What part of Fannie Mae and Freddie Mac don't you understand?
Some people are pretty incredulous at the causality cited in this chart. This I find very amusing. What part of it do you deny? That these things happened, or that they had any effect on the market?
Heavy lobbying by Fannie Mae and Freddie Mac congress critters and power-lusting bureaucrats:
( Video link.)
More on what's happening to our ( Read more... )
Heavy lobbying by Fannie Mae and Freddie Mac congress critters and power-lusting bureaucrats:
( Video link.)
More on what's happening to our ( Read more... )
I don't know if you're a different anonymous than I was just talking to, but as I said to them, my understanding is that those laws did wait until the 90s to get beefed up and put into play in an active campaign of prosecutions of lenders not playing fast and loose as told.
The sub-prime mortgages were the goal, the mortgage market in general was affected by the political activity set in motion to get these greedy bankers to make these loans.
It doesn't take many regulations "alone" to seriously warp incentives in the market; and once incentives are warped, the size of the resulting problem is only a matter of how long those making the illicit gains in power and money are able to hold off the accountability for their Enron-like Ponzi schemes that is being increasingly demanded by the few watchdog types in Congress.
It's so handy to have the "greedy" free market to blame - a little too handy, when that is the default assumption, unpopular to question too closely, in a thoroughly mixed economy.
I could always put up, as a refresher, how amply demonstrated it is that economic freedom highly correlates with economic efficiency and the best possible conditions for a market to grow. That should suggest the first places to look when things go awry.
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Do you believe this quote, for example, is an example of said persecution?
"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. . . . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . .
Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand and beneficial to consumers."--Alan Greenspan, 4/8/2005
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By persecution I mean that they applied the law. It's just more forced wealth redistribution, only in a particularly malignant form for the market this time.
Good quotes. If lenders have found a way to assess the risk for, as Greenspan puts it, more-marginal applicants, then good for everybody. If they are forced to go beyond that and give loans that are bad for business, and the risk is constantly passed up to supposed miracle-workers Fannie and Freddie, well, bad for everybody.
I'm sorry I dropped the ball, but I missed this comment somehow.
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# More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
# Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
# Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication....During those same explosive three years, private investment banks - not Fannie and Freddie - dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.
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At any rate, that's interesting, that Fannie and Freddie's share of dangerous loans sank after 2004. Unfortunately, they and their advocates had already set the ball rolling, and created the lucrative market for these loans which would have been duds under laissez faire capitalism. (That Fannie and Freddie ever lost a single political battle and were subjected to some oversight is politically quite impressive.)
Now I want to ask you a question: Do you believe that the CRA, Fannie, and Freddie did not play a key role in causing the current situation?
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