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Fannie and Freddie Failure Forever

Sandokan

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Morning Bell: Fannie and Freddie Failure Forever
Morning Bell: Fannie and Freddie Failure Forever | The Foundry: Conservative Policy News.

By Conn Carroll

Yesterday, Sen. Chris Dodd (D-CT) told reporters about his financial regulation bill, “We’ve ended the ‘too big to fail’ debate. So no longer do I expect any argument to be made that this bill exposes the American taxpayer.” Really. Someone might want to tell Sen. Dodd that in other news yesterday, Freddie Mac announced that it lost another $6.7 billion in the first quarter of 2010 and therefore needed another $10.6 billion in cash from U.S. taxpayers. Since formally nationalizing Freddie in 2008, the federal government has already spent $50.7 billion bringing the Freddie bailout total to $61.3 billion so far. Combined with Fannie Mae’s raid on the Treasury, the Congressional Budget Office estimates that the American people will spend $389 billion bailing out the two Government Sponsored Entities by 2019. So much for American taxpayers no longer being exposed to “too big to fail.”
Government failure is to blame for this mess in the housing market. The truth about Fannie and Freddie is right there, in the face of everyone. If we had an honest and objective news media this Fannie and Freddie problem would have been over long ago, and the crooks, like Barney Frank, Chris Dodd, Jamie Gorelick, Franklin Raines and others, would not have taking out millions of our dollars. This country is being stripped of its wealth on a daily basis, the law makers side with the law breakers and guess who’s side this media is on, they side with the law breakers against the American people. They need to be held accountable, they are destroying our country.
 

VonDutch

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When you start off by saying, "Goverment failure is to blame for the mess in the housing market." I have to disagree, the govt. didnt telling "Californian's" (happened everywhere, but this was some of the most extreme cases) to buy housing at three times there market value of recents years value, even thou they couldnt possibly afford it. With the grand hopes of "flipping" the house to "screw" the next guy for a profit.

And I do agree with your other points, the Media is biased, but again, thats what Americans tune into watch.... so its a business who want advertisers not to inform people.

I agree that this country is stripped of wealth on a daily basis due to "CEOs" "influenicing" law-makers that benefit both sides and hurt the consumer/general population and the media who is backed by the same CEO's and push the same law-makers biased news coverage, but if a certain business/law-maker/news agency is found guilty of any of these (which I assume you can name numerous accounts) then we as the consumer should voice our opinion and boycott buying that business's product, not voting for that law-maker, and not tuning into that news agency. Until that happens things are going to change. That is how "they" are going to be held accountable, by the almighty dollar, which is what "they" care about.
 

Sandokan

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Politicians like Chris Dodd don’t care at all about working Americans. Dodd is now beyond the voters reach since he is retiring. He just took the money and ran. What about Barney Frank comments? He is beyond the voters because anyone going after him would be accused of “gay bashing” since he is gay. What about Franklin Raines, former head of Fannie? He is not a politician and does not have to worry about voters, and since he is black, anyone who goes after him would be accused of “racism”. Does anyone see a “pattern” here? The only way to solve this is to get rid everyone in Congress who are involved in this plot to give the government complete control.
 

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The problem runs much deeper than just government encouraging banks to give out risky credits. This may have been crucial, but this alone would not have yielded a mess of this scope. The problem was a general systemic failure of the financial market. The rating agencies blatantly failed, by overestimating the credibility of these papers. Bonus payments for managers encouraged extremely risky, hazardrous behavior no old-school conservative market actor would have ever considered serious. And then, there are actors on the financial markets that gamble with huge sums of lended money, while maintaining only a minimal own capital stock -- sometimes, the amount of money they gambled with was a hundred times higher than there own money. Hedgefunds then made the problem worse by hazardrous gambling on the failure of banks or even entire national economies. Without all these problems, this bad government intervention would probably not have caused much more than a liquidity problem for one or another bank and a slight burp on the stock market.

The main problem, IMHO, is the blatant over-estimation of the own capacities by free market ideologues. The ideology of supply side economy and power of unleashed markets, with the hilariously bold claim that what's good for the market is good for the general population by default, that became en vogue in the second half of the 70s, flowered in the 80s and dominated the mainstream in the 90s and first half of the 00's found many supporters in politics and it was deregulated, privatized and flexibilized for the sake of it, without ever considering the risks.

