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The Anti-Socialist Wealth Redistributors
George Will on Sunday furthered his valuable recent service to the nation by giving Republicans the kind of intellectual shock therapy they'll need if they are to learn anything both useful and objectively pro-freedom from their electoral drubbing earlier this month:
Conservatism's current intellectual chaos reverberated in the Republican ticket's end-of-campaign crescendo of surreal warnings that big government -- verily, "socialism" -- would impend were Democrats elected. John McCain and Sarah Palin experienced this epiphany when Barack Obama told a Toledo plumber that he would "spread the wealth around."
America can't have that, exclaimed the Republican ticket while Republicans -- whose prescription drug entitlement is the largest expansion of the welfare state since President Lyndon Johnson's Great Society gave birth to Medicare in 1965; and a majority of whom in Congress supported a lavish farm bill at a time of record profits for the less than 2 percent of the American people-cum-corporations who farm -- and their administration were partially nationalizing the banking system, putting Detroit on the dole and looking around to see if some bit of what is smilingly called "the private sector" has been inadvertently left off the ever-expanding list of entities eligible for a bailout from the $1 trillion or so that is to be "spread around." […]
Hyperbole is not harmless; careless language bewitches the speaker's intelligence. And falsely shouting "socialism!" in a crowded theater such as Washington causes an epidemic of yawning.
Whole thing, well worth a Monday morning read, here.
Russ 2000|11.17.08 @ 11:08AM|#
Good column except for this bizarre line: This is partly because
Americans are an aspirational, not an envious, people.
An almost Mencken-like column of truthiness until that.
|11.17.08 @ 11:11AM|#
screw the post with their logins required-ment!
nuts to them, when will they learn?
|11.17.08 @ 11:15AM|#
Good column except for this bizarre line: This is partly
because Americans are an aspirational, not an envious,
people.
That line got me too. Are we supposed to read that with a straight
face?
screw the post with their logins required-ment!
Bugmenot is your friend.
robc|11.17.08 @ 11:22AM|#
The bizarre line to me was the reference to "false cried of
Socialism!"
There was nothing false about the cries. Hypocritical, sure, but
not false. Our choice was socialism, socialism, or "wasting our
vote".
And, befire lmnop questions it - Yes, it is socialism.
|11.17.08 @ 11:22AM|#
And falsely shouting "socialism!" in a crowded theater such
as Washington causes an epidemic of yawning.
What do you mean "falsely". Isn't the point that they aren't any
more socialist than the Republicans but without the hardon for
bombs and gay hate.
His list should include NCLB nationalizing education, and a couple
of increasing nationalized Transportation bills.
shrike|11.17.08 @ 11:24AM|#
The Pharma Welfare Act was for me - strike three for the GOP and
like Hannibal did for Rome --- I swore eternal hatred.
Meanwhile-- Good guy libertarian Mark Cuban has just been charged
with insider trading by the SEC.
Those damned pesky regulations!
|11.17.08 @ 11:27AM|#
Whether you go for socialism-as-central-planning or socialism-as-state ownership-of-the-means-of-production, is there any doubt that the US is pointed in that direction, and the accelerator pedal has been mashed to the floor?
|11.17.08 @ 11:28AM|#
The Republican campaign boiled down to a weird exercise in disjointed babbling, much like an attempt to guess the magic phrase which will roll the boulder away from the entrance to the treasure-filled cavern.
|11.17.08 @ 11:32AM|#
Meanwhile-- Good guy libertarian Mark Cuban has just been
charged with insider trading by the SEC.
This has nothing whatsoever to do with the fact that he is the
proprietor of "bailoutsleuth" and don't you forget it!
BakedPenguin|11.17.08 @ 11:33AM|#
...much like an attempt to guess the magic phrase which will
roll the boulder away from the entrance to the treasure-filled
cavern.
Speak comrade
and enter...
|11.17.08 @ 11:36AM|#
Whether you go for socialism-as-central-planning or
socialism-as-state ownership-of-the-means-of-production, is there
any doubt that the US is pointed in that direction, and the
accelerator pedal has been mashed to the floor?
QFT.
If Americans were truly not envious, I suspect that there would be
a different company's moving truck in front of 1600 Penn.
While not exactly on point, I especially liked today's Candorville.
|11.17.08 @ 11:37AM|#
Finally some talk about sugar quotas in this election! Aren't you glad they didn't nominate Ron Paul?
|11.17.08 @ 11:39AM|#
And falsely shouting "socialism!" in a crowded theater such
as Washington causes an epidemic of yawning.
