Fannie And Freddie Not The Problem

By Big Tent Democrat, Section Media
Posted on Sun Oct 12, 2008 at 10:12:46 AM EST
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Below I called Ross Douthat on clothing the extreme and fallacious view that "Baileyism" (read Fannie Mae and Freddie Mac) caused the current economic crisis with the patina of respectability. Douthat's former Atlantic colleague Matt Yglesias points to this McClatchey article that debunks the new Republican/ extreme conservative talking point that Douthat seeks to forward - that it was Baileyism (read Fannie and Freddie) that caused the problem:

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail. . . . They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

(Emphasis supplied.) More . . .

Unless Douthat thinks George Bailey was a predatory lender, I think this pretty much destroys his attempt to slip this pernicious nonsense into the mainstream. Hopefully, Yglesias will point that out to his ex-colleague.

By Big Tent Democrat, speaking for me only

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Fannie And Freddie Not The Problem | 50 comments (50 topical)

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Listening to CNN this morning (5.00 / 1) (#2)
by Militarytracy on Sun Oct 12, 2008 at 10:33:56 AM EST

while waking, they were talking about how they need to hold themselves to a higher standard of reporting. Too much time going into all this Ayer's guilt by association while people out there are really really hurting. It's just my opinion but if they want to talk about issues that matter this is a good place to start. We can't fix anything unless we know how it became broken and allowing Republican voices to continue this inane Freddie and Fannie theme over and over again without calling them out on it is so pathetic. My God, Gorge W. Bush pounded the same Freddie/Fannie drum about three days back when he was doing that staged "main street tour" in Texas and it needs to STOP! The press is failing so bad there isn't even a word to describe it.

There has been a big shift in the media lately. (5.00 / 1) (#28)
by Faust on Sun Oct 12, 2008 at 12:01:50 PM EST

And it's interesting watching them squirm. There are too many details to go into lately, but the sins of their past are comming back to haunt them. One of the big consequences of this economic collapse has been a shift in the way the media is covering this race. The reality of the economic collapse is forcing them off their reality TV scripts and they are running around every which way in the carnage.

Some of it is subtle (and some of it not!), but the effects are quite noticable if you are an obsessive media watcher. They are hamstrung by the structural nature of our 6 hour news cycle tabloid reality, but they are actually making some clumsy stupid attempts to do some real reporting. It's comic watching them try, and they bungle it as they go, but it's there.

Complicating their attempts at real journalism is the fact that as propogandists they are jumping into Obama's tank as fast as they can put their SCUBA gear on. It is funny watching people like Castanellos completely abandoning the Republican party in his pundit role.

This morning my wife handed me a page from PARADE magazine (lol) that has a table showing how much more tax money you would save under Obama as a middle class tax earner. I wish I could reproduce the table here but it is absolutely hillarious. The "pictorial reprsenation of the date" is terrible but it is clearly designed to show that Obama wants to give you lots of money and McCain wants to give you almost nothing in comparison.

In the words of Somerby: the chimps are now flinging poo for our side.


MTP Was Better on the Economy. n/t (none / 0) (#7)
by santarita on Sun Oct 12, 2008 at 10:45:50 AM EST

Two great studies (5.00 / 2) (#13)
by Stellaaa on Sun Oct 12, 2008 at 11:04:46 AM EST

that show how GSEs not the problem.
1. UNDERSTANDING THE SECURITIZATION OF SUBPRIME MORTGAGE CREDIT†

2.The housing meltdown: Why did it happen in the United States?

No one is talking about this stuff cause no one wants to read this stuff.

I have one more on how CRA is not to blame.


CRA studies (5.00 / 1) (#15)
by Stellaaa on Sun Oct 12, 2008 at 11:09:10 AM EST

This is a link of all the studies on CRA.
I don't see anyone reading this stuff, instead they repeat the RNC blather. Forget the MSM talking about this.


The Role of Fannie, Freddie and CRA has (none / 0) (#23)
by santarita on Sun Oct 12, 2008 at 11:34:20 AM EST

been discussed less thoroughly by several economists.

