie and Freddie for their own ideological reasons and would curtail the lenders’ mission of providing affordable housing...

And a very damaging paragraph later in the article... What happened when it became obvious the companies were in major trouble?

In July 2008, then-Treasury Secretary Henry Paulson called Frank and told him the government would need to spend “billions of taxpayer dollars to backstop the institutions from catastrophic failure,’’ according to Paulson’s recent book. Frank, despite that conversation, appeared on national television two days later and said the companies were “fundamentally sound, not in danger of going under.’’...

Click here for the link.

I know many here want to blame the banks. But in the end, the domino that started the entire fiasco, was our good ole Congress and their policies that pushed/allowed Freddie and Fannie to take on more risky loans.

Enjoy the read.

Mark

[Brother Mark]

I sure hope this gets more play in the media. I doubt it will. But I sure hope so. US citizens need to know what was a major cause of this financial melt down, otherwise, we will continue to go in the wrong direction for the fix.

[Brother Mark]

Just in case anyone is reading this thread... here's another article from an economist/writer about the role that government and particularly Rep. Barney Frank played in the entire housing debacle. I sincerely hope and pray that America wakes up and realizes it wasn't the "fat cat" banker that was the single biggest issue for the housing melt down. (They do have sins to answer for, no doubt about that! But the housing melt down was part of a problem with them but it's genesis happened in government.)

Click here for the full article.

The article is by economist Thomas Sowell. Here's a portion...

No one contributed more to the policies behind the housing boom and bust — which led to the economic disaster we are now in — than Congressman Barney Frank.

His powerful position on the House of Representatives Financial Services Committee gave him leverage to force through legislation and policies that pressured banks and other lenders to grant mortgage loans to people who would not qualify under the standards that had long prevailed and that had long made mortgage loans among the safest investments around.

All this was done in the name of promoting more home ownership among people who had neither the income nor the credit history that would meet traditional lending standards.

To those who warned of the risks in the new policies, Congressman Frank replied in 2003 that critics “exaggerate a threat of safety” and “conjure up the possibility of serious financial losses to the Treasury, which I do not see.” Far from being reluctant to promote risky practices, Barney Frank said, “I want to roll the dice a little bit more in this situation.”

With the federal regulators leaning on banks to make more loans to people who did not meet traditional qualifications — the “underserved population,” in political Newspeak — and quotas being given to Fannie Mae and Freddie Mac to buy more of these riskier mortgages from the original lenders, critics pointed out the dangers in these pressures to meet arbitrary home ownership goals. But Barney Frank attacked these critics.

This is the kind of leadership that the US doesn't need.

Grace and peace,

Mark

[tango]

I sure hope this gets more play in the media. I doubt it will. But I sure hope so. US citizens need to know what was a major cause of this financial melt down, otherwise, we will continue to go in the wrong direction for the fix.

Yep, for all people want to blame the nasty banks it doesn't take a genius to figure that someone with no job and no income is going to default on their loan and sooner rather than later. It also doens't take a genius to figure that no bank worth its salt is going to write such a loan unless there's someone else willing to take the loan off their books.

So er - ahem - it looks like the solution to government interference is more government interference....

[Brother Mark]

Yep, for all people want to blame the nasty banks it doesn't take a genius to figure that someone with no job and no income is going to default on their loan and sooner rather than later. It also doens't take a genius to figure that no bank worth its salt is going to write such a loan unless there's someone else willing to take the loan off their books.

So er - ahem - it looks like the solution to government interference is more government interference....

I can't believe that politicians aren't making a bigger deal about this... except those guys on both sides played a role in it. So it's not necessarily in their best interest for the facts to get out. Though I will say, there were republicans that warned this was coming and tried to do something about it.

But the "same ole failed" policies we are hearing about from the political class is the concept of "deregulation" caused this. It's really quite the opposite! It was over regulation that forced the market to do something that it would not have otherwise done. When everything blew up, it was easy to blame it on the banks and lack of regulation.

Now, we may be about to double the size of the freddie and fannie bailouts.

The federal bailout for Fannie Mae and Freddie Mac could double in size during the next three years, according to projections from the companies' federal regulator.

Fannie and Freddie, the federally-controlled mortgage finance giants, will likely need at least another $73 billion and perhaps as much $215 billion from taxpayers in the next three years to meet their financial obligations, the Federal Housing Finance Agency said, but much of that money would automatically be returned to the government.

The growing taxpayer infusions will cover losses Fannie and Freddie suffer on home loans, as well as payments the companies must make to the U.S. Treasury in exchange for a federal guarantee to provide cash to keep the companies solvent.

Click here for the link.

But yea, the answer to the problem created by government intrusion is more government intrusion.

[tango]

I can't believe that politicians aren't making a bigger deal about this... except those guys on both sides played a role in it. So it's not necessarily in their best interest for the facts to get out. Though I will say, there were republicans that warned this was coming and tried to do something about it.

Yep... in corporate speak I'd say the sound of umbrellas going up is going to get louder and louder. When I look at the number of policies that were doomed to fail from the start but politicians who introduce them (on all sides of the political spectrum) act surprised when they fail I wonder if they are incompetent or malicious, and figure that either way they need to get voted out.

But yea, the answer to the problem created by government intrusion is more government intrusion.

