Freddie, Fannie, and Curses on FDR
The heck of it is that any option would be devastating to the already-suffering housing market. The reason this sector was so wildly inflated is that banks knew that Fannie and Freddie were capable of buying any mortgage debt created by the banking industry. Now, you might say, if that's true, the real blame is with the individual bankers that had been making irresponsible loans under the condition that these government-sponsored enterprises would absorb them. But that's not right. Put yourself in the shoes of a banker over the last twenty years. You have competitors. You have a bottom line. If you don't extend these loans, you come off as a fool. Your competition eats your breakfast. To stay ahead of market trends means that you have to play the game, even though you know it is rigged. Place the blame not only on the banks, but also on the institutions that are siphoning off their liabilities for irresponsible behavior, and that would be Freddie and Fannie. And who created these? Travel back in time to the New Deal. FULL ARTICLE
Comments (19)
Tim Kern
ANY bailout, for ANY reason, is unconstitutional (and therefore illegal, but who cares?) and economically stupid.
Unless and until every person in this country stops sucking off everybody else's wealth, these problems will simply escalate, until we crash, hard!
The math of these bailouts won't work. These are just a short-term way of transferring what's left of the middle class's possessions to the ruling classes, before the whole damned system goes up in smoke.
They can call it a "bailout" or anything else - it still encourages and rewards crooked/inept/greedy management, and it's still theft!
One of these days, I'll protect what's mine, in a way these ruling-class thieves understand. 1776 is too long ago; we need a renewal of that sentiment and that action. "When any form of government becomes destructive of these ends, it is the right of the people to alter or to abolish it..."
Published: July 14, 2008 9:37 AM
Magnus
You'd think that after the success of Lord of the Rings, more people would grasp the basic idea that some power is too dangerous for anyone to have.
Most of the politically-active people in America are hopelessly wedded to the idea that if only my side were to win, we could vanquishes all of those scum-sucking miscreants across the aisle.
Most people are completely oblivious to the idea that it might be safer to simply say that NO ONE has the power in the first place. It's not safe if I have it. It's not safe if you have it. So, we set up a system where no one has it.
No one can be trusted. It's really simple.
Published: July 14, 2008 9:40 AM
jaqphule
Why is the stock prices for Fannie and Freddie crashing? It's all Lew Rockwell's fault for spreading false information!
Check out the latest drivel from the SEC:
http://www.marketwatch.com/news/story/sec-others-probe-short-seller/story.aspx?guid=%7BDE7DC628%2D05A6%2D4986%2DB31D%2D1F8B521F96BA%7D&dist=TNMostRead#comments
Free speech should, of course, take a back seat to the Dow, just like it says in the Constitution.
Published: July 14, 2008 10:19 AM
EnEm
Freddie should get his Fannie spanked and Fannie should get her.........well, never mind.
Published: July 14, 2008 11:22 AM
AL K
The warning against interventionism reminds me of a children's story some never took the time to learn.
Remember the king in the palace who introduced several cats to rid the palace of the mice problem? The cats reproduced so the king brought in dogs to run off the cats. The dogs made a mess of the place so he obtained lions to chase off the dogs. But the lions were too dangerous so a small herd of elephants were used to overcome the lions. And after virtually everything in the palace was in shambles, the king ordered that mice be brough back into the palace to frighten off the elephants.
Mises for kindergarten ...
Published: July 14, 2008 11:26 AM
Curt Howland
I was listening to NPR, the "Diane Reemes Show", and they had several people on talking about this.
One man said that he'd be happy if their "stock price" went to zero, since that's what the market would have decided was appropriate. He was a lone, and rarely referenced voice of sanity.
The rest of the idiots, I mean well paid consultants, were going on about how the government has a responsibility to the investors in these two boondoggles.
It was actually painful to listen to. "Six years ago I was on talking to these people, telling them there was a housing bubble, and they just didn't see it. They said I was being ridiculous."
I don't know who that guy was, he certainly was no Austrian, but it was astounding how he was bullied out of talking for most of the show by the others who all agreed that "Fannie May and Freddie Mac are just too big to let fail."
Published: July 14, 2008 11:48 AM
Walt D.
Who is going to regulate the regulators?
In the IndyMac bank failure, Chuck Schumer is quoted as saying - "Don't blame me for calling 911 - the regulators were asleep at the switch!"
Seems like we need more regulators to wake up the regulators who are asleep at the switch!
Published: July 14, 2008 12:38 PM
Glen
You don't expect "socially responsible" decisions from a business person, you expect those decisions which is most valuable to that decision maker. If you arrange the system such that "socially irresponsible" decisions are those that reward the decision maker, those are the decisions he/she will make. Bailouts align the most valuable individual decisions with "socially irresponsible" decisions.
Published: July 14, 2008 1:05 PM
Eric
Let's see, if I got this straight, Bush is about to to make us buy Elephants to scare off the lions.
