-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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puzzling,
“The answer must be more government.”
No.
The answer must be better laws and government more accountable to the people and not just their campaign contributors.
A system only works as well as it is designed and if it is broken on purpose for the interests of the few, it is by definition not working well for the most people possible – which is the utilitarian definition of good governance. Size of government is and always shall be a red-herring argument. Effectiveness in serving the public’s interests is the only metric. You need a government large enough to do the jobs required as dictated by the Constitution, no more, no less. Our government isn’t plagued by being too large. It’s plagued by being mistasked to the desires of special interests over the needs of the many and that includes the need of the many for equal justice.
Gyges,
I don’t have an issue with your goal, however, in this instance I think I have adequately explained why I think the Austrian school is effectively fascist, to whit nationalism is no longer an required component in a post- transnational age and militarism is militarism whether express or tacit as violence is still the net result.
Like when the State architects civil forfeiture laws, allowing government to seize assets when no crimes are proven or even charged? Regulation for the common good, no doubt.
Nashville NewsChannel5 – Police Profiting Off Drug Trade
Police turf wars over cash. Illegal searches and shakedowns. A not-for-profit police state profiting from the very prohibition it created.
The answer must be more government.
If you don’t think that the modern markets aren’t controlled by corporations, you simply haven’t been paying attention. That corporations are a tool that is often misused to avoid actual liability is another issue. If you don’t think that goes on as well, then you haven’t been paying attention.
GoldmanSachs.
As to this “The market is nothing but individuals pursuing their personal goals.” When your personal goals trample the rights and liberties of others, your personal goals should be subject to the rule of law. Your rights end where the rights of others begin. As in your right to profits end where the rights of others begin, including the right to be free from tyranny (economic or political). Unregulated markets historically lead to abuses of both labor and consumer by business interests and that’s a fact. Business interests more interested in profit than the good of both employee and purchaser alike. Establishing justice is a requisite function of government. Allowing abusive business practices because it’s simply more profitable to the owners is the very picture of injustice.
sorry Gyges.
So I guess what you are both saying is that since markets are nothing but an aggregate of individuals, you are against individuals?
The market is nothing but individuals pursuing their personal goals. Why do you consider the market to be some sort of corporate creation? Individuals create the market. Corporations are dependent on those individual transactions.
So by limiting the market you limit the freedom of individuals which truly is fascism/communism and socialism to a lessor extent.
Buddha,
A good chunk of my motivation is applying the same standard to you that I do whenever that stupid claim that Fascism is a branch of Socialism comes up. If I’m going to insist on accurate definitions, I need to do it consistently, and most definitions of Fascism I’ve seen use words that show intent: Advocate, exalt, that sort of thing.
On the other hand I’m just considering the rhetorical implications of the boy who cried wolf. Crying Fascist at every right wing organization makes about as much sense as crying Communist at every left wing one, and gives those listening an excuse to ignore the shouter.
Plus hey, two Monkeys jokes, a Big Lebowski reference and no Roco. I’d consider that a successful conversation.
ekeyra,
If you want to take that personally, I really don’t care. You made your oligarchical bed. Sleep tight.
“When it comes to taking democracy out of the picture and installing an oligarchical two-tiered legal schema that will with absolute certainty lead to conflict”
RIght because theres not a double standard in legal practices now… If i walk into a mcdonalds and shoot five people, im most likely going to jail. Do you have any doubt that dubya, obama, or any other president that has orchestrated war crimes will never see a jail cell? As long as you cloak your crime in the mysticism of politics you are immune from almost all forms of criticism, much less retaliation or prosecution.
“You have to dumb down the slave class lest they get the idea that the Ubermenchen are mere mortals too.”
If everyone understood that everyone else is human, for all the good and ill that implies, the world would be better off.
Its also very amusing that you assume my positions are advocated out of some flawed assumption that I am somehow superior to the dregs of society that are dragging me down.
When it comes to taking democracy out of the picture and installing an oligarchical two-tiered legal schema that will with absolute certainty lead to conflict, I care less about motive than I do about effect. Murder or manslaughter (to return to your original analogy so I don’t have to address the Davey Jones issue), the killer is still a killer. Intent only informs punishment, not responsibility. When one seeks to avoid all responsibility, one is concurrently seeking to avoid all punishment or consequences of failing in a responsibility. Willful depraved indifference is still a form of manslaughter even if your will was directed toward profits.
Buddha,
Or Musicians for that matter?