The Republicans using this as a political distraction. And the MSM is too lazy to counter the bs. But when was the last time they rose to a challenge?


Too lazy? (5.00 / 2) (#27)
by oldpro on Sun Oct 12, 2008 at 11:57:51 AM EST

Or ignorant?

Back to school for all of them and this time, Econ 101 will be required. And yes, we expect you to get a passing grade.


If They Can't Condense It Into 45 Seconds... (none / 0) (#34)
by santarita on Sun Oct 12, 2008 at 01:00:54 PM EST

they are in trouble.


: Sigh...probably right... (5.00 / 1) (#39)
by oldpro on Sun Oct 12, 2008 at 01:46:35 PM EST

but it will be the first question I ask from now on of every new candidate who aspires to office...city, county, state, school board, port, hospital district......"ever take a course in economics? If not, how do you plan to oversee the managers who will recommend budgets and spending of revenue to you and the other electeds?"
Yes. Experience matters. Knowing what outcome you want is only half the battle...the easy half. Knowing how to achieve it is the hard part, including how to form coalitions to make it politically possible.

I'll have to catch it (none / 0) (#16)
by Militarytracy on Sun Oct 12, 2008 at 11:10:49 AM EST

It airs more than once on Sunday doesn't it? It is usually so dry I don't have it on my Sunday diet plan.


simple scapegoats for simple people (5.00 / 3) (#3)
by white n az on Sun Oct 12, 2008 at 10:35:46 AM EST

It's a tried and proven tactic over the years.

It never needs to be accurate, just simple enough for simple minded people to latch onto because it is comforting to be able to summon up the cause of the problem in one sentence.

The American public by and large understand the Republicans have a large hand in this current crisis and that is why the economy is so toxic to the Republicans. This critical thinking won't last forever and by demonizing Fannie/Freddie, what is happening is the mantra for the future Republican blame game is being set.

Simple just like the reason to go to war in Iraq (none / 0) (#8)
by Saul on Sun Oct 12, 2008 at 10:49:09 AM EST

I've always said that the neoconservative had always wanted to do preemptive strike on Iraq, but knew they could not really sell it to the people. We never have offensively attacked any nation before Iraq. Then came 911 came like manna from heaven for the neoconservative. When 911 happen the American people were in a lynch mob mentality frenzy. Some one has to hang for this atrocity. Bush, Cheney and the neoconservative now had the perfect excuse to initiate their preemptive strike on Iraq. They took advantage of the frenzy of the American people who wanted immediate justice for 911. Why the resolution also passed was because it was a midterm election year and any Senator not voting for would be committing political suicide or at a minimum look unpatriotic. Plenty of the public bought any rationale to punish someone for 911.


As a NYC resident (5.00 / 2) (#10)
by themomcat on Sun Oct 12, 2008 at 10:53:58 AM EST

I will never forgive or forget how Bush and the neo-cons used fear to press their agenda. I will never forget or forgive the corporate controlled media for its complicity and failure in doing its job.


In defense of the citizens of the United States (5.00 / 1) (#26)
by Militarytracy on Sun Oct 12, 2008 at 11:42:51 AM EST

even with the bullspin out there I will never forget the protests before we actually went in. I didn't know where I fit into any of it. I was very confused as a soldier's wife and I didn't really believe the Bush administration yet my husband was about to risk his most precious possession....himself. I went and witnessed the protests in Colorado Springs but I can't say I was a true participant. I had to go see for myself though. They were huge and they were serious and people blocked traffic on Academy which is a main artery and people were tear gassed and arrested. I will always remember those who did everything they could imagine reasonable to display their displeasure and nonsupport. I'm proud to say my husband also serves them.


No one was protesting the miliary IMO (none / 0) (#33)
by Saul on Sun Oct 12, 2008 at 12:53:21 PM EST

Our soldiers must do what they are ordered to do with some exceptions and they have done all that was expected of them in Iraq. The public protest was so your husband or no other military person should have to go war at all. The protest was we do not any of our troops to get in harms way period. The Iraq war was an unnecessary war. Look how we have handle Korea. Just today Bush is taking them off the terrorist list. No shooting was used just diplomacy. Syria was done in the same way. Iraq could have been handled in the same way IMO and in the opinion of many experts. History has shown now that those that protested early were right.