Take this line in context -- Will's point is that the R brand of
"non-socialism" is suspiciously similar to the D brand of
"socialism". And that while neither is completely socialist, they
both advance closer to that ideology with recent steps such as the
bailout.
The "falsely" bit was a rhetorical device to jar the reader into
thinking about the cynicism and hypocrisy practiced by McCain and
Palin when crying "socialism."
Great article. Will appears to be leaning closer and closer to
libertarianism lately.
Matt Welch|11.17.08 @ 11:40AM|#
The Republican campaign boiled down to a weird exercise in
disjointed babbling, much like an attempt to guess the magic phrase
which will roll the boulder away from the entrance to the
treasure-filled cavern.
Thanks, I'll be using that.
Alan Vanneman|11.17.08 @ 11:42AM|#
If George Bush had taken a principled stand against the tres
shitty Democratic farm bill in 2002 he would have lost the farm
states in the election.
If he had not pushed his own tres shitty prescription drug program
he quite possibly have lost the 2004 election. And where, O where
is the capitalist who doesn't demand a handout when the going gets
rough?
"Creeping socialism," as the old-style Republicans used to call it,
is what the American people, and the American businessguy demands.
We do live in a democracy, and it's not surprising that "the
people" get what they want.
Don the libertarian Democrat|11.17.08 @ 11:49AM|#
"Hyperbole is not harmless; careless language bewitches the
speaker's intelligence. And falsely shouting "socialism!" in a
crowded theater such as Washington causes an epidemic of
yawning."
That quote is so good I'm good to keep it posted on my blog. I sure
wish I would have said it. Maybe someday, a few years down the
road, I will.
|11.17.08 @ 11:54AM|#
Meanwhile-- Good guy libertarian Mark Cuban has just been
charged with insider trading by the SEC.
Good guy "libertarian" Mark Cuban's Dallas Mavericks play their
home games in an arena that was
partially funded by taxes.
Description: By 1998, the Dallas Mavericks and Dallas Stars were indicating their desire for a new facility to replace obsolete Reunion Arena. Dallas taxpayers approved a new hotel tax and rental car tax to pay for a new facility to cover a portion of the funding, with the two teams, the Mavericks and the Stars picking up the remaining costs, including cost overruns.
Not that I doubt the SEC will try to fuck him using dubious
rationales. Just pointing out that Cuban's a rent seeker too.
robc|11.17.08 @ 12:02PM|#
J sub D,
It should be pointed out that Cuban didnt buy the Mavs until 2000,
so he bought into an already rent-seeking situation.
rhywun|11.17.08 @ 12:03PM|#
The bizarre line to me was "The difference is in degree [...]." I don't see any difference, except each party is slightly more likely to throw money at their base.
|11.17.08 @ 12:07PM|#
Will appears to be leaning closer and closer to
libertarianism lately.
Just because Hugh Grant likes tacky, black hookers doesn't mean
that he'll be bringing one home to meet momma anytime soon.
|11.17.08 @ 12:09PM|#
We do live in a democracy, and it's not surprising that "the
people" get what they want.
Too true. This is what happens, inevitably, when the Constitution
becomes a "living document" allowing the restriction to enumerated
powers to be disregarded by legislators and courts without going to
the bother of actually amending the thing.
Because if our national government was truly limited to the
enumerated powers, we wouldn't be handing out taxpayer cash to much
of anybody. No farm bills, no bailouts, none of that.
|11.17.08 @ 12:41PM|#
"Creeping socialism," as the old-style Republicans used to
call it, is what the American people, and the American businessguy
demands. We do live in a democracy, and it's not surprising that
"the people" get what they want.
Yup. The Reagan era was a backlash against excesses of the modern
liberal state, and it served its purpose. The number of people who
want to live in the Gilded Era is under 10%.
mike farmer|11.17.08 @ 12:43PM|#
Socialism will soon be referred to as the "S" word, not spoken in polite society.
|11.17.08 @ 12:46PM|#
It should be pointed out that Cuban didnt buy the Mavs until
2000, so he bought into an already rent-seeking
situation.