[youtube=http://www.youtube.com/watch?v=UQNqk54HPdE&w=640&h=390]
Buddha,
That last part was largely an excuse for the The Big Lebowski quote, but I guess I’m drawing a thousand monkeys vs. Shakespeare type distinction (the original analogy was man slaughter\homicide, but dealing with pre-preschoolers has given me a tendency to talk about monkeys whenever I can), sure the Monkeys could produce the play, but would you call them play-writes?
Gyges,
“if you want to say that they’re program will lead to A fascist or psuedo-fascist state, that’s one thing.”
That’s exactly what I’m saying when I say “an inevitable outcome of their propositions.” Don’t forget the lesson of Smedley Butler, “War is a racket.” Purposeful or not, the hanged care nothing for the motives of the hangman. The unregulated pursuit of profits eventually leads to conflict as bands of narrow interest pursue their profit goals irregardless of the effects on anyone or anything else. Idempotency of entailment (the proposition that one may derive the same consequences from many instances of a hypothesis as from just one, i.e. there can be more than one path to a unitary true solution) still applies.
Buddha,
The Mises Institute is actually pretty consistently anti-war. So if Militarism is a big point of Fascism, they’re missing it.
You’re overlooking the huge body of Fascist rhetoric that these Plutocrats soundly reject. There’s much less emphasis on The Leader, and The Nation. Both of those need a clear line to differentiate US from THEM, that’s the rhetorical strength of Fascism, “I want to be a part of a group that’s better than that group,” which quickly becomes “I need to do what The Leader tells me is best for The Nation.”Since Mises pushes a market that’s global and without borders, you loose that tribal appeal. In fact, a large part of rhetoric is centered around encouraging people to consider themselves as separate and holy, and the good of the group as an obstacle to overcome. It’s missing the heart of Fascism.
Now, if you want to say that they’re program will lead to A fascist or psuedo-fascist state, that’s one thing. The problem is that I consider motive part of the definition of a Fascist, they WANT that state, the people who write for Mises just sort of want to blunder into one. They’re just intellectually whoring themselves out to their moneyed betters, without any care for the consequences. I mean, say what you like about the tenets of National Socialism, Dude, at least it’s an ethos.
1) “The government having no function. Full stop. There you go. Gyges may not agree with them but at least he understands their perspective.”
Exactly what I’d expect an apologist say.
2) Nationalism is a two-edged sword. It can and has both started wars and prevented them. Nationalism was a large part of what started WWII. Conversely, nationalism is a large part of what discouraged the Cuban Missile Crisis from becoming a nuclear WWIII.
3) Your WMD statement is asinine. It’s not Mom and Pop becoming a nuclear power that is an issue. It’s organized religious fundamentalists and fringe political whack jobs of all stripes bent on destroying the world so they can meet Jesus in person or get their virgins or avenge a perceived ancient wrong against their tribe. Or some people simply live to see the world burn. None of which prevents any of the aforementioned groups from being a valid prospective client absent regulation.
4) “Which is a truly harder feat to accomplish? Satisfying a limited pool of shareholders, with extremely vested personal interests, of expectations of not only current revenue streams but future development of business opportunities, or convincing enough uneducated, immature, and economically ignorant people in a country of 300 million that you can make all their dreams come true if they pull lever a instead of lever b? ”
Spoken like a truly anti-democratic oligarch and someone with a vested interest in doing away with public education, McHomeSchooled. You have to dumb down the slave class lest they get the idea that the Ubermenchen are mere mortals too.
5) “B, seriously, do you ever stop and think who GRANTS corporations the legal fiction you always rant about?”
Seriously, do you ever stop and think where the perversion of the corporate form into personality equivalent and in someways superior to individual rights comes from? The answer is corporate lobbyists and a lack of regulation keeping corporate interests out of our political system. Corporations as a legal concept have a narrow and very specific application that has been distorted over time by corporate interests wanting unlimited power and unfettered ability to make a profit no matter the societal cost as long as they can escape personal liability for their actions. Like all tools, corporations are a tool that can, will and are being abused.
That was way too easy.
Try harder.
B
“the government having no function but to service the markets and the will of industry.”
The government having no function. Full stop. There you go. Gyges may not agree with them but at least he understands their perspective.
“In a world dominated by multi-national corporations, nationalism is an antiquated idea.”
Given the pile of bodies nationalism has collected under its banner shouldnt this give you hope?
“Militarism we see being played out in full force across the international stage in many cases for nothing more complex than a profit motive and often a profit motive by a company that because it has no national boundaries need no longer feel constrained by nationalism but rather only by maximum profitability.”