: If you took my post to mean that anyone (5.00 / 1) (#40)
by Militarytracy on Sun Oct 12, 2008 at 01:48:15 PM EST

was protesting the military you misread my post. I have always been treated with respect as a military family member until I ran into some Code Pink in the past. And I can stand up for myself just fine. My aura took a couple of scrapes and bruises but I healed, no permanent damage :) My husband has always been treated with respect unless he was in the presence of radicals. By nonsupportive I meant nonsupportive of the adminstrations decision to go into Iraq and I reclaim that Rovian buzzword and place it back into common usage not dedicated to describing unpatriotic peaceniks while I am grateful to those who expressed their nonsupport of war mongering decisions early and with vigor. I am as grateful for their participation in our democratic process as much as I am grateful for the participation of our all volunteer military when it is needed. Now if only we had been able to convince our Democratic leadership to be a little less supportive with funding war efforts, we may already be entering a time of troop draw downs. It always bothers me when some say that Americans were easily led when I know for a fact that only about half were easily led.......the rest were not and have remained not easily led on the Iraq bull.

This is why the press needs to begin (none / 0) (#14)
by Militarytracy on Sun Oct 12, 2008 at 11:08:19 AM EST

reporting on this, so that the truth can become less complicated one small revelation at a time.


Work with me...or Am I deluded? (5.00 / 1) (#12)
by Stellaaa on Sun Oct 12, 2008 at 10:59:47 AM EST

The MSM is bored with the economic crisis. The economic crisis is a sure win for the Dems. The McCain people manufacture the outrage at the events to capture the headlines and move the discussion back to the trivial narrative. The left bloggers are falling for it, cause frankly, they prefer the gossip, outrage and hate. It's easy and they did it for so long and the economy confuses them.

From now till the election it has to be focused on the economy.
It has to be focused on how the Repubilcans caused it. All this other stuff is pure, pure Rovian distraction tactics that unfortunately worked in the past. What is surprising is that he voters are not buying it this time.

The economy confuses left bloggers (none / 0) (#18)
by Militarytracy on Sun Oct 12, 2008 at 11:17:40 AM EST

and heck, it confuses some economists right now. We have severe problems in several sectors, all seemingly due to deregulation, but it is difficult to predict the outcomes of certain fixes. Fixing things for the people though will always be a win and people are the only ones who feel hunger, cold, and pain. A corporation will never feel these things, it is not a living entity.


That's why the Fannie lies (none / 0) (#21)
by jar137 on Sun Oct 12, 2008 at 11:30:19 AM EST

will likely gain traction. It allows the MSM to talk about the economy through a trivil narrative. Notice that the only groups who have been singled out are poor people who wanted homes and Fannie/Freddie.


: they always omit a couple of steps in the (none / 0) (#46)
by Christy1947 on Sun Oct 12, 2008 at 09:51:17 PM EST

narrative, including a DC policy decision in about 2003 that they wanted Fannie and Freddie to have a smaller position in the mortgages so there would be more room for the free market to profit from the market in them , and the related rise in the use of subprimes for sale to the free market when Freddie and Fanny refused to buy them, and pressure on Fannie and Freddie who thereupon lost market share, to buy the lemons or die, made by the originators like Countrywide (A long article in the nyt about a week ago on it) and then in 2006 another decision also from DC that now that the situation was going to hell, Fannie and Freddie had to buy the mortgage backed securities which were going bad, to get them off the investment banks' and other free market types' balance sheets, done as if Fannie and Freddie were simply checkbooks they controlled and would use as they saw fit. Which of course stunk up Fannie and Freddie's balance sheets. Purely political positions taken by the GOP. that's never in the GOP narrative somehow, any more than the fact that CRA loans perform properly in the same percentages as non CRA loans and were generally profitable for their makers.

