-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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“I know what kind of an analysis you do, mob rule good, individual liberty bad.”
That statement alone shows you suck at analysis.
“I dont need a law degree to know that isnt what the founders were thinking of when they wrote the Constitution.”
Really. Adding “psychic” to your list of super-troll powers? You don’t need a law degree to form an opinion about a subject of which you have a demonstrated limited understanding, but it might give you the context and collateral knowledge to at least formulate an arguable if not correct opinion whereas now your opinions are neither arguable nor correct.
I know what kind of an analysis you do, mob rule good, individual liberty bad. I dont need a law degree to know that isnt what the founders were thinking of when they wrote the Constitution.
hell, you are too stupid to realize lobbying congress isnt a crime last time I looked.
So pardon me while I laugh Grouchy Marx-o.
Hell, you’re too stupid to realize graft is a crime that by definition requires two criminals.
The real problem is that in the final analysis you are completely clueless about the proper analysis of the Constitution because you lack the training to conduct such an analysis, so pardon me while I laugh in your sociopathic face, Rove-o.
No, the only way to prevent tyranny of the strong over the weak is to have a proper constitutional government such as our founders gave us. Not the one you want which is nothing but mob rule.
And how was most of that fixed? Since government wasn’t really into fixing those things until after WWII? Well for one thing a growing economy fixed things and also technological advancement for another. It is just funny the misinformation you have inside your head. You were brainwashed very well.
You are really is tyrannical in the final analysis. I am not the one willing to use government force to collect student debts because I don’t think government should be providing student loans. There is enough private money available for someone to go to school. Maybe if there wasn’t so much money available, a college degree would cost less and mean more than it does now.
You obviously went to a school which didn’t provide you with a good liberal education, a good Marxist education yes, a good liberal education? No way.
How many times do you have to be hit in the head with the legal and logistical fact that bribery and graft are crimes that require two or more people before it sinks through that granite hard skull of yours?
Apparently an infinite amount of times.
And this is patently nonsense . . .
“The obvious is glaring you in the face, government, unless restrained, is inherently antithetical to human liberty. Bank of America and Exxon Mobil not so much.”
Really. Antithetical to human liberty? And corporations are what then? The friends of liberty? This history of industry from the dawn of the industrial revolution is replete with examples that show how staggeringly full of shit you are – from child labor to contaminated products to oppressive and dangerous working conditions to dumping toxic wastes into potable water supplies. All so some sociopath such as yourself can make a profit. The only thing that stops abusive corporate/business practices is government intervention. The only thing that prevents tyranny of the strong over the weak is government for the people, by the people.
You are a simple, venal, myopic creature.
Pete:
But then they are involved in the same thing I am talking about and government is still granting the favors. Those people exist because government has favors to grant. If government didn’t grant favors there would be no need for lobbyists would there.
But then Bank of America didn’t pull that guy out of his house with armed thugs for not paying his student loan did they. It was the DOE.
You guys make me laugh. The obvious is glaring you in the face, government, unless restrained, is inherently antithetical to human liberty. Bank of America and Exxon Mobil not so much.
And the funny guy squashes the pro-corporatist troll . . .
then i apologize for misreading what you wrote.
but
the average federal worker is not a GS15 nor do they have a “fiefdom”.
and this paragraph
Those are the types of people in positions to line their pockets with corporate money. To assume only corporate lobbyists have agendas is to ignore the fact that government is the source of power and those who wish to operate must pay tribute to the sovereign
seems to describe retired military working for weapons manufacturers, or elected officials working as lobbyists for banks or investment firms than the average federal worker.
pete:
not at all, I am merely saying that not all government workers are ethical actors and not all corporate actors are evil.
Roco
1, June 7, 2011 at 6:25 pm
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
Roco
1, June 7, 2011 at 9:04 pm
government workers are not saints, a good many of them have no fealty to the US or the Constitution. They just want to grow their fiefdom so they can perpetuate their own agendas and insure their GS15 designation and the pay and percs which accompany that level of government service.
========================================================
government worker=evil
corporate owner=good
government workers are not saints, a good many of them have no fealty to the US or the Constitution. They just want to grow their fiefdom so they can perpetuate their own agendas and insure their GS15 designation and the pay and percs which accompany that level of government service.
Those are the types of people in positions to line their pockets with corporate money. To assume only corporate lobbyists have agendas is to ignore the fact that government is the source of power and those who wish to operate must pay tribute to the sovereign.
If there were few regulations there would be no need to circumvent those regulations and no tribute would need to be paid to the sovereign for the right to make a profit. Which in a free country is one of our natural rights.
You won’t find an argument against legalization for some drugs from me, but if you only look at the seizure part of the money picture, you’re either ignoring, blind or willfully ignorant to the whole cycle that generates the problem of drug prohibition laws in the first place. Private prisons are a large a part of that cycle as those striving for Federal drug enforcement budgets are and probably more culpable on the corruption end as they employ lobbyists whereas Federal employees and interested state agencies (which are becoming fewer by the day) only have to appeal to budget committees as part of their normal operating process.
Roco is correct.
The drug laws allow the state to grow and actually profit from prohibition. Basic rights are destroyed, students leave school for the lucrative drug economy, police become paramilitarized, law enforcement and the judiciary is corrupted, drugs become more concentrated and dangerous, while drug prices rise and crime skyrockets to pay those prices.
A free market would do none of this. Only the State and gangs benefit from drug prohibition.
Government created the atmosphere in which the lobbyists work at the behest of lobbyists. When FECA (the Federal Election Campaign Act) was in full force, large contribution and “soft money” contributions were severely limited. But over time lobbyist sponsored legislation and soft headed and ill reasoned court opinions like Buckley v. Valeo slowly neutered FECA until its repeal in 1979. In fact, Buckley has been used as the primary weapon in keeping States from enacting campaign finance reform until the abomination that is Citizens United v. FEC came out of our current corporate friendly and purchased right-wing SCOTUS. The rules have been broken on purpose and they have been broken at the monied requests of those who wish to make this a corporatist country. Greater favor to provide does not obviate the crimes of those who offer money for favors. Graft and bribery are by definitions crimes that require two participants. So save that corporatist apologist bullshit for people who don’t know any better.
the problem is not private prison but draconian drug laws. Laws passed by federal and state legislatures. Make drugs legal and let honest farmers make a profit instead of South American drug lords.
Government creates the atmosphere in which the lobbyists work. Government has the greater favors to provide; limits on competition, favoring one industry over another, favorable regulations, etc.
Actually I can and do blame private prisons for that as well as the ever-expanding police state. Their beds are filled with nonviolent drug offenders and other nonviolent offenders. According to the US Bureau of of Justice Statistics, for state jurisdictions 50% of the inmates in private prisons are nonviolent offenders and 20% are drug offenders. The numbers are even higher in Federal prisons. They rarely focus on rehabilitation and regularly cut inmate care to boost profits. Dick Cheney is a huge stakeholder in the GEO Groups, which merged with the company formerly Wackenhut, one of the largest private prison companies in the world. The GEO Group along with others of their ilk like Corrections Corporation of America all belong to a lobbying group known as American Correctional Association, which advocates legislation favorable to the industry and thus complete the circle of corruption and ever increasing criminalization of daily life for Americans that is the prison-industrial complex. Private prisons are an abomination.
The only “special interest” being served by drug forfeiture hauls is the ever-expanding police state. You can’t even blame private prisons for that one.
Gyges,
Which is more dangerous and insidious?
The devil you can see or the devil you can’t see? Overt or covert? Explicit or implicit?