How has nationalism ever constrained militarism? Every historical example proves that nationalism merely fuels an exceptionalism that justifies any military action because “were the good guys”. Hell the last 2 decades should be evidence enough of that. Also, Im not sure if you’ve noticed, yes war is profitable to the contractors and weapons manufacturers, chosen by government, but aside from them it is a staggering drain on the economy. Funneling productive capacity to things that will only end up charred wreckage on a battlefield does not make the world wealthier.
“Unless prevented by the government, weapons manufactures – including those who manufacature WMDs – would simply sell to the highest bidder.”
Without governments where would the demand or the funding have come from to produce weapons of mass destruction? Are you and your friends and family pooling your money to afford an abrams tank or a state of the art biological weapons manufacturing plant?
“Corporate officers are not subject to public democratic election. As long as they maintain profitability and satisfy shareholder expectations, they have no checks on their power or abuse thereof. ”
Which is a truly harder feat to accomplish? Satisfying a limited pool of shareholders, with extremely vested personal interests, of expectations of not only current revenue streams but future development of business opportunities, or convincing enough uneducated, immature, and economically ignorant people in a country of 300 million that you can make all their dreams come true if they pull lever a instead of lever b?
B, seriously, do you ever stop and think who GRANTS corporations the legal fiction you always rant about?
Gyges,
What the von Mises institute suggests is default corporatism: the government having no function but to service the markets and the will of industry. In a world dominated by multi-national corporations, nationalism is an antiquated idea. Nationalism is a secondary trait in fascism compared to militarism. Militarism we see being played out in full force across the international stage in many cases for nothing more complex than a profit motive and often a profit motive by a company that because it has no national boundaries need no longer feel constrained by nationalism but rather only by maximum profitability. Unless prevented by the government, weapons manufactures – including those who manufacature WMDs – would simply sell to the highest bidder. That is the optimal solution in a laissez-faire free market is it not? Maximum profit.
Quite simply, national boundaries no longer hold the meaning to industry that they did in the 30’s and 40’s. What is good for GM is good for the country is a maxim that no longer applies when GM does business on a global scale. Would it be more like India under English colonialism or Italy under Mussolini? The answer is neither. It would be much worse in terms of both damage and scale with the puppeteers being fluid legal fictions not bound by national laws as they are no longer bound by national borders. Without the constraints of nationalism, corporations are even more free to flaunt the law than ever. Without the constraints of accountability that the much expanded shield of liability presents corporate actors, the potential for abuses become unlimited. Corporate officers are not subject to public democratic election. As long as they maintain profitability and satisfy shareholder expectations, they have no checks on their power or abuse thereof. Corporatism is an interchangeable term with fascism according to the father of modern fascism, Mussolini, and the von Mises institute is nothing if not corporatist in bent seeking total freedom to pursue profit no matter the cost to the publics well being, civil rights and basic human rights. Their flawed ideology cannot be anything other than a form of post- or transnational fascism.
Let us also not forget that there are other salient features to fascism such as being anti-egalitarian, anti-democratic, anti-individualist, anti-liberal, anti-parliamentary and pro-oligarchical. All in the name of unlimited ability to profit. These traits are still exemplified by the ideology von Mises espouses, either expressly or as an inevitable outcome of their propositions.
I’ll stand by the assertion it is fascism. Fascism of a slightly different stripe than what Mussolini formulated, but fascism none the less. It is the evolved fascism of the multi-national age.
Buddha,
You’re not doing too hot these days, first the whole Big Brother\PKD thing (in retrospect, I’d put it closer to a few obscure cyberpunkish thrillers I’ve read, but since they’re not part of the common culture…), now this.
There are lots of bad things about the Mises Institute you can say, but they’re not particularly fascist. The key difference is that where as with Fascism, The State is all important, in their philosophy, The Market is. While both apply the same omniscience and many other God like attributes to their entity of choice, there are enough key differences in the essence of the two to make the resultant philosophies divergent. I think the most important is that In Von Mises philosophy, The Market knows no national boundaries, Fascism is fiercely nationalist and REQUIRES other entities outside The State to be at war with.
Let me be clear, The Mises Institute endorses a completely flawed ideology, and if it was actually implemented would be as tremendous a failure as Communism was. Rather than the Utopia they think it would lead to, the end result would just be a failed state. I think it’d have more in common with the Indian Subcontinent under English “rule” than it would with Mussolini’s Italy.
I would like to know what else you find distasteful they promote.