We can always hope, since hope is cheap (5.00 / 1) (#19)
by lambert on Sun Oct 12, 2008 at 11:26:50 AM EST

HuffPo:

As 250 major donors ate beet salad and mahi-mahi under a huge tent, Obama seemed to look ahead to his first term as president.
"We're going to have to make some priorities, we're going to have to cut some things out," he said, referring to expensive goals such as improving health care, schools and college affordability.
"I'm going to be in some fights with my own Democratic Party in getting some of that done," he said.

Nice of Obama to call the Democratic Party "my party," though. I appreciate that.

t how (5.00 / 2) (#22)
by jar137 on Sun Oct 12, 2008 at 11:34:02 AM EST

is about to jump from the DLC kettle into the "New" Democrat fire. I worry about the future of the party. We need to return to FDR politics, not run away from it. Look at how they have already resurrected the canard that Social Security is in crisis and will need to be fixed. Anything that actually provides some security to the general populace is a danger to the nation's stability. Outrageous!


: Should read (none / 0) (#24)
by jar137 on Sun Oct 12, 2008 at 11:34:47 AM EST

The party is about to...

It's Christmas in October lambert :) (none / 0) (#20)
by Militarytracy on Sun Oct 12, 2008 at 11:29:57 AM EST

Here is what the right is saying. (none / 0) (#1)
by Saul on Sun Oct 12, 2008 at 10:23:42 AM EST

Obama is at the fountain head of the collapse. His association with Ayers and ACORN is at the root of how the extension of the bad credit situation all got started. This was not something that happened just 30 years ago as Obama states, but most recent up to 2002 with Obama on the board with Ayers. As a community organizer, Obama was training leaders for ACORN and was one of their legal minds. ACORN wanted banks to give out more housing loans to people who did not really qualified for them. ACORN was successful in pressuring the banks to get them to do this. ACORN also was successful in pressuring Fannie Mae and Freddie Mac to start this subprime mortgage. Long story short. ACORN with the help of Obama was directly responsible for starting this subprime loan fiasco. They also say that the Clinton administration supported this program which was controlled at that time by Henry Cisneros.

Profit is the #1 motivator. (5.00 / 1) (#4)
by Fabian on Sun Oct 12, 2008 at 10:37:22 AM EST

If there was no profit to be made, there would have been no surge of subprime, predatory lending no matter what Clinton, Obama or ACORN said or did.

It all comes back to rebranding high risk loans as safe investments. Once they did that, they could sell them...for a profit. Once they figured out how to turn a profit on them, demand increased.

But it doesn't fit the small government & deregulation are good narratives. It couldn't be greed and lack of government oversight, could it? Unfettered capitalism? Naw, it has to be the VLWC.


You Are Right, Of Course But ... (none / 0) (#9)
by santarita on Sun Oct 12, 2008 at 10:50:38 AM EST

think about all of those mutual funds that relied on the high yield on some of these sub-prime mortgage backed securities in order to jack up their mutual fund prices and yields. High rewards and high risks go hand in hand. But high risks mean that sometimes that you lose. Mutual Funds "r" us.


High risk instruments (5.00 / 2) (#17)
by Fabian on Sun Oct 12, 2008 at 11:16:42 AM EST

used to be obvious and investors knew what they were getting into. High risks balanced by potentially high rewards.

Used to be.


My point was more that when we... (none / 0) (#25)
by santarita on Sun Oct 12, 2008 at 11:39:00 AM EST

talk about greed on Wall Street, it is important to remember that Main St was benefitting also via mutual funds.

Certainly the rating agencies bear some blame here because they rated these securities high enough so that mutual funds could buy them consistent with their fund purposes.


Yes, but ... (5.00 / 3) (#30)
by robrecht on Sun Oct 12, 2008 at 12:18:28 PM EST

Don't forget the SEC is supposed to oversee the rating agencies, but they couldn't be bothered since Bush said they were overreaching their authority and appointed Cox to "oversee" the pullback in oversight.


Another bothersome fact (none / 0) (#32)
by Militarytracy on Sun Oct 12, 2008 at 12:22:10 PM EST

that left anyone shirtless and shortless if they thought they were making low risk investments!


