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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Fannie Mae and Freddie Mac
August 6, 2013 at 10:32 AM

Obama’s mortgage shuffle

President Obama will travel to Phoenix this afternoon to give a speech on home ownership, mortgages and the role of Fannie Mae and Freddie Mac. The White House hasn’t released a text of the speech yet, although we do have this fact sheet. My initial response is that this is as tone deaf as the president using an Amazon.com distribution center as the embodiment of “middle-class jobs” (although, as the Seattle Times’ Brier Dudley wrote, this may not have been a coincidence). The last thing Phoenix needs is a presidential boost to its pathological and unsustainable dependency on sprawl house-building, which sent the metro economy into a full-out depression when the bubble burst and faces an uncertain future because of climate change and water. The president could bring this huge but limited city a national laboratory, a billion in research dollars for Arizona State University or a new contract for Boeing’s helicopter plant in suburban Mesa — one of the relatively few well-paying nodes in an otherwise low-wage, housing-dependent economy. But more housing? It’s like standing outside an AA hall and intercepting first-time meeting-goers with a case of booze.

There’s also the unfortunate specter of the president’s failure to help average Americans even as Wall Street was bailed out by taxpayers. The Home Affordable Modification Program was intended to help as many as 9 million struggling house owners modify the terms of their mortgages. But the program has reached about 880,000 people. One big problem has been foot-dragging by the banks.

As I read the new proposal, if that’s the right word, the president wants to continue Fannie and Freddie, at least for a time, but under a different business plan. And then make a transition to a mortgage market based entirely on private capital.

We need a rock-solid foundation for financing homeownership with a bigger role for the private sector, where taxpayers aren’t on the hook for the irresponsible behavior or bad decisions of financial institutions and we finally put an end to an era where Fannie Mae and Freddie Mac could expect a bailout for risky behavior in pursuit of profits

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Comments | More in Fannie Mae and Freddie Mac, Housing | Topics: Fannie Mae, Housing

March 27, 2012 at 11:20 AM

Professor Bernanke leaves a few holes in his lecture

Federal Reserve Chairman Ben Bernanke gave his third lecture on the functioning of the central bank today, this time focusing on the great panic of 2008 and the measures taken to avoid another great depression. If you’ve watched, you see Bernanke is very comfortable in the classroom (perhaps wishes he were back there), but today his voice was a little shakier. And no wonder. This was the worst financial crisis of our lifetimes (we hope) and the Fed’s actions, often frantic improvisation, were highly controversial.

He offered a fine layman’s survey. A walk down nightmare memory lane: Bear Stearns, Lehman Brothers, AIG, Washington Mutual. Too much private debt, banks’ inability to monitor risks, exotic instruments such as credit-default swaps. Poor regulatory oversight, “not enough attention to forcing banks to manage risks,” not enough attention paid by regulators to the financial system as a whole. Fannie Mae and Freddie Mac permitted to operate without adequate capital to cover losses, a danger known for a decade. The freeze-up of short-term credit, a modern bank run. When money market funds “broke the buck.” And AIG, which provided credit insurance for Wall Street’s mortgage-backed-securities house of cards. Said Bernanke, “The Failure of AIG would have been the end. We would not be able to control the crisis.”

But they did and we avoided the worst. I’ve heard from very intelligent readers who argue the mess should have been allowed to collapse. Maybe they’re right. But the results would have hurt average folks and the poor far worse than the bankers. Bernanke, our foremost scholar of the Great Depression, got it halfway right. (You can download the slideshow that accompanied the talk here.)

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December 28, 2011 at 10:05 AM

Looking back: Fannie and Freddie frauds

Continuing the look at events readers say will have consequences beyond 2011. Ann Crickmer of Seattle writes, “Finally making available the “trail of evidence” that charges that Fan and Fred were ‘at the heart of the housing bubble.’ In an effort to meet HUD MANDATES to serve “credit-impaired” borrowers they degraded their underwriting standards. The WSJ review of the SEC investigation notes ‘Expanded Approval’ of very high-risk loans and that they hid this risk from investors. I keep asking who was head of HUD to impose this mandate, and which congressmen sheparded it through Congress. Please. Before the next election we need to know.”

The problem is that Fannie Mae and Freddie Mac didn’t cause the bubble or the financial collapse. Joe Nocera of the New York Times performs a good takedown of this Big Lie. The Atlantic’s David Min provides further facts.

The housing bubble and financial collapse were cooked up on Wall Street, greased by easy Fed money, outlandish profits and deregulation of the banking industry. As I’ve written before, Fannie and Freddie were late to the subprime game and got into it because they were losing profits and market share to the likes of Countrywide and Washington Mutual. It might be a pleasing morality play to imagine this calamity was brought on by poor people, mostly minorities, getting mortgages they didn’t deserve. But it just isn’t so.

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