>>>This "blame the GSEs" talking point is so stupid you'd think everyone would just laugh.<<<
Hold your horses CR.
Lets consider....
1) FNE/FRE got bailed out. That speaks for itself - and loudly. There were those who said that the national debt doubled over a weekend in July with the swipe of a pen. It was huge.
2) Is it not the case that FNE/FRE were buying massive amounts of subprime (to include ARMs?) in its various incarnations??
3) Is it not the case that FNE/FRE were selling mortgage insurance way beyond their means to make good?? Remember, insurance is just a nice sounding name for a put. A put is a nice sounding name for a derivative...you know...financial dark matter.
4) Fannie and Freddie, for all their issues, were victims of the lack of oversight in the unregulated market. Who knew real estate better than FNE/FRE??? After all they were the nation's largest lenders since the Great Depression. If anybody could have detected a bubble - it should have been them. When a bubble happens, those in the know exit or get short. Wasn't FRE/FNE cure for the crash to run to Congress - in 2007 - and get the conforming ceiling raised.....to about $1 MM......and make more bad loans? Please!!!!!
5) I think that ten years ago FNE/FRE had about 85% of the action. I think that was down to about 45% in 2005 (very unsure of the fractions here - but there was a big shift). When FNE/FRE saw the zero LTV, piggybacks, etc coupled with loss of market share, they are the ones who should have been running to the admin/Congress sounding the fire alarms. When a business looses market share this usually gets the attention of senior management - after all it trashes profits. The reason for the loss of market share was obvious - the competition was beating them on rates and qualification standards. They had an ethical obligation to sound the alarm. Consider the merchant generation sector. When it was born, the traditional utilities whose market share was threatened did the honorable thing - they (quite illegally) wouldn't buy electricity from the competition (think what FNE/FRE did with bundled mortgages - not) and they went to Congress and tried to get regional repeal of the electric restructuring laws. They also went screaming to FERC - the regulatory authority - and induced investigation upon investigation upon investigation. Please don't tell me that there wasn't significant obvious fraud on the private side back in '04 upon which FNE/FRE could have quite justifiably requested an investigation. FNE/FRE were just too fat dumb and happy. Too lazy to even guard their market share. And as long as prices were rising, they wouldn't have any mortgages put back to them. Why mess up a good deal? If the private sector was pushing up prices then all the better for them. Besides the private sector would take the first hit, leaving FNE/FRE with a nice moat.
Perhaps my suggestion that FNE/FRE caused the real estate bubble is a stretch. "Enabled" would be a much better choice of words.
Surely FNE/FRE had nothing to do with credit default swaps on commercial paper. I didn't mean to allege that it did. We are just finding out how bad the CDS situation is, and it will likely dwarf real estate. But then again, I have heard from many sources that the regional banks in aggregate have about 65% of their portfolios tied to real estate, and CDSs are all about insuring that stuff.
Hedge funds being diligent due to a lack of government guarantee??? He should not have gone there. There was this little matter a decade ago called Long Term Capital Management. LTCM had an investment model and plan. It wasn't complete fantasy but surely ignored the fat tails. It worked well for a while. Since it worked for a year or so, the banks which funded it stopped asking reasonable questions and sent money by the truckload. Then poof. The FED would not have gotten involved if it wasn't serious. So there we had a totally private concern threatening the system. But it sounds to me like it was the banks which stopped performing diligence. Was LTCM diligent??? Sure. Ir asked the right question - who's money is this. It was OPM - no need to even consider breaking a sweat on more diligence.
So sure. The private sector can do a lot of damage if left unchecked. There is enough blame to go around. But FNE/FRE have blood on their hands which reaches up to their eyeballs.
(Quite the mixed metaphor there but my imagination fails this PM.) |
