If Lehman Could Have Collapsed the System, Why Aren't We More Worried About Fannie, Freddie and Ginnie?
Sharon September 9th, 2009
One of the things I find myself mystified by is how few people seem concerned about the role that government is taking in housing – recently the WSJ reported that the government now stands behind 90% of all new home loans – and many of those new loans are refinances, done in the face of lowered interest rates – that is, we are gradually moving towards government guarantee of the majority of private home loans. The problems with this are manifest – Fannie and Freddie are already in trouble, and with no bottom in easy sight on the housing market, we are facing rapidly rising defaults.
It is common to claim that last year, the economic crisis at Lehman Bros. nearly brought down the US economy. The crisis at Fannie and Freddie is likely to be much more dramatic than that, and Ilargi does a really good job of explaining why today – it is worth a read. If you think things have stabilized, seriously, think again. http://theautomaticearth.blogspot.com/2009/09/september-9-2009-crime-that-will.html
Sharon
- economy
- Comments(11)
I may have been reading you for too long, as my first response to the idea of Lehman collapsing the economy was to thing of the catalog and wonder if by “collapse” you meant reducing the number of layers between producers and consumers.
I think she meant reducing the number of lawyers between producers and consumers! LOL!
I am beginning to wish for these institutions to fail close enough together and in great enough numbers to present an uncontestable case for system failure. Better a rapid descent that might rally the population than this death of a thousand cuts that, seems to me, can only lead to some form of fascism.
See NYT: As an Exotic Mortgage Resets, Payments
By DAVID STREITFELD
Edward and Maria Moller are worried about losing their house — not now, but in 2013.
That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.
http://www.nytimes.com/2009/09/09/business/09loans.html
Mike — yeah, me too. I wondered what was so radical about cast-iron pots. The actual article linked is just depressing, and not nearly such an entertaining mental image.
I’m about to get into discussions with my investment guy about going very conservative with where I put my money (i.e., into GICs). The investment guy is pretty much having a cow about this, saying that I’m being unreasonable and “risking” losing substantial gains. But the more and more I read you, Sharon, and Illargi/Stonleigh over at TAE, the more I feel the need to get out of the gamble that is the equities market. I just don’t think my investment guy can see the big picture, given that his job depends on not seeing it.
While I understand the purchase cycle of mortgage financing, it is perplexing to figure out what this means practically. If Freddie and Fanny back 90% of (new) mortgages and how many old ones. and then if people default, do Freddie and Fanny have to pay the mortgage financer the entire amount of the mortgage? If they did that, then F/F are the new owners of the property, right? Or not? Does it become a government owned mortgage property due to payout of insurance? Or does F/F pay the insurance to the mortgage financer and the financer still retains the mortgage, selling it for whatever they can get for it or holding onto it for an interdeterminate amount of time.
Can anyone tell me which it is?
It’s called “whistling past the graveyard”. Say you have 3 young boys, walking past the big graveyard on their way home from the movies. At first they joked about it- but now, they’re really spooked, and in need of bucking up. So they keep telling each other, “I don’t believe in ghosts! That’s for babies!”
Anyone watching would think, “what brave boys.”
But you know what will happen when somebody, (or someThing!), in the graveyard lets out a little scream.
Panic, and record breaking sprints.
Actually Sharon, the 30 to 1 ratio of CEOs selling to buying their own company’s stock is utterly damning, I feel. They’re already in “every man for himself” survival mode. Which means they do NOT want the herd to start the stampede, until they get out; so they’re being as quiet as they can. Seen any MSM stories on the ratio? I haven’t.
Um, let me take the stance that:
1) Concerns about freddie and fannie are overblown,
2) There is a great deal of misinformation about Freddie and Fannie, most of which is generated by people who believe, for ideological reasons, that GSEs are fundamentally Wrong-with-a-capital-W, the way that slavery is wrong;
3) Freddie and Fannie didn’t cause the mess, if nothing else because they were regulated. They didn’t do any subprime lending, because the regulations governing them _forbid_ them from doing so. Same with no “collateralized debt obligations” or anything like that.
Better commentary on it from Paul Krugman, winner of last year’s Nobel Prize for economics.
http://www.nytimes.com/2008/07/14/opinion/14krugman.html
Look, if you wanna worry about the economy, there’s lots of bigger concerns like credit-default swaps and de-leverging. Never mind poor old freddie and fannie.
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