Then I humbly retract my criticism. He paid for what he received,
it was the previous owner(s) who dipped into the public purse.
|11.17.08 @ 1:19PM|#
The socialists at the Orange County Register shred the "blame
the poor for the mortgage meltdown" lie.
http://www.ocregister.com/articles/loans-subprime-banks-2228728-law-lenders
But...but...but...the Wall Street Journal editorial page said it
was all Barney Frank's fault!
|11.17.08 @ 1:44PM|#
I don't blame the poor; I blame those who falsely claim to speak for the poor. And to know what's best for the poor. Homeownership is a divine right!
|11.17.08 @ 2:00PM|#
...and however you want to phrase it, the evidence proves
otherwise.
Freddie and Fannie did not lead in the purchase of subprime loans,
or the securitization of them. They tried to keep up with the
private sector, as shareholders demanded performance similar to the
mortgage companies.
Freddie and Fannie did not push or entice the mortgage lenders to
make riskier loans; in fact, they were subjec to stricter
requirements in the loans they could purchase than the
private-sector secondary mortgage market.
Which is probably why they bought a whopping three (3) percent of
subprime loans sold on the secondary market between 2004 and 2007,
with the rest purchases by the private sector.
Freddie and Fannie got sucked up into a system-wide failure to
correctly price risk. They were followers in a system led by the
private sector, who succumbed to the same failures as their
private-sector brethren.
There is no zero zip nada connection between efforts to make home
loans more available to the poor and the mortgage meltdown. None.
This was a problemcaused by mortgages and refis on loans on big
houses in the suburbs. To the limited extent in which Freddie and
Fannie were implicated in that problem, they were acting to bolster
their profitability, not expand homeownership for the poor.
|11.17.08 @ 2:42PM|#
joe, You have your facts wrong.
http://online.wsj.com/article/SB122212948811465427.html
They became the largest buyers of subprime and Alt-A mortgages
between 2004 and 2007, with total GSE exposure eventually exceeding
$1 trillion.
Your 3% figure is flat out false.
the innominate one|11.17.08 @ 2:50PM|#
epistemological query: how do you know the WSJ's figures aren't the false ones?
|11.17.08 @ 2:55PM|#
Hazel,
Look carefully at the following statements, one from the OC
Register (not, as you say, "my figure") and one from the WSJ:
Which is probably why they bought a whopping three (3) percent
of subprime loans sold on the secondary market
between 2004 and 2007, with the rest purchases by the private
sector.
vs.
They became the largest buyers of subprime and
Alt-A mortgages between 2004 and 2007, with total GSE
exposure eventually exceeding $1 trillion.
Alt-A mortgages are significantly less risky than subprime
mortgages. Alt-A is the category immediately below "Prime."
Knowing that, what does it mean that Freddie and Fanne bought 3% of
subprime mortgages, but 70% of "subprime and Alt-A mortgages"
during those years, in terms of the risk-level of the loans bought
by Freddie and Fannie vs. the rest of the private sector?
|11.17.08 @ 3:03PM|#
Oh, so you're saying that Alt-A mortgages had nothing to do with
the crisis, only subprime mortgages count?
Here's another analysis from, of all places, The Villiage
Voice:
http://www.villagevoice.com/content/printVersion/541234
In 2000, Cuomo required a quantum leap in the number of
affordable, low-to-moderate-income loans that the two mortgage
banks-known collectively as Government Sponsored Enterprises-would
have to buy.
...
Cuomo's predecessor, Henry Cisneros, did that for the first time in
December 1995, taking a cautious approach and moving the GSEs
toward a requirement that 42 percent of their mortgages serve low-
and moderate-income families. Cuomo raised that number to 50
percent and dramatically hiked GSE mandates to buy mortgages in
underserved neighborhoods and for the "very-low-income."
...
After this initial uptick, the two banks purchased $434 billion in
securities backed by subprime loans between 2004 and 2006. The
Washington Post noted this June that the GSEs' aggressive
acquisitions "created a market for more such lending" by others,
feeding the fire.
....
That June Post story focused its critical reassessment of HUD's
affordable-housing goals on the department's 2004 decision-during
the Bush re-election campaign-to juice them up again, pushing the
target to 56 percent by 2007.
...
But raising the affordable-housing goals was only half the Cuomo
story.
The HUD secretary is also required to produce voluminous rules that
govern how the GSEs meet those goals, and the 187-page rules Cuomo
issued opened the door to abuse.
The rules explicitly rejected the idea of imposing any new
reporting requirements on the GSEs. In other words, HUD wanted
Fannie and Freddie to buy risky loans, but the department didn't
want to hear just how risky they were.
...
