Tuesday, November 22, 2011

More on Freddie and Fannie

Another good summary of the arguments against AEI on this point. A couple of interesting tidbits.

1-Peter Wallison of AEI prior to the mortgage crisis criticized Fannie and Freddie because they served to retard the issuance of mortgages to sub prime borrowers. He's now the lead proponent of the theory that their excessive lending to sub prime borrowers is the problem.

2-Wallison's colleague at AEI, Ed Pinto, played 3 card monte in an effort to place the blame with Fannie and Freddie by saying that Fannie and Freddie had tons of sub prime AND OTHER HIGH RISK MORTGAGES and when you group all together it was a huge number. These so called other high risk mortgages had a default rate that was very close to the national average and much lower than the default rate of sub prime. By grouping them together though you are given the illusion that Fannie and Freddie had a lot of sub prime.

3-Wallison was appointed to the Financial Crisis Inquiry Commission and he presented these arguments. They were regarded as so outlandish by even the Republican members of the FCIC that these Republicans were asking each other if Wallison was on the take (which he is in a sense). We have their emails in which they wonder about this. The Republicans did have their own dissents from the FCIC findings but they would not join Wallison in his dissent and instead wrote their own dissent separately so as to be in no way associated with him.


HispanicPundit said...

I dont think they CAUSED the financial crisis, but they certainly exacerbated it.

Jon said...

I agree to some extent. Fannie and Freddie are private profit driven companies traded on the stock exchange and paying out bonuses to CEO's like the others. But they also had some government backing and with it they had a little more government regulation.

When a company can issue a loan guaranteed by the federal government and that company is also traded on the stock exchange, yes, you can have abuse. There's issues to deal with there. But on the other hand because they had that government backing they also had oversight. They were subject to the Office of the Federal Housing Enterprise Oversight.

The net effect was that the loans they issued had a default rate about on fourth or one fifth of that of unregulated profit seeking banks. The right wingers tell one side of the story. They were backed by the government, so this caused abuse. Well, it did, but that's not the story of the financial crisis. Some abuse. Some regulation. The net effect was less of a problem then the unregulated firms.

Right wingers want to make the moral of the 2008 crisis to be we should have no government oversight. That's the cause of the problem. Nonsense. You have to be a paid stooge at AEI to reach that conclusion. Every independent body not bought and paid for by the financial industry can see the truth.