Posted on 08/03/2008 3:50:09 PM PDT by shrinkermd
Our housing finance system has been broken for quite some time, creating perverse incentives for borrowers and lenders....a major financial bailout of the system is probably inevitable.
Conservatives can rightly argue that had Congressional Democrats not blocked the various initiatives of the Bush administration to reform Fannie Mae and Freddie Mac for the past five years, we would not be sitting at the precipice like we are today.
First, Congress rejected a proposal that Fannie and Freddie be barred from paying dividends if they are receiving injections of capital from the federal government.
Freddie Mac paid $1.6 billion in dividends last year while Fannie Mae paid $2.5 billion. Both have dividend yields that are many times higher than the norm. Congress chose to protect the shareholders at the expense of the taxpayer.
...The legislation also creates long-term uncertainty with regard to the extent and form of government assistance. In effect, Treasury Secretary Paulson now has an open-ended mandate to bail out the nation's troubled housing finance market, the largest single capital market in the world.
If any other country announced that its finance minister could print unlimited debt to do something similar, financial markets around the world would dump both the country's debt and the country's currency. It may well be different because this is the United States of America. But certainly, to take such a risky and unprecedented step, a better crafted and considered piece of legislation should have been created.
(Excerpt) Read more at online.wsj.com ...
Taxpayer cannot profit from the risk;
No real substantial reforms in lending;
Special tax on mortgages originated by Fannie and Freddie to go into a special pool so politicians can provide "affordable housing
Mr. Lindsey, former assistant to the president for economic policy, is president and CEO of the Lindsey Group, and author of "What a President Should Know . . . But Most Learn too Late" (Rowman & Littlefield, 2008).
IMHO this is an important article and it augurs for future problems. The recent legislation is a political answer for a financial problem, and is bound to make things worse.
Tells me one ought to be a stockholder in Fannie and Freddie..
The law the Democrats are trying to pass would add another big mess on tax returns.
It is harder to get a loan in California now. A friend is trying to get a home loan and the house she wants is $799K but it only appraised for $500K so the loan is kaput for now. She can pay the difference in cash up front. Which is a good idea. But for now the loan is a no go. Too bad they didn’t do this earlier when they gave loans for homes that are NOT worth the price. The buyers got ARM, 1%, interest only loans. And then it all crashed in.
Oh, perfect. Let the politicians and community activists handle this money. No possibility of abuse there...
She should be grateful then. She should offer 500K, and provide documentation. If they don't take it, then she should walk away and be happy.
In the near future, two things will force prices down, interest rates will keep rising, and down payments will keep rising. Both of thost things will have a severe downward effect on house prices.
Massive inflation has been operative for 6 years. Various accounting devices and changes in the definition of CPI have kept the published numbers low but the reality is long term inflation. The government and approved academic economists are constantly worrying that they are running out of subterfuges and will have to publicly recognize the inflation. They won’t say it has been ongoing but will announce that it is “exploding” if/when they really do run out of ways to fudge the numbers.
this guy is very bright,
and it never ceases to amaze me how
one feminist fainting during his speech at harvard
got him to resign.
“The more plausible reason for the bill’s structure is that the decades of coziness between politicians and Fannie and Freddie is paying off. Not only were there campaign contributions, but their “foundations” contributed huge sums to think tanks, and many political figures made the transition from government to the GSEs. The list of their connections reads like a combined Washington-New York phone book, and undoubtedly gives the appearance that both Wall Street and politicians close to Fannie and Freddie had key seats at the bargaining table over this bill. The taxpayer was not adequately represented.”
BINGO!!
And now we have Environmental Marxists writing our energy policy for the Democrats. Time to bury your money in your backyard folks....
Are you talking about Larry Summers? Also a bright guy.
yep.
i stand corrected.
What always amazed me is that the price of homes is only what people can afford. All the funny money financing does is push the price of homes up. If people couldn’t afford California homes beg borrow or steal, then they would have to drop in price to where people can afford them. Instead, we have people that are so crazy motivated to buy a home, they pull out all the stops with crazy financing, and all they achieve is to provide resistance to California home prices falling to where they are in line with incomes. Incredible. Stupid. Incredibly stupid.