What puzzles me is how anyone is fooled by the government into thinking it can solve anything. I guess the government is good at really one thing, promoting itself.
It's like Harry Browne used to say, the government is really good at breaking your legs and handing you a crutch with the reminder that without their help you'd never be able to walk.
But I think Harry was right on target when he said the only difference between the Government and the Mafia is the flags in front of their offices.
Once you replace the words "government" with "mafia" everything falls into place nicely. No puzzles, no astonishment at the waste, nor of the corruption of the corruption fighters. Try it, it'll let you relax and think about how you're going to live with the Mafia running everything. Hey, at least they're getting good at "fixing" the lottery.
Published: July 14, 2008 1:26 PM
gooddebate
What if they did fail? Do I understand this correctly that the mortgages they own will just be sold. They're contracts, right? It's not like my Mortgage will just go away.
Published: July 14, 2008 2:09 PM
Dick Fox
Freddie and Fannie are Ponzi schemes. The "bailout" is actually nothing other than extending the problem into the future. The government intends to make more money available for mortgages then it intends to buy stock in its own companies. Tell me what this does to solve the basic problem of Fannie and Feddie being over extended. And don't think it is because of loan companies making bad loans. Most loans are sound as can be. The problem is that Fannie and Freddie have more loans than they can sell or service.
Published: July 14, 2008 2:56 PM
magnus
Once you replace the words "government" with "mafia" everything falls into place nicely.
I found this to be true as well.
There are many similarities: they both carefully define the respective territories of each member of the cartel. They bitterly resent any encroachments. They REALLY hate it when a rival group of thugs, outside the established cartel, moves in and attempts to take over some region. And when the rivals start killing each other's people over said territories, they even call it a war.
The only difference is that the Mafia never managed to get a large segment of the population (whose money they steal) to be so enthusiastic about the theft. To applaud it. To construct all kinds of lofty arguments, symbol-systems, religious support and a whole CULTURE around supporting and justifying the theft. Clearly, the State has better PR. The flags are more important than they first seem.
Now that I think about it, there's another difference between the State and the Mafia -- I'm pretty sure that the actual Mafia is more efficient and reasonable than government.
Published: July 14, 2008 4:53 PM
YourMawm
"Seems like we need more regulators to wake up the regulators who are asleep at the switch!"
You know that's what will happen. Brought to you by the same people who made FEMA, and then the Dept. of Homeland Civil Rights Violators...err Security.
Line up for your Govt. Job now.
Published: July 14, 2008 6:09 PM
YourMawm
"Seems like we need more regulators to wake up the regulators who are asleep at the switch!"
You know that's what will happen. Brought to you by the same people who made FEMA, and then the Dept. of Homeland Civil Rights Violators...err Security.
Line up for your Govt. Job now.
Published: July 14, 2008 6:11 PM
Eric
"They're contracts, right? It's not like my Mortgage will just go away."
True, but read the terms of the mortgage. It will almost always say that the only collateral that the mortgage holder can claim if you violate the contract is to fork over the house. But if you borrowed 125% of the value of the house, used 100% to pay for the house and took that 25% extra and bet it on the horses (and even should you win) there's nothing the mortgage holder can do except take your house back - which you bought at minus 25% down!!!.
Now any lender who did this would have been lynched a few decades ago. But in the new economy, this was called conservative lending practices.
Since you paid nothing for the house and even got an extra 25% cash on settlement day, you win while the lender loses. The problem is the government will bail out the lenders at the rest of the country's expense.
Published: July 14, 2008 7:09 PM
Opitz
Very good article!
But the best example to describe a situation in USA since New Deal is here - http://en.wikipedia.org/wiki/Boiling_frog
Some of US citizens are now in a phase "We are going to get cooked, because the water is too hot already and it is even getting hotter", The rest of them know (or care about) nothing... This is still just a beginning... In public we see only the symptoms... Because the damage is so huge it cannot be kept secrept, but the causes of this damage are still "top secret"... That means that the situation will get much worse yet.
Published: July 15, 2008 4:47 AM
Michael A. Clem
There's just so much stuff that can be read into this--moral hazard, government intervention, etc. But it all boils down to the fallacious idea that governments can use force to "fix" or improve the economy.
Published: July 15, 2008 10:46 AM
Glen
BTW, so we don't go to Gitmo for starting rumors, there was no bailout.
Published: July 15, 2008 4:56 PM
N. Joseph Potts
Well, FDR got himself re-elected in 1940, and served out his term, which ran to 1944 (getting the US into World War II in the process).
Millions of deaths later, the war is over, and FDR's political career (and life) are over, but we've STILL got the burden of his re-election gimmicks. That's the problem with these gyrations: they're permanent - eternal, no less, unless they're repealed.
Or the government that administers them finally collapses from the accumulated weight of such things.
Millions of deaths later ...
Published: July 16, 2008 12:48 PM