Now it's obvious as never before: It was a grave mistake to forget the lessons of the 1930s and to arrogantly renounce the skepticism of people like Keynes or FDR. What's good for the market is obviously not always good for the general population, even though it often is. Unleashed financial markets will produce crisis every once in a while, a life threatening crisis that is threatening the very basis of entire societies. The euphoria in market power is misguided -- sure, well doing markets are a precondition for general welfare. But obviously, they can become an essential threat for freedom and democracy as well, sometimes.
 

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The main problem, IMHO, is the blatant over-estimation of the own capacities by free market ideologues. The ideology of supply side economy and power of unleashed markets, with the hilariously bold claim that what's good for the market is good for the general population by default, that became en vogue in the second half of the 70s, flowered in the 80s and dominated the mainstream in the 90s and first half of the 00's found many supporters in politics and it was deregulated, privatized and flexibilized for the sake of it, without ever considering the risks.
I find myself primarily agreeing with the OP premise on this one for one reason: in 1999, legislation was passed in our congress and signed by the president deregulating the banking sector by essentially repealing the Glass Steagal act more than it had already been "softened" through the years. This was a measure that was originally choreographed by three republicans, but the democrats signed on on the condition that the Community Reinvestment Act would be strengthened. It was a bipartisan effort that led (imo) to a near-collapse of the world economy, and a huge blunder. Several years ago, when Phil Graham suddenly decided to resign, and there was no scandal attached to his name, I was really shocked, and curious as to why he would do this. It was odd. After the economic crisis happened, and I started looking into what led up to it, it all made sense. I'm not excusing the banks and lenders, but if you really look closely at the relationship between our government and the banks, it's easy to see why financial corporations thought they could get away with it, and felt fairly assured that our government would bail them out. It was never a formal agreement, but implied. The banks got what they wanted, congress got what it wanted, on both sides of the aisle. We taxpayers are picking up the tab for both.
 

PeteEU

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Fannie and Freddie are ONLY an problem because they cater to lower income people of the US and they are the first to get hit by a recession and hence unable to replay their loans. But like it or not, Fannie and Freddie did not start the crisis, that was the private sector and their greed and the total lack of regulation.

In the end you stand between a choice. Do you want American's to own their own houses or not? If not, then fine get rid of Fannie and Freddie and let 50+% of the American population rent their housing because they aint gonna get any loans to buy one.
 

lizzie

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Fannie and Freddie are ONLY an problem because they cater to lower income people of the US and they are the first to get hit by a recession and hence unable to replay their loans. But like it or not, Fannie and Freddie did not start the crisis, that was the private sector and their greed and the total lack of regulation.
They certainly had a part in it due to pressure from the Clinton administration. Here's a NYT article from 1999 addressing this issue:

Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com

WASHINGTON, Sept. 29— In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites. Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
 
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Erod

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Fannie and Freddie are ONLY an problem because they cater to lower income people of the US and they are the first to get hit by a recession and hence unable to replay their loans. But like it or not, Fannie and Freddie did not start the crisis, that was the private sector and their greed and the total lack of regulation.

In the end you stand between a choice. Do you want American's to own their own houses or not? If not, then fine get rid of Fannie and Freddie and let 50+% of the American population rent their housingbecause they aint gonna get any loans to buy one.
Nor should they quite obviously now, eh? If you can't afford it, you shouldn't be in it.

Funny how Obama's gone after the banks, but not Fannie and Freddie, which comprise the largest share of the blame here.
 

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In the end you stand between a choice. Do you want American's to own their own houses or not? If not, then fine get rid of Fannie and Freddie and let 50+% of the American population rent their housing because they aint gonna get any loans to buy one.
I don't want anyone to own homes if they are not capable and responsible enough to do so. It obviously has put all of us at risk.
 

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I'm not excusing the banks and lenders, but if you really look closely at the relationship between our government and the banks, it's easy to see why financial corporations thought they could get away with it, and felt fairly assured that our government would bail them out. It was never a formal agreement, but implied. The banks got what they wanted, congress got what it wanted, on both sides of the aisle. We taxpayers are picking up the tab for both.
For the government sponsored shadow banks, the implicit insurance gave fannie and freddie the AAA rating, since the mantra in the market was that fannie and freddies stuff was basically backed by the fed gov.

