Financial Regulation

Can We Wake Up From the Fannie/Freddie Nightmare?

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Wake me up when it's over

Yesterday, Tim Cavanaugh linked to some tear-that-Fannie/Freddie-down sentiment, commenting "it's a good sign that what was once considered a core principle is being called into question by somebody other than cranky libertarians." Today, here's what you can read on The New York Times op-ed page:

* "Say Goodbye to Fannie and Freddie"
* "Too Big Not to Fail"

Here's Reason seconding that emotion:

* "Bulldozing the American Dream: It's time to kick Fannie Mae and Freddie Mac out of the housing market," by Anthony Randazzo
* "The Debtorship Society: More Americans became 'homeowners' while owning less and less of their homes," by Tim Cavanaugh

Reason's archive on Fannie and Freddie here.

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  1. Matt, your alt-text has been much better in the past.

  2. They’ll never go away. The social engineering possibilities are too enticing for politicians to give up, despite the disastrous consequences.

  3. One of those op-eds is by a Cato fellow. When did the NYT start enlisting the opposition?

    1. They’re just fishing for outraged letters to the editor.

  4. Let us all take this as a lesson from history:

    (1) For 30 years, politicians across the board (more left than right but not by much) told us that the Federal Government wasn’t on the hook for Freddie and Fannie if things went sour. Free market advocates who stated the obvious fact that the Fed was on the hook where hooted down.

    (2) For at a least the last 15 years, free market think tanks like the Cato institute have been warning that the government was dangerously inflating a housing bubble through Freddie, Fannie and other programs . They were ignored.

    Had we never gotten the government into the business of getting us below market loans on houses, we would not be in our current mess. To many politicians persuaded to many people that the people could get something for nothing and now we all must pay for it. We should remember this the next time the Snake Oil Medicine show rolls into town.

    … but we probably won’t.

    1. I didn’t get a chance to make this point in yesterday’s comments, but… artificially holding interest rates at rock bottom for 10+ years was also significant. Government was discouraging saving and encouraging borrowing, so now we have a population with no savings and tons of debt, and whose net worth is dependent on the value of their house at any given moment.

      1. The low interest rates did not help but the primary damage done to the economy was the construction of way more (in terms of number, size and amenities) residential housing in places that did not have the local economy to support the 30 year project that paying off a house represents.

        E.g. California has been quietly imploding for the last 20 years yet hundreds of billions were poured into making elaborate houses in communities with little economic future. Something like 30%-40% of these now worthless houses are in California.

        It was the shifting of real physical resource and real physical work to the construction of these worthless houses that is the core cause collapse. It’s as if we borrowed a trillion dollars to dig a useless giant hole in the middle of Kansas.

        All the other fiddling with the financial system by both public and private actors were only trivial contributors in comparison to our publicly funded creation of these economic white elephants.

        1. I disagree.

          The builders had to borrow to build the houses, and someone lent them the money. The cause of those houses being built was the increased leverage banks have been allowed.

          1. No, the primary driver was that the government would assume the risk of defaults through Freddie, Fannie, FHA and other programs. Risk of default is the primary feedback mechanism that prevents to much risky lending. The government intentionally destroyed that feedback mechanism in order to encourage the issuing of loans that the free-market itself judged as to risky.

            Those programs were always going to lead to a dangerous housing bubble regardless of whatever happened.

  5. When did the NYT start enlisting the opposition?

    When it stopped opposing things.

  6. That first NY Times piece is great, but of course it was written by William Poole, so I’m not surprised. He’s one of the few clueful Federal Reserve guys of the last couple decades.

  7. Kill them.
    KILL THEM!
    KIIILLL THEMMM!!!

    1. To quote Arlo Guthrie:

      “Shrink, I wanna kill.”

  8. I like that “Too Big Not to Fail” headline.

    It could almost be a libertarian meme.

    1. Why do you hate fat people?

  9. Affordable housing! It was me who gave you affordable housing! Also, affordable cell phones, affordable hi-def TV, affordable MP3 players, affordable food…

  10. Fannie and Freddie ramping up their “affordable housing” initiatives in 2004/5, in response to their accounting scandals (they needed to buy political support to avoid accountability) is one of the things that pushed the economy over the cliff.

  11. Without government support for housing, we’d all be living in caves.

    1. just like in Somalia.

  12. Fun with numbers:

    the EU just told Germany to add gov-owned bank debt to their government debt. If that holds (maybe not), then the US will face increased pressure to add Fan/Fred debt (~6 trillion) to our already 13 trillion (50 trillion if you include unfundeds).

  13. More like $200 trillion, all in, Virginia.

    You wanna scare the shit out of yourself? Read this.

    By his calculation, the federal government is about 60% above a sustainable level, and the economy is about 40% above a sustainable level.

  14. you can find whatever watch you want on my name

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