Tuesday, March 29, 2011

How Freddie and Fannie did What they Did.

A must read on Fannie Mae and Freddie Mac. It explains how Fannie and Freddie got so big by publicly denying they were backed by the government but privately saying something else.  Even good old Barney Frank, who now wants to be rid of Fannie and Freddie, said there was no government backing for the quasi-private companies.

“There is no guarantee. There’s no explicit guarantee. There’s no implicit guarantee.  There’s no wink-and-nod guarantee. Invest and you’re on your own. Nobody who invest in them (Fannie and Freddie) should come looking to me for a nickel. Nor anyone else in the Federal government.” (Source: NPR)

Of course we now know that Frank was talking out both sides of his mouth.  Good grief, Frank was romantically involved with a one time leader of Fannie. I don’t think anyone believes that there wasn’t so sort of pillow talk at one point of another.  This is the same Barney Frank that told President Bush to go away when Bush suggested we get out of the business of supporting Fannie and Freddie.  So far, the feds have given Fannie and Freddie over $100B dollars and it will probably be more before it is all said and done.

I must give kudos where they are deserved. NPR is the news organization that put this three piece story together. Yes, the same NPR that is the government funded mouth-piece for all things progressive.

The collapse of the housing market is the direct contributor to our current economic woes. As goes the housing market (sales and building), so goes our economy. Over our history, especially in the last 100 years, giant booms have been followed by giant collapses. The Great Depression was caused by too much wealth not back by enough cash. The “Dot Com” boom of the Clinton era was caused by too much money being thrown at nothing. And our latest economic troubles were caused by loaning money to people who should not given loans, and having those nearly worthless securities sold as being back by the government. I think that if the housing market had been left to its own devices, we still would have had a good economic period, but it would have slow and steady. Any collapse would have been much gentler and we most likely would already be done with it. Most certainly, there would not be the huge foreclosure problem that continues to be an anchor on any possible recovery.

Frank and his colleagues in Congress deserve the blame for us being on the hook to back these securities that Fannie and Freddie leadership repeatedly said the taxpayer would not have to guarantee. President Bush also shares some of the blame for not sticking to his guns and forcing Congress to step away from Fannie and Freddie. I know that hindsight is 20/20 and in reality no one could predict the scope of our current economic troubles. But someone, somewhere had to have said to Bush it is not a good idea for us to be in the mortgage business, especially the sub-prime business. Hopefully, we have learned our lesson, but I don’t think I will hold my breath.

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