Justr read the whole article.
|11.17.08 @ 3:09PM|#
Here's a direct quote from the Washington Post:
In 2003, the two bought $81 billion in subprime securities. In
2004, they purchased $175 billion -- 44 percent of the market. In
2005, they bought $169 billion, or 33 percent. In 2006, they cut
back to $90 billion, or 20 percent. Generally, Freddie purchased
more than Fannie and relied more heavily on the securities to meet
goals.
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626_2.html
That's specifically subprime loans.
The 3% figure is false.
|11.17.08 @ 3:19PM|#
Oh, so you're saying that Alt-A mortgages had nothing to do
with the crisis, only subprime mortgages count?
No, Hazel, I'm saying what I actually wrote. Which is, once again,
that Freddie and Fannie were trading in LESS RISKY loans than the
entirely-private sector.
Alt-A loans were LESS RISKY than subprime loans. I'm not making any
argument that Alt-A loans "don't count," but that the
mortgage-buying of the GSE was LESS risky than that of their
counterparts, so it makes to sense to single them out, and ignore
the more-irresponsible actors, when discussing the causes of the
proliferation of risky loans.
|11.17.08 @ 3:25PM|#
Did they REALLY buy the less risky loans?
http://www.bloomberg.com/apps/news?pid=20601109&sid=a.6kKtOoO72k&refer=home
Fannie Mae of Washington and McLean, Virginia-based Freddie Mac
held $114 billion of subprime and $71 billion in Alt-A
securities as of June 30, according to the
companies. Subprime mortgages were given to people with poor credit
scores. Alt-A loans, which rank between subprime and prime, were
made to borrowers with better credit who provided no proof of
income, bought property for investment or took out so-called option
adjustable-rate mortgages.
`Big Players'
``We've heard a lot of people stand up and say, `Fannie and Freddie
really did not promulgate the problems; they weren't big
players,''' said Joshua Rosner, an analyst with Graham Fisher &
Co., an independent research firm in New York. ``Actually, they
were.''
So they have more dollars in subprime than Alt-A. Doesn't sound
like your facts are straight, joe.
|11.17.08 @ 3:26PM|#
That's specifically subprime loans.
No, it's not. The quote you provided was about SECURITIES, not
LOANS.
This is a complicated issue, Hazel, and it behooves people looking
into it to read carefully. There are a lot of distinctions that are
easy to skim over, but which matter a great deal.
The GSEs bought very few subprime LOANS. They bought SECURITIES,
because they and their regulators fell into the same trap as the
rest of the financial industry - they overestimated the degree to
which securitization of such loans was an effective way of managing
risk.
|11.17.08 @ 3:29PM|#
So they have more dollars in subprime than Alt-A. Doesn't
sound like your facts are straight, joe.
Now I have to explain to you what the term PERCENTAGE means?
Are you deliberately working to misunderstand the issues here,
Hazel, or does it come naturally?
You haven't disproven a single statement I've made, just fudged -
either deliberately or through error - some terminology. You can
knock off the end-zone dance.
|11.17.08 @ 3:33PM|#
What your latest quote demonstrates, Hazel, is that the subprime
market was a much larger segment of the overall mortgage market
than the Alt-A market.
So?
|11.17.08 @ 3:35PM|#
Did they REALLY buy the less risky loans?
Did I say they did?
Why, no. I wrote that they were a bit player in the most risky
loans, with the private sector owning more of them.
Not a statement about their internal books, but about their impact
on the larger mortgage market and economy.
|11.17.08 @ 3:36PM|#
No, joe, you're trying to confuse the issue. Fannie Mae and
Freddie Mac don't finance loans directly. Buying securities is
what they do.
Pulling a number like "they only own 3% of the subprime market" out
of your ass to try to claim they weren't big players, and then
defending it on terminology is disingenuous.
The fact is that Fannie Mae and Freddie Mac were huge players in
the mortgate market on all levels, subprime, Alt-A, securities,
EVERYTHING. You can't just take one tiny slice of the market and
then misrepresent it as the whole deal.
More data:
About 3 million U.S. borrowers have Alt-A mortgages totaling $1
trillion, compared with $855 billion of subprime loans outstanding,
according to Inside Mortgage Finance, a trade publication in
Bethesda, Maryland.
http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=arb3xM3SHBVk
Okay, so $114 billion out of $855 billion - thats about %12 percent
of the subprime market. And $71/$1 trillion is 7% of the Alt-A
market.
So Fannie Mae and reddie Mac STILL have a larger share of the
subprime market than the alt-A market.
