-Submitted by David Drumm (Nal), Guest Blogger
With the recent appearance of Gretchen Morgenson and Joshua Rosner’s Reckless Endangerment, the focus on the financial meltdown turns to Government Sponsored Enterprise (GSEs) such as Fannie Mae and Freddie Mac (F&F). The claim is that the role of F&F in the meltdown is being marginalized or ignored. Some claim that this book fills an important void.
However, the role of F&F has been well researched and documented.
The GSEs, by charter, are intended to facilitate mortgage finance to lower-income homeowners. These lower-income borrowers, with no political support structure, are the perfect patsies for those looking to shift the blame for the financial crisis. Republicans have used the “affordability” aspect of the GSEs mission to blame F&F for the financial crisis. The facts just don’t bear them out.
In Raj Date’s presentation, he notes that GSEs $100 billion of private-label subprime Mortgage Backed Securities (MBS) in their portfolio is only 2% of their $5 trillion credit exposure. He writes:
Moreover, the very worst performing GSE loans (that is, the loans where losses are the greatest multiple of original forecasts) were made to prime borrowers, not subprime.
As shown in the graph below, it is the prime mortgages that make up the vast majority of serious delinquencies.
As Raj Date points out, the serious delinquencies came from “Alt-A” and “Interest Only”, which had average borrower FICO scores of 722 and 720, respectively, solidly within the “prime” category.
Between 2004 and 2006 the volume of subprime and the riskier (than conventional) Alt-A mortgages ballooned. In 2005 and 2006, conventional, conforming mortgages accounted for one-third of all mortgages originated.
From early 2004 to late 2007, it was the private-label insurers that played a large role in securitizing (pooling contractual debt into bonds) the higher-risk mortgages.
As Barry Ritholtz points out in his review of the Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States:
They focus blame largely on the so-called “private label” mortgage market. These are bank and non-bank, brokers, lenders, and securitizers.
If F&F had accepted their lower market share and not tried to stay competitive with the private-label insurers during the bubble, their losses would have been substantially less. The F&F blame game is a desperate attempt, not borne out by facts, to shift the focus of the financial crisis away from the private-label insurers.
H/T: Mike Konczal, Karl Smith, Conservator’s Report.
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Krugman from THIS MORNING: ““If we had the threat of war, had a military buildup, you’d be amazed at how fast this economy would recover.”
So lets see, besides actually promoting the idea that war is good for the economy, (which you may find debatable, but do you really want to take krugman’s position that we should drop bombs on another country simply because we ran our own economy into the ground?), our revered nobel prize winner somehow forgot that we are currently in hostilities with at least 3 countries at the moment, have over 700 military bases around the globe and spend more on our military than the rest of the planet combined. With all that in mind, how much more could we possible funnel into defense spending? How much would krugman find to be enough to say, you know what, thats enough tanks, bombs, and depleted uranium ammunition?
If krugman is going to be your intellectual standard bearer you might as well pack it up and go home.
Let me try that again, since editing comments is reserved for the elites.
OS, you mean like in 2004 when Krugman calls on Bush to reign in the red
And in 2009 Krugman claims Till Debt Does Its Part
So in 2004 a roaring debt under Bush was somehow flying upside-down, and five years later doubling down on that debt makes the policy right under Obama? Is this an example of the sophistication of Krugman’s “mathematical modeling”?
Like in 2004 when <a href="http://www.abc.net.au/lateline/content/2004/s1064193.htm"Krugman calls on Bush to reign in the red
And in 2009 Krugman claims Till Debt Does Its Part
So in 2004 a roaring debt under Bush was somehow flying upside-down, and five years later doubling down on that debt makes the policy right under Obama? Is this an example of the sophistication of Krugman’s “mathematical modeling”?
Very true puzzling,,,,,,also you made me think of someone who said he couldnt stop sm1 from killing me! strange huh?
Begging the question fallacy. This started out as promoting Schiff as somehow being the intellectual superior of Paul Krugman. Lets stop going off on tangents and look at the two men. Schiff is basically a salesman who has a bachelor’s degree in accounting and finance. In other words, business administration. Paul Krugman has a lifetime of work studying the flow of international trade and the mathematical and practical models that influence the ebb and flow of trade.
The long-dead Hayek and Keynes have about as much to do with Krugman’s work as the Wright brother’s wing-warping technique has to do with modern airliner design.
SM and others may – or may not – enjoy this:
And I notice Professor Hayek did not turn down the check and medal.
Good to see Hayek has a sense of humor. And they call Economics “The Dismal Science.” A little levity is good.
– F. A. Hayek. Nobel Banquet Speech 1974.
Schiff has an undergraduate degree in finance and accounting.
What OS and Buddha said!
Professor of Economics at Princeton and Nobel Prize in economics is a definitive credential under any conceivable standard. Talk show host and salesman does not.
Perhaps government should license who has the standing to call themselves an “Economist” so that those who would challenge government’s Keynesian canons can be properly marginalized as the unscientific, wayward propagandists they are?
No doubt the sixty million minds successfully indoctrinated by public schools each decade would agree.
Lol Im laffin too hahahaha!!!
Schiff is an economist like Beck is a journalist.
‘Nuff said.
Reff, Schiff is not even an economist. He is an investment guy who pushes gold and silver. You know, kind of like that Beck guy.
My brain just made a connection when thinking about Schiff which might or might not be on point. I recall that Charlie Daniels had a song about thirty years ago where the lyric was about televangelists: “They tell you to send your money to the Lord, but they give you their address.”
OS,
I am with you. Krugman is heads above Schiff and any other right wing talking point so-called economist.
Opinions are like that nether part of one’s anatomy. Everyone has one. You are entitled to your opinion. You are also entitled to be wrong. G’day.
Schiff continues to have a lot more insight than Krugman ever will, whether people want to accept reality or not:
The Nobel Peace prize is traditionally a political statement. The other Nobel Prize awards are for achievement in an area of scientific endeavor. Those awards are for a scientific breakthrough or new and innovative insight into a problem.