I Don't Think that the SEC Has Oversight (none / 0) (#35)
by santarita on Sun Oct 12, 2008 at 01:06:31 PM EST

Authority over the credit rating agencies. It did have authority, I think, to dictate how its regulated institutions made use of the credit rating agencies.

And, of course, a diligent SEC could always have proposed legislation to Congress to give it authority over the credit rating agencies.

The SEC failed miserably in its mission.


Guess again (5.00 / 1) (#37)
by robrecht on Sun Oct 12, 2008 at 01:15:10 PM EST

: You're right. n/t (5.00 / 1) (#43)
by santarita on Sun Oct 12, 2008 at 02:16:44 PM EST

SEC didn't do the oversight, went from (none / 0) (#47)
by Christy1947 on Sun Oct 12, 2008 at 09:54:14 PM EST

statutorily required mandatory oversight to voluntary self-policing and self-review. Yeah, right.


Due to CDS though (5.00 / 2) (#31)
by Militarytracy on Sun Oct 12, 2008 at 12:18:58 PM EST

and the new engineers on Wall Street now "structuring markets", high risk was sold by once very reputable houses as low risk based on mathematical computations that ummm don't seem correct when you factor in the real world. This is not Main Streets fault in my opinion unless you ask my grandfather who would say that if something seems too good to be true it probably is. If you happened to point that out to anyone though they just laughed in your face.


Not So Much A Judgment... (none / 0) (#36)
by santarita on Sun Oct 12, 2008 at 01:11:22 PM EST

It's just when one talks about Wall Street greed, one also needs to think about what was motivating some of the mutual fund managers - finding ways of obtaining high returns for their investors.

I guess I don't really think ascribing the meltdown to Wall Street greed is just too easy and not entirely fair.


So demand or need creates fraud? (5.00 / 1) (#38)
by Militarytracy on Sun Oct 12, 2008 at 01:29:43 PM EST

That's a brand new excuse. Sorry, I find myself needing to throw down the BS flag.


Sadly, fraud is a part of the problem, but again.. (none / 0) (#41)
by santarita on Sun Oct 12, 2008 at 02:02:16 PM EST

not the only part. Certainly there was fraud in some of the mortgage loans, maybe even a significant amount of the subprime loans. And there was fraud in the packaging and selling of some of these loans. But fraud is not necessarily the most significant factor.
The mortgage backed securities were set up based on computer models based on a set of assumptions. Those assumptions were wrong. And the credit rating agencies should have given those securities junk status but they didn't.

I just don't think it's productive to focus just on fraud and greed. Those are elements of human nature and will be around as long as we are. There was a fantasy or folly that many people who we think should have known better shared. That also is part of human nature. The overall problem is that all of the systems that were designed to put a check on greed, fraud, and the potential for shared folly failed.


: I don't think Fraud is a part of human nature (none / 0) (#44)
by Militarytracy on Sun Oct 12, 2008 at 02:21:50 PM EST

since most of us know when we are committing it and it tends to bother us. We have to override that little voice speaking to us called our conscience in order to commit it. Perhaps it was a part of Ted Bundy's nature but he wasn't a functional being. I think greed surpasses incentive (which is a part of human nature) and many very insecure people attempt to hide behind materialism so perhaps greed is a part of a disfunctional human nature but it isn't a functional human nature since it is so destructive to society.

greedy people will invent credit default swaps (none / 0) (#48)
by Christy1947 on Sun Oct 12, 2008 at 09:56:17 PM EST

as unregulated securities to play small margin profit games on AAA bonds, and get terrible surprises when they've done Sixty Five Trillion in cds deals and then discover the AAA isn't and they are actually at risk. Daddy Paulsen was supposed to fix this, before he got into putting capital directly into banks.


Makes since to me (none / 0) (#5)
by D Jessup on Sun Oct 12, 2008 at 10:42:43 AM EST

If it was't for Clinton, there never would have been terrorism and greed. ACORN contols this country and has been a major political factor for the last 40 years. Obama is not only Acorns leader but their messiah. It is well known that they turn out the poor in elections. If poor people would just not get sick and want to live in houses this country would be #1 again.