Reminds me of the old programming saying that any problem can be caused by adding a layer of indirection, except for problems caused by having too many layers of indirection.

[teddyv]

I don't know. I think this may have been a case of unintended consequences. And there seems to be an attempt to absolve the absolute rotten greed that fueled the mess. The initial cause may well be as presented and I would not deny it's contribution.

I just look up in here in Canada, a more regulated nation, that did not suffer the same issue to even near the same degree. And we also have a federal underwriter for mortgages for those who cannot meet the banks minimum downpayments for a mortgage.

[tango]

I don't know. I think this may have been a case of unintended consequences. And there seems to be an attempt to absolve the absolute rotten greed that fueled the mess. The initial cause may well be as presented and I would not deny it's contribution.

I just look up in here in Canada, a more regulated nation, that did not suffer the same issue to even near the same degree. And we also have a federal underwriter for mortgages for those who cannot meet the banks minimum downpayments for a mortgage.

I don't buy the "unintended consequences" line any more, it happens with such monotonous regularity whenever politicians get involved in anything.

[Brother Mark]

Yep... in corporate speak I'd say the sound of umbrellas going up is going to get louder and louder. When I look at the number of policies that were doomed to fail from the start but politicians who introduce them (on all sides of the political spectrum) act surprised when they fail I wonder if they are incompetent or malicious, and figure that either way they need to get voted out.

Yea. At this point, it no longer matters why they did it. Let's just vote them out.

Reminds me of the old programming saying that any problem can be caused by adding a layer of indirection, except for problems caused by having too many layers of indirection.

LOL! That's good.

What people may not see yet, is the bailout of Freddie and Fannie could be half as large as the entire TARP. This problem so far is vastly under reported.

[teddyv]

I don't buy the "unintended consequences" line any more, it happens with such monotonous regularity whenever politicians get involved in anything.

So the whole thing was intended then?

[Brother Mark]

I don't know. I think this may have been a case of unintended consequences. And there seems to be an attempt to absolve the absolute rotten greed that fueled the mess. The initial cause may well be as presented and I would not deny it's contribution.

The bailouts of Freddie and Fannie may end up being almost half of the total amount spent on TARP! HALF for just these two companies!!!

Without the federal government forcing banks to make the loans to sub-prime borrowers, this thing would have never happened. As for unintended consequences, I am sure people didn't "intend" for it to happen. But how could it not happen? Many of us, MANY, saw this coming. IMO, regardless, forcing banks to make bad loans is bad policy all the way around. I would use harsher language than that, but for now, I will hold my tongue. Unintended and unforeseen are not the same thing. I think it was more a case of a "buried my head in the ground" kind of thing. Unintended consequences is far to kind a way to put it. These folks were warned.

I just look up in here in Canada, a more regulated nation, that did not suffer the same issue to even near the same degree. And we also have a federal underwriter for mortgages for those who cannot meet the banks minimum downpayments for a mortgage.

Bad regulation caused this not under regulation. Our government forced our banks to loan money to people who couldn't pay it back. Your government didn't do that. That's a big difference.

There were other issues with regulation/greed not related to the housing market. But that's another thread. The point is, that congress forced Freddie and Fannie to force the banks to make loans to people who couldn't pay them back. When some members of congress were warned of the impending doom, they ignored it.

[Brother Mark]

So the whole thing was intended then?

I posted a little to this above. But just to re-iterate, unintended and unforeseen are not the same. I think a better word is they just didn't care what the eventual result was so long as the people got the loans they wanted to get. IOW, they may not have "intended" for it to happen, but they certainly didn't care that it was going to happen. They were warned of this long before it happened and didn't budge to do a thing about it. They had their head in the sand. If they didn't think this was an eventual outcome... ok, I am not going to say it yet. Let me put this way, they should never be in leadership.

[tango]

So the whole thing was intended then?

Who knows? Quite aside from the very good points Brother Mark already made, I find myself wondering more and more who stands to benefit when these things happen. In fraud cases the quickest way to get to whoever is behind it is to follow the money.

It seems to me that if our politicians are not actively malicious they are almost entirely incompetent. Neither is a very appealing situation, and both are worthy of thought when election time comes.

[teddyv]

It seems to me that if our politicians are not actively malicious they are almost entirely incompetent. Neither is a very appealing situation, and both are worthy of thought when election time comes.

Unfortunately who ever replaces them are entirely incompetent as well.

[Brother Mark]

Unfortunately who ever replaces them are entirely incompetent as well.

That's not true. IMO, one side is more incompetent than the other at this point in time. One side recognizes and endorses good economic policy better than the other side. One politician pushes freddie and fannie to make loans they can't get back. The other says let the market it figure it out. There is a clear choice, IMO.

Again, the bailouts for freddie and fannie dwarf the bailouts that were given to most banks. If things keep going like they are right now, freddie and fannie could very well end up being half of what TARP was. TARP was approx 700 billion and most of that will be or was paid back. The actual cost, if I remember right, will be approximately 70 billion. (Could be wrong on that last figure.) Freddie and Fannie are looking at another bailout and that could bring the total to 350 billion or so.

I am amazed that people think Bush caused this economic mess when it can be traced most clearly to Freddie and Fannie mismanagement by our congress.