Who’s to Blame for Fannie and Freddie Collapse
Bloombert.com columnist Kevin Hassett thinks it’s the Democrats.
Palm Coast, Florida – September 23, 2008 – Today’s financial crisis is the most serious the country has experienced since the depression. Bloomberg.com columnist Kevin Hassett doesn’t think it had to happen. He points to a single event that set events in motion which led to the eventual collapse of many pillars of the financial market, not the least of which were Fannie Mae and Freddie Mac.
"Take away Fannie and Freddie, or regulate them more wisely, and it’s hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened," writes Hassett.
"Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Commission’s chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie’s position on the relevant accounting issue was not even ‘on the page’ of allowable interpretations."
Alan Greenspan added weight with his urgent warnings. The time was right. The Senate Banking Committee, for the first time, passed a serious Freddie and Fannie reform bill. "The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets." If it had passed, it is unlikely that the financial crisis would have happened, but it didn’t pass. Politics intervened and in a strict party line vote, Democrats defeated the measure.
Read Hassett’s column to find out who got in the way.
Only works if Real Estate goes up and income too!
The Freddie and Fannie and now all the lending institutions that have mortgages, (no matter what form) loose value during major drops in Real Estate values. That’s because the people that own real estate, that is worth less than their mortgage, walk away from the properties and default on their loans. Seeing this happen makes everyone not want to hold mortgages at all. So they are stuck with dead mortgages and no cash to lend. That’s what the treasury secretary is doing, he will buy those dead assets, and hold them until they are worth something, and then sell them, something the leaders can’t do, as there are to many of them. Freddie and Fannie are operating, under the government take over, that guaranteed those bad mortgages and fired the CEO’s putting in place new management. It was all fine until the prices of real estate dropped so far and made the loans worth pennies on the dollar. Once the Congress passes the bill for buying these dead assets the loans will be available and the demand for real estate will come back and prices will begin to rise. So it wasn’t Freddie and Fannie, it was the real estate market that collapsed. Why that happened was because prices went up to fast and income did not. If everyones income went up as fast as real estate prices we wouldn’t have this problem.
Who created the problem
You have to start with Realtors, they pushed people into houses they could not afford, mortgage brokers then add to the toxicity. I had Realtors tell me I better make an offer today and not try to get it for less than 98% of asking price because there will probably be other offers. Realtors know who the mortgage brokers where who could make the deal work for poor credit, no credit, no down payment. Let’s get honest……….
john’s comments
Did that realtor hold a gun to your head to make you make that 98% offer? Don’t even pretend to lump the blame of the real estate collapse on one group of people. Need to add crooked lenders, crooked developers, rookie investors with too much money, and rookie investors with too little money. I emphasize "crooked" because there are great people in all those profession that do a great job. None of their jobs crooked or clean would have been possible if people had not dabled in area’s that they should not have.
plenty of blame to go around
i dont think you can blame it on realtors. i think people bought all the house they could for the least amount of money down and when the resets came they folded like a tin can.
People will buy anything as long as they can have today. If you are going to blame it on the realtors ,add in the appraisers also. You should add in everyone from the buyer,realtors,appraisers,speculators,banks financing anyone and dumping these mortgage backed securities on investors. Investors are to blame also because they liked the interest rates returns. This was a bubble that almost everyone who bought thought their investment was going to increase 15 to 25% a year. CLASSIC BUBBLE!!
Blame
Seems the FBI is finally getting involved. The investors who bought the bonds where the only true victims of fraud. The rating agencies gave the bonds "AAA" Investment Grade ratings. The Lehman Brothers, AIG’, etc. Lied about the amount of leverage backed by the toxic financials.
These bonds did not carry higher returns, what many retirees bought into was safety of the bonds based on false ratings.
The law suits have already begun, Moody’s, Fitch, AM Best will be the next to fall.
Plenty of blame to go around
According to the non-partisan Congressional Budget Office, income for the bottom half of American households rose six percent under Bush, the income of the top one percent skyrocketed – by 228 percent. Even the Republican congress saw their net worths soar an unprecedented 84% from 2004 to 2006, on average. Yet over the past seven years, the United States has lost one in five (3.5 million) middle-class jobs. Those are usually jobs that pay good wages and provide middle-class benefits on health and pensions. Apparently, "trickle down" economics don’t work.
Well now, instead of prosperity trickling down, the pain has trickled up – from the struggles of hardworking Americans on Main Street to the largest firms of Wall Street.
What can McCain say? Well, aside from removing all mentions of "social security" and his plans to privatize it or "deregulation" from his campaign website and mumbling some Herbert-Hoover sounding stuff about how the fundamentals of the economy are strong or Fannie and Freddie caused this (they actually exploited the same deregulation that got wall street in this mess) all he’s got left is… deception.
Almost up until the time it was taken over by the government in the nation’s financial crisis, Freddie Mac paid $15,000 a month to the lobbying firm of John McCain’s campaign manager – from the end of 2005 through last month. This was in addition to the $30,000 a month that Davis was paid from 2000 to 2005 by the so-called Homeownership Alliance, an advocacy organization that he headed and that was financed by Freddie and Fannie to fight regulation.
The disclosure contradicts a statement by McCain that the campaign manager, Rick Davis, had no involvement with the mortgage giant for the last several years. McCain has tied Obama to Fannie and Freddie’s troubles and has called on Jim Johnson and Franklin Raines – both former Fannie Mae executives – to return large golden parachute payments they received from the corporations after leaving. Raines has released a statement, which states he is not an Obama adviser.
But McCain supports the Treasury providing golden parachutes to the companies’ current chief executives who will leave after banking millions and taking millions more on the way out the door. Fannie Mae’s Daniel Mudd earned $11.6 million last year, and Freddie Mac’s Richard Syron made $18.3 million. By conservative estimates, Mudd, 49, and Syron, 64, will leave with an additional $7.3 million and $6.3 million, respectively, as part of a severance package, according to an analysis by Paul Hodgson at the Corporate Library. This package will now be paid by the US Treasury.
Reply to John
It there had been proper oversight, the risky loans would not have been available. If the loans were not available, the prices would not have risen so steeply. The market would have remained more stable.