It's All They Got At This Point... (none / 0) (#6)
by santarita on Sun Oct 12, 2008 at 10:44:17 AM EST

There isn't one cause for this meltdown. Actually Paul Gigot just said that the same thing on MTP, to his credit.

After the immediate crisis is over (as well as the elections), the new President and Congress will have to make some fundamental decisions about Fannie and Freddie, like whether or not a GSE should be a for profit enterprise. Or at least one that issues dividends to its public investors.

I still think I'd assign culpability 80% Republican - 20% Democrat.

: I would make it closer to 60/40. (none / 0) (#42)
by Manuel on Sun Oct 12, 2008 at 02:07:39 PM EST

The Democrats have not been able to get out from under the tax and spend fiscally irresponsible label. That has caused them to act as enablers of the excesses that took place.

Mortgage Brokers and the Financial Crisis (none / 0) (#11)
by threepugs8129 on Sun Oct 12, 2008 at 10:58:02 AM EST

Blame can sometimes be laid on the wrong people. In 2002, our home and office were invaded by FBI Special Agent Michael Rawlins because my husband was a Mortgage Broker. When the FBI took our files for 2 weeks and found nothing, they were frustrated and proceeded to frame my husband anyway. Chief Judge Alicemarie H. Stotler of Santa Ana, California committed Jury Tampering resulting in the False Imprisonment of my husband. We now have a financial crisis in our family - all because my husband was a Mortgage Broker. Be careful how people are labeled - the label might be wrong.
Ninth Circuit Appellate Case Nos. 06-50580 & 08-50143 - U.S.A. v. Bennett.

CRA (none / 0) (#29)
by foolonthehill894 on Sun Oct 12, 2008 at 12:06:36 PM EST

Which part of the CRA being voluntary is giving the gops problems?

Herring don't come any redder than this.

: CRA is not voluntary. but it only applies to (none / 0) (#49)
by Christy1947 on Sun Oct 12, 2008 at 09:59:36 PM EST

depository banks, and did not require changes in credit standards or the forms of loans. It was principally an equal opportunity and anti-redlining statute, whose task was to make sre that a depository bank served all parts of its service area competently.

It's important to realize that (none / 0) (#45)
by flyerhawk on Sun Oct 12, 2008 at 04:33:53 PM EST

Republicans NEED to blame the government and, ideally, people not like them for the current woes.

It is the only way they can continue to perpetuate the fantasy that the free market is perfect and will solve all of our problems if the government would simply let them.

i would vigorously disagree (none / 0) (#50)
by cpinva on Mon Oct 13, 2008 at 01:07:34 AM EST

with these assertions:

It's just when one talks about Wall Street greed, one also needs to think about what was motivating some of the mutual fund managers - finding ways of obtaining high returns for their investors.
I guess I don't really think ascribing the meltdown to Wall Street greed is just too easy and not entirely fair.

greed was the predominant motivator. that none of the institutions involved in selling these sliced and diced debt equities was at all regulated by the SEC was merely the icing on the cake.

add to this the non-regulated risk rating agencies collusion with the brokers and originators, and a situation ripe for fraud blooms forth. while everyone was making money on it, everyone was happy. it was only after the house of cards, built on a foundation of shifting sand, collapsed, that suddenly everyone went "oh my, how could this have been allowed to happen?"

as for the sh's, the only ones company mgmt. cared about were those holding a 5% or greater ownership stake, the rest could go suck eggs, as far as they were concerned.

BTD, bear in mind, facts have long since ceased to matter, for the republican party and their ennablers in the right-wingnut media. they are simply making a time honored appeal to the perceived racism of their education challenged, white, blue-collar base: the crash is all the fault of that black family down the street getting a mortgage.

the republicans know better (well, except maybe for sen. mccain, gov. palin and pres. bush), so do their media whores (except probably for sean hannity, just a really stupid person, period), but they know "joe six-pack" hasn't got the slightest clue, aside from what rush, hannity, savage, coulter, et al tell them to believe.

nothing you, i, obama or krugman say is going to change what they "know" to be true.