“The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right thing to do — and it was done fairly well, too,” wrote columnist Paul Krugman. “The plan will sustain institutions that play a crucial role in the economy, while holding down taxpayer costs by more or less cleaning out the stockholders. But Sunday’s action needs to be seen in a larger context — that of the attempt by the Federal Reserve and the Treasury Department to contain the fallout from the ongoing financial crisis. And that’s a fight the feds seem to be losing.”
Krugman explained that falling home prices have led to “debt deflation,” in which “prices are going up at the checkout counter, but the prices of assets, which are what matter for balance sheets, are dropping fast.” He likened the current crisis to the real estate crisis that hit Japan at the end of the 1980s and led to a decade-long economic slump.
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29 Comments
Lax regulation is the fault of 80% of this mess, so bush could brag about his ‘ownership society’ (notice max doesn’t bring that term up anymore?)
It is interesting to see how many ‘alt-a’ mortgages are imploding. No income verification; not real appraisals – no wonder there is such a mess.
Then fannie and freddie get saddled having to buy the paper.
Maybe Mccain is consulting with Gramm about what to do?
From Wilki:
Gramm was one of five co-sponsors of the Commodity Futures Modernization Act of 2000[3]. One provision of the bill was referred to as the “Enron loophole” because the House Agriculture Committee drafted it and it was later applied to Enron. Some critics blame the provision for permitting the Enron scandal to occur.[4] At the time, Gramm’s wife was previously on Enron’s board of directors.
[edit] Banking Deregulation and the 2008 Mortgage Crisis
Later in his Senate career, Gramm spearheaded efforts to pass banking reform laws, including the landmark Gramm-Leach-Bliley Act in 1999, which served to reduce government regulations in existence since the Great Depression separating banking, insurance and brokerage activities.
Years later, critics of Gramm point out that this same legislation may have been pivotal in encouraging the corporate practices that led to the 2008 mortgage crises in America.[5]
Between 1995 and 2000 Gramm, who was the chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, received $1,000,914 in campaign contributions from the Securities & Investment industry.[6]
Later, as lobbyist for Swiss bank UBS, Gramm pressured congress ease it’s restrictions on predatory lending tactics by mortgage brokers. For his efforts, Gramm received $750,000 from UBS in during a one year period starting in 2007.[7].
Repubs. brought us the S&L crisis, now they’re back for a repeat with the morgage banking crisis. They just change their colors and come back re-invented, kind of like mccain.
Fannie Mae and Freddie Mac were not really “private” to begin with.
Both were “quasi-governmental” organizations.
Both enjoyed several tax exemptions, that ordinary lenders did not enjoy.
Both enjoyed specific exemptions from some SEC regulations.
Both enjoyed the clout and influence of several high powered Democrats, who used the revolving door between Washington and these Federally created corporations, to advance their careers.
Ginnie Mae, alone, gave over $1,000.000 to Rev. Jesse Jackson’s corrupt “Operation Push”.
Actually, in “Alt-A” situations, you sign a form that allows the lender to request your tax returns, directly, from the IRS.
The “firewall” between wall street and mortgage lenders was repealed.
Senator Joe Biden voted for that “change” in regulations.
Senator John McCain did not vote for that “change” in regulations.
Maybe McCain can get his friend Keating as an advisor.
Lehman plunges more than 40%.
“Both enjoyed the clout and influence of several high powered Democrats, who used the revolving door between Washington and these Federally created corporations, to advance their careers.” — wefu
As did the Republicans.
“On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.” — Wikepedia
Now will the wefu please shut up.
Franklin
Posted September 9, 2008 at 2:35 pm | Permalink
Both enjoyed the clout and influence of several high powered Democrats, who used the revolving door between Washington and these Federally created corporations, to advance their careers.
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Right, and NO republicans benefited from it? More Wangoboy logic. Talk about partisan.
=========================================================
Franklin
Posted September 9, 2008 at 2:38 pm | Permalink
The “firewall” between wall street and mortgage lenders was repealed.
Senator Joe Biden voted for that “change” in regulations.
================================================
Right, and NO republicans voted for it? More Wangoboy logic. Talk about partisan.
Wow, who would have ever guessed.
When you repeal legislation passed after the object lesson of the Great Depression, you get housing prices falling as fast as they did during the Great Depression, as Krugman points out (see link above).