Joe, your facts are wrong. Admit it.
Cubbie Nation|11.17.08 @ 3:39PM|#
Meanwhile-- Good guy libertarian Mark Cuban has just been
charged with insider trading by the SEC.
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!
Invisbile Finger|11.17.08 @ 3:46PM|#
Alt-A mortgages are significantly less risky than subprime
mortgages. Alt-A is the category immediately below
"Prime."
The category imemdiately below prime is "subprime" by definition.
Alt-A is a marketing bullshit euphemism for "B".
And so many loans lumped into Alt-A are Interest-Only loans with
payment options that could increase the prinicpal; those loans are
probably riskier than the typical subprime loans.
Paul|11.17.08 @ 3:46PM|#
But...but... republicans have been shrinking government. Progressives told me so.
|11.17.08 @ 3:48PM|#
More from the same article above ...
By 2005, the credit score required for an Alt-A loan fell as
low as 620, traditionally the definition of a subprime borrower,
said Steve Donlin, a former mortgage broker who's now vice
president of operations at Loan Safe Solutions Inc. in Corona,
California, which helps people negotiate changes to loans they
can't afford.
So many of the Alt-A mortgages held by Fannie Mae and Freddie Mac
should be classified subprime anyway.
Almost 16 percent of securitized Alt-A loans issued since
January 2006 are at least 60 days late, data compiled by Bloomberg
show.
Hence Alt-A classified mortgages are a significant factor in the
crisis.
So what are we arguing about? Technicalities? If that?
You guys are just on an agenda to twist the facts to shift the
blame away from Fannie and Freddie. Claiming they weren't big
players in the "let's sell stupid risky loans" mortgage market is
just a fucking lie.
|11.17.08 @ 4:00PM|#
Hazel,
Buying securities is what they do. Well, since they
managed to own 3% of the subprime mortgage market, that's clearly
not all that they do.
There's a common theme to all of your comments: none of them have
anything to do with what I wrote, except as an attempt to justify
yelling GOTCHA!!!! at me.
Pulling a number like "they only own 3% of the subprime market"
out of your ass... Actually, I didn't pull that figure from my
ass, but quoted from the OC Register. Which you don't seem to have
bothered to read before deciding it must be wrong.
and then defending it on terminology is disingenuous. I
haven't defended it on terminology, but on accuracy. Fannie and
Freddie owned 3% of subprime loans. That is a true statement. It
does not cease to be true because you misread the quote you
provided, and are now covering your posterior.
The fact is that Fannie Mae and Freddie Mac were huge players
in the mortgate market on all levels, subprime, Alt-A, securities,
EVERYTHING. They are large institutions, yes, but by looking
at the pattern of their activity and comparing it to the rest of
the industry, we can draw conclusions about where they were leading
the industry and where they were following it. If their exposure to
a certain type of debt was lower than that of the entirely-private
sector industries that were in the same business, then we can
conclude that they were not driving the industry in that direction.
If they moved into a certain area later than the rest of thte
industry, we can conclude that they were a follower, not a
leader.
About 3 million U.S. borrowers have Alt-A mortgages totaling $1
trillion, compared with $855 billion of subprime loans outstanding,
according to Inside Mortgage Finance, a trade publication in
Bethesda, Maryland.
Sigh, more sloppy reading. This quote is about the dollar value of
loand that are OUTSTANDINIG, while the figure from the OC Register
report is about the number of loans purchased. Once again, you need
to read closely, and not skim in the hope of being able to yell
GOTCHA at me.
Joe, your facts are wrong. Admit it. If you can
demonstrate any of my facts are wrong, I'll be happy to. So far,
all you've demonstrated is that your reading is as sloppy as your
thought.
|11.17.08 @ 4:02PM|#
Invisible Finger,
"Subprime" is not a catch-all term for everything below "Prime,"
but refers to a specific segment of the mortgage market. It is not
a category that includes "Alt-A," but a segment distinct from what
are called "Alt-A" loans.
|11.17.08 @ 4:07PM|#
Wow, Hazel, you're starting to swear a lot. Surely a sign that
the argument is going well for you, eh? Or should I say,
Alt-eh?
By 2005, the credit score required for an Alt-A loan fell as
low as 620, traditionally the definition of a subprime
borrower...Almost 16 percent of securitized Alt-A loans issued
since January 2006 are at least 60 days late, data compiled by
Bloomberg show.