While the rest of the shadow banks that dealt with fhc's provided this credit put by taking on the risk of ABS CDO traunches through CDS. This was provided by diversified insurance providers (aka AIG).
 
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drz-400

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Fannie and Freddie are ONLY an problem because they cater to lower income people of the US and they are the first to get hit by a recession and hence unable to replay their loans. But like it or not, Fannie and Freddie did not start the crisis, that was the private sector and their greed and the total lack of regulation.

In the end you stand between a choice. Do you want American's to own their own houses or not? If not, then fine get rid of Fannie and Freddie and let 50+% of the American population rent their housing because they aint gonna get any loans to buy one.
Single seller/multiseller conduits would pick up the slack w/out fannie/freddie. The main problem with the private industry is not "greed." Quite a few shadow banks are well run and use derivatives to diversify and protect them from risk. The main problem is private balance sheets cannot internalize systemic risk. Hence why we need things like the fed and fdic to provide these credit and liquidity puts.

You see, the problem with the US is we regulate "banks". What we really need is to regulate credit, maturity, liquidty transformation.
 

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The only thing too big to fail is the United States. Along with eliminating “Too big to fail”, we need to add, “Too unethical and too arrogant to serve” as it relates to Sen. Dodd and his lack of ethics to serve in the Senate.

Here is one more example of an inconceivable regulation that is called one thing but means another that needs to be added to the list of “Repeal and Replace”. We can only hope that after the elections in November, enough Republicans will be elected so that a proper investigation of this economic atrocity can take place and that guilty persons should be held accountable for the failure of Fannie and Freddie.
 

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Watched Chris Wallace interviewing Axelrod today. When asked about F&F not being included in the reform bill he had some lame excuse about it being to complicated or some such garbage. He then said they are looking into reforming F&F in a seperate reform bill. Anyone buying that?
 

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The only thing too big to fail is the United States. Along with eliminating “Too big to fail”, we need to add, “Too unethical and too arrogant to serve” as it relates to Sen. Dodd and his lack of ethics to serve in the Senate.

.
Amen bro!:)
 

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Watched Chris Wallace interviewing Axelrod today. When asked about F&F not being included in the reform bill he had some lame excuse about it being to complicated or some such garbage. He then said they are looking into reforming F&F in a seperate reform bill. Anyone buying that?
I absolutely do not believe it, and in fact, believe just about nothing I hear coming out of DC these days. Unfortunately, the republicans lack in spine what Dodd lacks in ethics, because they are basically all cut from about the same cloth.
 

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There is little doubt in most people’s minds that Freddy and fanny had a pivotal role in the recent meltdown. Government is responsible for the housing loans failures of Fannie and Freddie. It is also true that not everyone should own their home when there is no way they will be able to pay for it. The believe that “every American deserves to own a house “, is unreasonable. This idea pushed by the Clinton administration to get Freddie Mac to stand behind mortgages given to low-income homebuyers who did not show an ability to make the mortgage payments was unsustainable, destine to fail.
 

jambalaya

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Fannie and Freddie are not talked about enough. In my opinion it is a media conspiracy of the highest order to ignore as much as possilbe Fannie and Freddie and Barney and its/his role in the financial meltdown. Its all about corporate CEO's to the media for the most part.
 

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Government failure is to blame for this mess in the housing market. The truth about Fannie and Freddie is right there, in the face of everyone. If we had an honest and objective news media this Fannie and Freddie problem would have been over long ago, and the crooks, like Barney Frank, Chris Dodd, Jamie Gorelick, Franklin Raines and others, would not have taking out millions of our dollars. This country is being stripped of its wealth on a daily basis, the law makers side with the law breakers and guess who’s side this media is on, they side with the law breakers against the American people. They need to be held accountable, they are destroying our country.
There's plenty of blame to go around...starting, IMO, with Clinton calling a summit of lenders and telling them, in effect, "Find a way for low-income people to buy homes."

Lenders who allowed "no-income-verification loans" and other ridiculous products
Nonregulation of mortgage brokers (allowing them to falsify loan documents so they could earn their thousands in commission)
FNMA offering programs like American Dream and Nehemia whereby buyers could offer list price on homes and get 4% back from the seller as their downpayment.
S&P, Moody and others rating these mortgage-backed securities as Triple A instead of the junk they really were.
Adjustable Rate Arms offered by lenders who suckered people in with 0% interest for the first X-number of years so they'd refinance when the rate moved up (and the loan broker/officer would earn yet ANOTHER commission.
Lenders relaxing underwriting so people one day out of bankruptcy could secure mortgages at honorous interest rates.