You mean there’s an inherent conflict of interest when you allow mega-banks to both speculate on real-estate and write loans at the same time just like they did during the 20’s leading to the Depression?
But . . . but . . . but, I thought de-regulation was ALWAYS good for the economy.
That’s what college drop-out Rush always says . . .
Franklin says,
The “firewall” between wall street and mortgage lenders was repealed.
Senator Joe Biden voted for that “change” in regulations.
Correct. And Biden was wrong.
But the bill would never have come up for a vote if the RepubliCONs hadn’t been paid to write it for the banking industry.
Look at Gramm now–lobbyist for a big Swiss bank.
CapnAmerica
Posted September 9, 2008 at 4:32 pm
“Look at Gramm now–lobbyist for a big Swiss bank.”
–Lobbyist for a big Swiss bank that is getting its shorts eaten by said crisis.
Has America created its own variety of communism with the U.S. Treasury Department’s bailout of two beleaguered government-sponsored enterprises (GSEs), Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE)? According to Rogers Holding CEO Jim Rogers, the answer is yes.
“America is more communist than China is right now,” Rogers told CNBC Europe’s “Squawk Box Europe” September 8. “You can at least have a free market in housing and a lot of other things in China. And you can see that this is welfare for the rich. This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters.”
Rogers, known for launching the Quantum Fund with left-wing heavyweight George Soros, said the bailout was not benefiting homeowners or helping average citizens improve their standing for a home mortgage.
“It’s not bailing out the homeowners who are in trouble, by the way,” Rogers said. “It’s not bailing out people who want a mortgage – it’s just bailing out financial institutions. This is not my idea of the way things are supposed to be, but if that’s what America wants, you know, it can elect people who are going to do it. I think it’s a mistake.”
The Rogers Holdings CEO had little confidence that Democratic presidential nominee Sen. Barack Obama, Ill., or Republican vice-presidential nominee, Alaska Gov. Sarah Palin, would be able to do anything to steer Fannie or Freddie on a more stable path.
“This is a big huge mess and neither one of them has a clue as to what to do next year,” Rogers said. “Bank stocks around the world are going through the roof, that’s because they’ve all been bailed out. You don’t see the homeowners in Kansas going through the roof because they’re not being bailed out.”
Rogers had previously called for Fannie and Freddie to be allowed to go bankrupt. “They should not be bailed out,” he told “Worldwide Exchange” July 15. “This is outrageous. Who are these people who are taking our money and doing this and ruining America?”
“Let the patient go bankrupt,” he said. “We have courts in America; they will be reorganized.”
Fannie Mae and Freddie Mac were “wove a mantle of invincibility” through lobbying according to a September 8 Wall Street Journal “Deal Journal” blog post. According to the Journal’s Heidi N. Moore, the mortgage giants had $170 million in lobbying bills in the past decade and spent $3.5 million on lobbying just in this year’s first quarter, spreading their largesse among 42 outside lobbying firms.
Earlier on September 8, CNBC “Mad Money” host Jim Cramer called the bailout “a homerun plan” on MSNBC’s “Morning Joe.”
http://businessandmedia.org/articles/2008/20080908171808.aspx
====================================================
from yesterday. what did I say?
Posted September 8, 2008 at 9:05 am | Permalink
Every cent of the money going to the Freddie/Fanny bailout is a subsidy for people who own debt on bad loans made on inflated real estate. It is a protection for those who scrambled to cash in on a bubble. It is a direct transfer of billions if not trillions of dollars from working people, to the very richest people in this country, who leveraged the FDIC insured savings of every single working family in America to purchase the bad debt in the first place. I would much rather the government use those billions and maybe trillions to reimburse account holders in failed banks, rather than propping up the banks themselves. And it would be much cheaper. Instead, we will get a vast transfer of federal wealth to the very richest people in the country, most of whom dumped their Freddie/Fanny stock months ago, or made further billions on the huge swings in Freddie/Fanny stock prices, as the vulture’s shadow fell, and then passed.
The sad part is that not one foreclosure is going to be forestalled, not one family will be allowed to keep their home, not one debt will be adjusted to realistic levels. Instead, The debts and bad paper will be guaranteed by the U.S. Government at a cost equal to if not greater than the Iraq war, and with money that could be used to rebuild our energy system, every rusty bridge in the nation, and every classroom. Money that could be used to put every American to work rebuilding the country. It is sick, sick, sick, and instructive, as the Democrats too are behind it. If Freddie/Fanny failed, the only people hurt would be those who bought the repackaged debt. Our meager accounts are insured, now apparently, so too, is a trillion or two in bad debt.
