Barney Frank’s Fantasy World
by Russ Roberts on January 29, 2010
in Government intervention in housing
At Big Think, they used one of my questions in their interview with Barney Frank:
Question: How can Fannie and Freddie be structured to avoid the moral hazard problem and a too-cozy relationship with regulators? (Russ Roberts, Café Hayek)
Barney Frank: Yes, in 2004 the Bush Administration significantly increased those housing goals and particularly ordered Freddie and Fannie to start buying up a lot of low income individual mortgages, and I opposed it at the time.
Interesting answer. Here is the relevant data on the housing goals from my soon (really) to be finished essay:
Starting in 1993, Fannie and Freddie have affordable housing goals—30% of Fannie and Freddie’s purchases of loans have to be loans made to borrowers whose income was below the median income in their area. These are interim goals. In 1996, the interim goal becomes firm at 40%. In 1997, the number rose to 42%. In 2001 it rose to 50%. The Bush Administration increased this number to 52% in 2005, 53% in 2006, and 55% in 2007.
So it turns out there was no increase in 2004 and a minimal increase in 2005. The big increase was in 2001, the legacy of Clinton and Andrew Cuomo his HUD chief. Of course Bush embraced the housing goals and did increase them. But “Bush in 2004? is a red herring.
I’d love to see the evidence that Frank “opposed it at the time.”
And none of Frank’s answer addresses the moral hazard problem–that people kept lending to F and F as the quality of their portfolio deteriorated because they knew the government stood behind them.
cafehayek.com
David [Moderator] 4 days ago 7 people liked this.
Barney Frank (June 27, 2005):
"I think we have an excessive degree of concern right now about home ownership and its role in the economy. Obviously, speculation is never a good thing. But those who argue that housing prices are now at the point of a bubble seem to me to missing a very important point. Unlike previous examples we have had, where substantial excessive inflation of prices later caused some problems, we are talking here about an entity — home ownership, homes — where there is not the degree of leverage we have seen elsewhere. This is not the dot-com situation; we have problems with people having invested in business plans for which there was no reality. People building fiber-optic cable for which there was no need. Homes that are occupied may see an ebb and flow in the price at a certain percentage level, but you’re not going to see the collapse that you see when people talk about a bubble. And so, those of us on our committee in particular, will continue to push for home ownership."
youtube.com
cafehayek.com
markcancellieri [Moderator] 4 days ago 4 people liked this.
"I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing."
—Representative Barney Frank, September 25, 2003
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