If government failure WASN'T the reason this happened, people would be going to jail.
 

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There is little doubt in most people’s minds that Freddy and fanny had a pivotal role in the recent meltdown. Government is responsible for the housing loans failures of Fannie and Freddie. It is also true that not everyone should own their home when there is no way they will be able to pay for it. The believe that “every American deserves to own a house “, is unreasonable. This idea pushed by the Clinton administration to get Freddie Mac to stand behind mortgages given to low-income homebuyers who did not show an ability to make the mortgage payments was unsustainable, destine to fail.
EGZAKLY!! "Every American deserves to own a house" is ridiculous. Every American who can AFFORD to own a home ought to be able to buy one. That should be the mantra.
 

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the bush administration pursued the same policies.....do you remember when bush touted home ownership at the highest levels ever? that said, did you know that everyone is walking away from their homes, rich and poor?

the crisis was precipitated by more than just "bad loans".......else it would have begun as soon as those bad loans were made. we also had a decade of growing income disparity, on which only a small percentage of workers saw their income rise.
 

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the bush administration pursued the same policies.....do you remember when bush touted home ownership at the highest levels ever? that said, did you know that everyone is walking away from their homes, rich and poor?
the crisis was precipitated by more than just "bad loans".......else it would have begun as soon as those bad loans were made. we also had a decade of growing income disparity, on which only a small percentage of workers saw their income rise.
Re Bush -- you're absolutely right. He did do that. Sorry I was partisan. As to people walking away from their homes: No one knows that any better than I, LibLady. I'm a Realtor. Much of that walking away by the "rich" is because they used their homes as ATM machines to finance lifestyles they could hardly afford any other way. Lenders allowing people with good credit to borrow 125% of the equity in their homes led to this, "Why should I continue to pay a mortgage on a home that's not worth it?" mentality. Though these "rich" could afford their mortgages, why should they? I've got plenty of subjective stories about high income homeowners doing exactly that.
 

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When markets are left alone to operate properly, supply and demand prevents disasters like this from happening in the first place. But when government interferes either by interfering with the lending criteria used by lenders or by dumping too much liquidity in the market or creating an irrational market for such instruments by giving a false seal of approval to them, as Fannie and Freddie did, the market cannot function properly and the signals that ordinarily prevent irresponsible decision making become so distorted that they are useless.

Make no mistake, there were certainly ample examples of self-indulgent borrowers and "greedy" lenders out to make a quick buck, but self-indulgence and greed always exist and are normally controlled by the market. Until government interferes, and fails miserably, the disaster cannot occur.
 

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EGZAKLY!! "Every American deserves to own a house" is ridiculous. Every American who can AFFORD to own a home ought to be able to buy one. That should be the mantra.
I remember when this whole housing crisis thing happened. There was a woman looking for sympathy and hoping for a government bailout. She was about to lose her home. (poor thing) She had gotten a loan to buy a $400,000 home. She drove a school bus for a living! Now why did someone give her a loan and why did she even think she could afford it. Home loans should require at least 20% down in my opinion so you have some skin in the game.
Owning your own home is the American dream for most people. However I remember when people used to save until they had the downpayment and then bought one they could afford.
Geez, I wish the government would stop trying to help people and just get out of the way. They mess up everything they touch.
 

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Let us not forget the part that Obama played when as a lawyer, a community organizer, and a trainer for ACORN he sued Citibank to force it to make bad loans.

This article from Rush Limbaugh, “Obama, ACORN Pressured Banks to Make Unsafe Subprime Loans” (http://www.rushlimbaugh.com/home/daily/site_092908/content/ 01125108.guest.html), point the finger to Obama for his involvement with ACORN and the pressure put on the banks to make those bad loans.

There is this other article from 2000, “The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities”, by Howard Husock (http://www.city-journal.org/html/10_1_the_trillion_dollar.h tml), where Howard says that “ left-wing nonprofit groups have been able to gain control over eye-popping pools of bank capital, which they in turn parcel out to individual low-income mortgage seekers. A radical group called ACORN Housing has a $760 million commitment from the Bank of New York”
 
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