This can go only so far. Just remember your government has just declared war – on your children. The wonderful irony in all of this is that eventually, it will be the rich who will be fleeced to the bone to pay the debt, as they will be the only ones left with the means.
Actually, I think it comes closer to classic fascism. State-owned enterprises were a hallmark of that economic system.
“Fascist governments nationalized key industries and made massive state investments. They also introduced price controls, wage controls”
http://en.wikipedia.org/wiki/Fascism
Bush threatened to veto dem. legislation that would have helped with 300 bil. in new mortgages for struggling homeowners.
http://www.msnbc.msn.com/id/24503502/
Instead 200 bil. is already committed to do what? Help the wealthy?
Many Republicans have been warning about Fannie and Freddie for a very long time.
However, I accept the fact that the “blame” for this mess is bi-partisan.
Face reality, however: Those who are trying to SELL homes that they can not afford, will be “helped” when someone actually BUYS their house.
Allowing Fannie and Freddie to fail would cause real estate prices to TANK nationwide.
Without avaiable credit, without financing, all realestate would suffer.
So, I disagree, saving Fannie and Freddie, as distasteful as it looks, was absolutely necessary, in order to protect the innocent.
The shareholders of Fannie and Freddie will be hurt, we are not bailing out the shareholders.
In agreement here Paul. In this case there is enough blame to go around – and I would include Greenspan.
From what I have seen the FDIC receivership of IndyMac HAS helped borrowers – they are re-negotiating loans. While it does gall me to see a guy who was fat and happy with his 2% (while I was at 5.5) now getting bailed out when he faces a reset at 10% I also realize that it is needed. As a very conservative homeowner I would suffer if my neighborhood was filled with abandoned houses.
Also, the banks (or receivers) do better with re-negotiations. Consider: A house worth 200K with a 250K loan. If it gets refigured at 180K the bank loses 70K. If it repos and the house sits and/or gets trashed it may well liquidate at 150K or much less. Now the loss is 100K plus.
Like some things I see – it sucks but is less bad than the alternative.
Without fannie mae and freddie mac we never would have had the 30 yr. mortgage (according to Dowd, tonight), we would not have had the healthy real estate and home ownership of the last 4 decades, it only went south when the sellers and lenders slacked up and got greedy.
Now we are protecting the end purchaser of the paper, and indirectly the housing market. It is the old top down approach all over.
Usually you can reach the same objectives either from a top down, or a bottom up approach. Primary, direct, recipient of the govt. welfare is the only difference.
If fannie and freddy are split up and taken completely private, interest rates for mortgages will go up, and the number of them will go down.
With impact all the way down to builders and would be purchasers.
Wow, Wangoboy finally wrote something that made a bit of sense. The one thing I haven’t read anywhere is what are the financial institutions going to give up for this welfare? What I gather so far is, while the financial institution piglets have got their collective snouts in the government trough, they are still trying to keep congress from enacting laws designed to bring this whole mess under control.
If congress buys into it, and lets it slide, the whole lot should be dumped on the roadside, and traded in on a better model.
And, is it really fair to punish the stock holders of the two quasi companies, when much of what fannie and freddie bought to resale was pushed on them by their charter?
The scoundrels that caused the mess are largely unscathed, unless they’re banks holding investments in the two companies.
Wango boy?
“However, I accept the fact that the “blame” for this mess is bi-partisan.” — the wefu
Hosanna.
I thought this was all Bush’s fault.
Mortgage rates down since the takeover – but must be credit-worthy:
“In the wake of the government’s takeover of Fannie Mae and Freddie Mac last weekend, the 30-year fixed rate has dropped from 6.26% last Friday to 5.79%. But only buyers with a credit score of 740 of above – and a 20% down payment – can qualify for such a low rate. During the boom, borrowers only needed scores of 640 to land the lowest rates available. Even a 580 score would get them very close to the best rate.”
http://money.cnn.com/2008/09/08/real_estate/high_credit_scores_a_must/index.htm?postversion=2008091013
I’ve been mailing people all day long to get here and take a look at your text, I definitely want to see other articles you have