[TBP]

Bailing out Fannie Mae and Freddie Mac just encourages more of the kind of bad behavior that got them in trouble. They should be alowed to fail if that is what the market dictates.

[politicket]

Great article. Thanks for posting - it’s spot on...

[Attention Surplus Disorder]

Karl pulls no punches, I enjoy his writings tremendously. He has superb market insight.

[happygrl]

If the government goes down you will need steel, lead and brass, not money.

We could have the Japanese Disease, or worse.

They didn't have Blood in the Streets.

[sd-joe]

Bump

[raybbr]

As the 1990s and especially 2000 passed, however, Fannie and Freddie began to loosen standards. They put in place "automated approvals" that were, for the most part, essentially driven by FICO scores - that is, whether you pay your credit cards on time. In addition Congress prodded them to be the "standard bearer" for what was and is a horrible mis-allocation of capital - that is, to push the "American Dream" of homeownership to the maximum possible extent, and to glorify not owning a small bungalow in which you had enough room to sleep and raise a kid or two, but rather the "McMansion" philosophy of building on every square inch of farmland within 100 miles of a population center.

Let's not forget Bush who signed the bills and pushed the "Ameerican" dream, as well.

This is a misallocation of capital for a simple reason - a house does not generate GDP. It has utility value as shelter but, unlike a machine, it generates no new GDP by being in existence. You cannot base an economy on housing for this reason.

Some of us said this for years only to be roundly criticized by people saying, "Equity is wealth. It's added into the total household wealth index."

Well, sure it was. By the govt. They want everyone to think they are rich because they are paying a mortgage.

[mo]

“But for Congress, The Fed and OFHEO looking the other way on purpose most of the Housing Bubble could not have happened...”

A forensic accounting procedure on the individuals involved in allowing this to happen could make for some very interesting reading.....and possibly make Franklin Raines look like an amateur.

[redgolum]

Not good.