These figures would only be meaningful in distinguishing between
the levels of risk in "Alt-A" and "subprime" loans if we had the
comparable figures for subprime loans.
I find it highly unlikely that, as credit scores for Alt-A loans
were plummeting, those for subprime loans were holding
steady.
So what are we arguing about? I don't know what you're
arguing about. I'm making the argument that the GSEs were, in the
aggregage, trading in less-risky loans compared to the
purely-private sector. You seem to be mainly arguing that the data
I provided was wrong, by presenting other data that you think
demonstrates that point, but only because you didn't understand
it.
|11.17.08 @ 4:26PM|#
You guys are just on an agenda to twist the facts to shift
the blame away from Fannie and Freddie.
Well, I do contain multitudes, but I'm most commonly spoken of in
the singular.
Look, that YOU have a passionately-felt agenda regarding Freddie
and Fannie, and that I make arguments which are inconvenient for
that agenda, does not add up to MY having some agenda about
them.
What I wrote was To the limited extent in which Freddie and
Fannie were implicated in that problem, they were acting to bolster
their profitability, not expand homeownership for the poor. I
can certainly agree that the GSEs engaged in overaly-risky
behavior, and that because of their size, they actions influenced
the broader mortgage market.
My point is that the leve of risk they furthered was in no way
unique - they followed the rest of the industry, which was acting
(in the aggregate, especially the other lending/non-deposit
institutions) in an even riskier manner;
and also that their acceptance of furtherance of this risk was not
driven by an agenda of providing loans to low-income people, but
like their entirely-private brethren, the profit motive. The
institutions who, collectively, owned more of the risky loans, and
more-risky loans, than the GSEs weren't knowingly exposing
themselves to risk in an effort to help the poor; they thought that
the housing market was going to continue to rise, and that the
mortgages and securities they bought were safer than they actually
were. So did the GSEs. So did the regulators. So did a lot of
people.
|11.17.08 @ 4:37PM|#
Well, since they managed to own 3% of the subprime mortgage
market, that's clearly not all that they do.
The 3% figure is false, as I've pointed out over and over, and just
from flat out math.
What you think the Orange County Register is some kind of
sacrosanct bastion of accuracy?
As opposed to the Washington Post, Bloomberg, and the Wall Street
Journal?
This quote is about the dollar value of loand that are
OUTSTANDINIG, while the figure from the OC Register report is about
the number of loans purchased.
I'm demonstrating that the alt-a merket is not smaller than the
subprime market, fool. As you alleged in attempting to defend the
3% figure.
And that Fannie and Freddie own larger slices of the subprime
market than the alt-A market (which is really questionable in
itself whether that's any different from subprimae anyway), which
calls into question your allegation that they attempted to purchase
less risky loans.
If you can demonstrate any of my facts are wrong, I'll be happy
to.
Do the math. $114 billion in subprime loans owned, divided by $885
billion in total subprime loans outstanding = they currently own
12% of the subprime market.
To the limited extent in which Freddie and Fannie were
implicated in that problem, they were acting to bolster their
profitability, not expand homeownership for the poor.
Which is flatly contradicted by the numerous statements I linked to
that Fannie and Freddie were repeatedly and directly pressured by
officials from HUD to Congress to the Whitehouse to provide more
loans to very low income borrowers.
Secondly, that that behavior created a market that other lenders
followed. After all, Fannie and Freddie would buy anything. You
could always sell your junk loan portfolio to them, so why NOT lend
money to everyone?
|11.17.08 @ 5:06PM|#
The 3% figure is false, as I've pointed out over and over, and just from flat out math.
|11.17.08 @ 5:10PM|#
Hazel, if you wanted to figure out the relative sizes of the
Alt-A and Subprime markets, why didn't you just Google it?
Doug Duncan, chief economist for the Mortgage Bankers
Association in Washington, D.C., said that Alt-A mortgages made up
a small share of the U.S. market at about 6 percent of outstanding
loans. Loans to prime customers, who are the most creditworthy,
make up 74 percent; those to subprime borrowers are about 11
percent.
Alt-A = 6%
Subprime = 11%.
|11.17.08 @ 5:16PM|#
The 3% figure is false, as I've pointed out over and over,
and just from flat out math.
No, Hazel, you didn't. Although I'm now confident that your
confusion about the figures you were providing was genuine. Every
single bit of data you thought refuted that point, you
misunderstood. Percentages vs. abolute numbers. Numbers of
mortgages vs. dollar value. Outstanding amounts vs. purchases
amounts. These are meaningful differences, and you don't understand
them.