Yeah, in hindsight it sounds pretty stupid. But so was the tulip craze.
What I really think was happening was that people were realizing that the value of the dollar just wasn’t the same anymore and were looking for ways to keep some value to the money they had. Didn’t work because of the crazy loans that were being written for anybody that was breathing.
I know we bought our house after being upside down in a condo here in SoCal eight years out of ten. We were glad to get into a house in 2001. But after that, what happened? We were losing ground. Pay increases weren’t keeping up. Health insurance went up every year. We weren’t even treading water, we were slowly sinking. Now hubby got a good raise last year, but it doesn’t even begin to make up for six years of not even keeping up with inflation. At least we were smart enough not to have a stupid loan, and we aren’t upside down. But we bought in a good neighborhood. And we keep our debt extremely low.
I believe because of our experience, lots of other people were just instinctively looking for a way to have an asset because the dollar was not worth as much it was as the years slipped away from around 2000 forward.
I’m sorry, I was talking pre-bubble.
I lived in San Francisco from 1996 until 2007. All the time I lived there, home ownership was the dominant topic of cocktail parties. Who got a house. Who is looking. Who is renting. All the while people were dreaming up crazy schemes to get into a house from having parents co-sign to pay their down to borrowing their down. All kinds of things.
My point is, if ALL of these people simply sat back and said, “I’m never buying a home because I can’t afford one. Period.” then home prices must necessarily have come down to where all of them could afford to buy a home. That is how supply and demand works.
Instead, people found any way to beg, borrow, or steal their way into the already high pre-bubble prices, and thereby reinforced those inflated prices. It is just stupid. If more people refused to overpay for homes, prices would come down, pure and simple. There is no other way. Otherwise, nobody would be able to ever sell a home. No buyer = no sale.
I did understand that if more people had just said, yikes, let’s wait until we can afford it, housing may not have got so bad. But that didn’t happen.
I was trying to explain why that might be so. In 1996 down here in our condo, we were upside down. Lots of people were. We knew people who left the area and had to pay the difference on their loans to leave. In every case they left the state, and have not come back. The psychology of that may have contributed to the craziness.
As adults we were all used to houses going up, for the most part. And if there was a down turn, well, it was going to recover in a few years. That is the experience of most people who are adults now. Add to that the growing awareness of the increase of money being taken from you monthly paycheck for health going UP every year, your raises not even matching that, never mind the costs of living slowly creeping up, and you have the underlying foundation of people in a panic over how to maintain whatever wealth they DO have. The average person sees a house as an investment.
I also remember that the endless ads for refi’s made me so mad. Somewhere along the line I got the distinct impression that “someones” wanted all of us Americans in debt. All of us that they could. A bit tinfoilish, I know. But that was the overall impression I got from all those endless ads. Something was up. And it was no good.
[politicians close to Fannie and Freddie had key seats at the bargaining table over this bill. The taxpayer was not adequately represented.]
“Taxation Without Representation”
Tea Anyone?
“The more plausible reason for the bill’s structure is that the decades of coziness between politicians and Fannie and Freddie is paying off. Not only were there campaign contributions, but their “foundations” contributed huge sums to think tanks, and many political figures made the transition from government to the GSEs. The list of their connections reads like a combined Washington-New York phone book, and undoubtedly gives the appearance that both Wall Street and politicians close to Fannie and Freddie had key seats at the bargaining table over this bill. The taxpayer was not adequately represented.”
I’m not an attorney...but there must be a RICO here somewhere.......
You would think! (eye roll)
But the government economists and banking lobbyists do want everyone deep in dept. Debt is growth. Credit fuels our economy. The more credit, the faster GDP grows, until it all collapses under its own weight. The government keeps finding new and bigger credit bubbles to blow to keep the artificial GDP growth from collapsing. All they manage to achieve is delaying the collapse at a much higher eventual cost.
If I blew a toy ballon up and popped it in your face, you would be startled and blink. Now, if I blew up a balloon to the size of a house and then popped it in your face, the explosion would kill you or take off limbs. That is what the FedGov is propagating by not letting the balloons pop in your face when they are small and would only sting, not kill you.
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