As opposed to the Washington Post, Bloomberg, and the Wall
Street Journal? You might have noticed, but didn't, that I
didn't contradict any of those figures. They are all perfectly
accurate - they're just not apples-to-apples.
I'm demonstrating that the alt-a merket is not smaller than the
subprime market, fool. Well, you're trying to, but because you
don't really understand the data you're providing, you keep getting
tangled up in it.
And that Fannie and Freddie own larger slices of the subprime
market than the alt-A market Which they don't. You merely
confused percentages with aboslute numbers, and loan amounts with
numbers of loans again.
Which is flatly contradicted by the numerous statements I
linked to that Fannie and Freddie were repeatedly and directly
pressured by officials from HUD to Congress to the Whitehouse to
provide more loans to very low income borrowers. No, not
really. You would have to show actual behavior on the part of
Freddie and Fannie demonstrating that they engaged in particularly
risky behavior, which you haven't been able to do. The statements
you linked to show intent on the part of public officials to
accomplish something, which does contradict a statement based on
data about the GSEs actually did. Shall I start providing quotes
about what lawmakers wanted the military to do in Iraq, to prove
that it was done?
After all, Fannie and Freddie would buy anything. Except
this isn't true. Freddie and Fannie had higher standards for
purchasing mortgages than entirely-private companies.
You have an ideology-based narrative, and you really don't need to
keep explaining what that narrative is. It just isn't actually, you
know, backed up by the facts.
|11.17.08 @ 5:17PM|#
For example, Hazel, do you know what the term "conforming
mortgage" means?
It refers to the standards required for Freddie and Fannie to
purchase mortgages.
Do you know who is allowed to purchase nonconforming mortgages?
That's right - everyone else.
|11.17.08 @ 5:50PM|#
Let me rephrase: Of Fannie and Freddie's loan portfolios, a
larger percentage is made up of subprime loans than of alt-A
loans.
Of the total mortgage market, Fannie and Freddie's portfolio makes
a larger percentage of the subprime market than it does of the
alt-A market.
These two facts call into question your claim that Fannie and
Freddie were attempting to buy less risky loans. If they were
attempting to buy less risky loans, why do they own more subprime
loans (in dollar terms), and a bigger percentage (in dollar terms)
of the subprime market than the Alt-A market?
Moreover, I would really like to see you back up the 3% figure with
something other than a quote from the OC register. Can you trace
that figure to it's source? Cause it doesn't mathematically make
sense.
If the 3% figure turns out to be accurate, it would have to be
based on a very narrow definition of what constitutes engagement in
the subprime market (otherwise the math doesn't work). As others
have already pointed out, they were buying 44% of the mortgage
backed securities in 2004. If you're trying to claim that only
buying loans whole and directly counts, that's just plain
disingenuous. Surely you realize that overall participation in
buying up subprime loans - whether as securities or not, is what
matters.
I see no real evidence, nor have you actually provided any, that
Fannie and Freddie's purchase of risky loans (and securities based
on them) was driven by attempts to compete with the private
sector.
According to this report
(http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf),
the run-up in the subprime market started in 1995, which coincides
with the increased quotas. By 2003, FMAE and FMAC held 48% of all
subprime loans. The private sector didn't start catching up until
2005-2006. Which indicates that FMAE and FMAC were leaders, not
followers.
|11.17.08 @ 5:54PM|#
Google is also useful to figuring out comparative levels of risk
between Alt-A and Subprime loans.
"The share of loans that were at least 90 days late, in foreclosure
or on property that had been seized rose from 12.4% in May and
6.88% in June 2006, according to the report by Michael Youngblood,
an analyst at securities firm Friedman, Billings, Ramsey Group
Inc.
The default rate for alt-A mortgages packaged into bonds climbed to
a record 3% from 2.69% in May and 0.94% in June 2006, according to
Youngblood, who made use of data from First American Corp.'s
LoanPerformance unit."
|11.17.08 @ 6:18PM|#
Here's the source, Hazel. From the article:
Beginning in 2004, federal regulators also have required
lenders to report on high-priced loans - those with rates at least
three percentage points higher than U.S. Treasury notes of
comparable maturity. While the mortgage industry defines subprime
loans by credit scores, Federal Reserve Board analysts believe that
subprime and Alt-A loans fall into their high-priced loan
category.
The Register used that database for its analysis. During the four
years covered by our analysis, lenders made 55 million home loans,
including 12 million subprime loans.
I can't explain why Bloomberg's numbers are different.
|11.17.08 @ 6:33PM|#
Joe, I'm looking for a source for THIS figure:
Fannie and Freddie, the federally sponsored mortgage buyers,
were bit players in this market. Together they bought about 3
percent of all subprime loans issued from 2004 through 2007, most
of that in 2007 alone.
That's the part that's just false.
Invisible Finger|11.17.08 @ 7:03PM|#
joe,
The Alt-A "craze" started late 2004 so choosing June 2006 would
skew the default and deliquencies data toward subprime. Also, Alt-A
loans were not packaged into bonds at the same rate as subprime
loans were - in part because they have negative amortization
options, so even more skewing toward subprime in your
example.
http://calculatedrisk.blogspot.com/2008/08/subprime-and-alt-the-end-of-one-crisis.html
There is no evidenace that the Alt-A loans are in any better shape
than subprime loans, if anything the data shows they are in worse
shape. Because Alt-A loans were seldom securitized, Fannie and
Freddie have little exposure to them.
Hazel,
Fannie and Freddie historically stayed away from subprime. They
started getting in when their share price in 2003 wasn't keeping up
and their largest shareholders (government pension funds) demanded
they increase market share - they had little choice but to start
buying subprime. Anyone buying subprime loans in 2007 was a fool
because the housing market peaked in 2006.
Invisible Finger|11.17.08 @ 7:08PM|#
A decent write-up on what "Alt-A" and "subprime" mean:
http://calculatedrisk.blogspot.com/2008/08/reflections-on-alt.html
SHort version: Alt-A is the best subprime.
|11.17.08 @ 7:12PM|#
Yes, Hazel, that's the source of that figure: the Treasury's
analysis of the reporting that the lenders were required to start
doing in 2004.
I.F.,
Thanks for the data.
|11.17.08 @ 7:16PM|#
IF:
If they historically stayed away from subprime, how is it that in
2004 they owned 48% of all subprime loans sold on the secondary
market?
http://www.mcclatchydc.com/251/story/53802.html
|11.17.08 @ 7:34PM|#
Maybe it's different datasets, Hazel.
All subprime loans made between 2004 and 2007.
Subprime mortgages (no timeframe specified, so apparently, all
subprime loans outstanding at the time of the article) sold into
the secondary market.
|11.17.08 @ 7:55PM|#
3% still doesn't make sense. Something like 70% of all subprime
loans were sold into the secondary market, often in the form of
securities, and FMAE and FMAC were buying up 20-44% of the
securities.
In 2007, they accelerated buying up those securities, because the
banks were trying to unload them.
|11.17.08 @ 8:12PM|#
Wikipedia:
The securitized share of subprime mortgages (i.e., those passed
to third-party investors via MBS) increased from 54% in 2001, to
75% in 2006.
Yes, it's a sourced reference. The source requires a subscription
though.
I suspect purchasing mortgages in the form of securities have
enabled FMAE and FMAE to evade lending restrictions that were
preventing them from meeting the quotas set by the
government.
That's basically what's in the Reason article here:
Fannie and Freddie then went on a subprime bender. They made it
clear that they wanted to buy all the subprime or Alt-A mortgages
that they could find, eventually acquiring around $1 trillion of
the paper. The market responded. In 2003 subprime mortgages made up
less than 8 percent of all mortgages. By 2006, they were over 20
percent. Banks knew they could sell subprime products to Fannie and
Freddie. Investments banks realized that if they laced ever
increasing amounts of subprime mortgages into the MBSes, they could
juice the returns and so earn bigger fees.
I.e. even if they were staying away from directly purchasing alt-A
or non-conforming loans, they could buy those loans if they were
packaged as securities and still count them towards their
quotas.
|11.18.08 @ 11:19AM|#
A couple problems with that, Hazel: the "quotas" weren't for
subprime and Alt-A mortgages, but for mortgages in low-mod
neighborhoods. As Ron Paul said in his criticism of the 2006 bill,
most of what Freddie and Fannie held were refinances. Alt-A
includes mortgages for investment properties. So we're not talking
about loans to lower-income people making up a disproportionate
share of those Alt-A and subprime loans.
Also, there was a lot more driving the production of shoddy lending
in the years you mention than Freddie and Fannie buying them. That
was also the period of the proliferation of MBSs in the private
sector, and derivatives of those derivatives.
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