Federal Government to takeover F-Mac/Mae.

[Chuckiechan]

One lesson should be clear, and the Bush administration should have listened to the hard right:

Do not let poor people buy homes. By lowering the bar for qualifying for home ownership, you'll get a certain percentage of "riff-raff" who will never be able to manage home ownership.

Keeping the down payments high, keeps the irresponsible out. This also keeps the poor out.

You always take more risk when you give poor people loans.

The Bush administration and the Republican congress are guilty of trying to help increase home ownership in the lower economic rungs by lowering the bar for loans.

This is why, I might add, that only economists are bitching. Most of the politicians are fairly quiet. It was a noble experiment that failed.

[outlaw2001it]

So Greenspan, and the greedy banks like Freddie Mac/ Fannie Mae (and others) had nothing to do with this fiasco???

[SiliconJon]

Not the best read, but I'm short on search time. Really just a scratch on the surface, but a couple of good points noted: Bear Stearns, J.P.Morgan Chase, Connecting the Dots « Justmytruth’s Weblog

Wow, Chuckie didn't use the term liberal or democrat. He only implied liberal idealogy to be the cause, but then claimed it to be "nobel". Is this baby steps, or just more contradictory BS from Chan because it was done by those for whom his war drums beat?

[SiliconJon]

Quote:

Originally Posted by Fannie and Freddie

Ron Paul in the House Financial Services Committee, September 10, 2003

Mr. Chairman, thank you for holding this hearing on the Treasury Department's views regarding government sponsored enterprises (GSEs). I would also like to thank Secretaries Snow and Martinez for taking time out of their busy schedules to appear before the committee.

I hope this committee spends some time examining the special privileges provided to GSEs by the federal government. According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone. Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board.

One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase GSE debt. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Chairman, I would like to once again thank the Financial Services Committee for holding this hearing. I would also like to thank Secretaries Snow and Martinez for their presence here today. I hope today's hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act.

Dr. Ron Paul is a Republican member of Congress from Texas.

[Disley]

Quote:

Originally Posted by Chuckiechan

One lesson should be clear, and the Bush administration should have listened to the hard right:

Do not let poor people buy homes. By lowering the bar for qualifying for home ownership, you'll get a certain percentage of "riff-raff" who will never be able to manage home ownership.

Keeping the down payments high, keeps the irresponsible out. This also keeps the poor out.

You always take more risk when you give poor people loans.

The Bush administration and the Republican congress are guilty of trying to help increase home ownership in the lower economic rungs by lowering the bar for loans.

This is why, I might add, that only economists are bitching. Most of the politicians are fairly quiet. It was a noble experiment that failed.

That was nothing to do with the hard right, they were always the normal lending practices until the hard right allowed the crooks to write their own rules.
How can you make excuses for the predatory lending practices that were used by the crooks who were paid upfront for signing people up and encouraging them to lie on their application forms. It's a mixture of greedy banks, greedy sales staff and greedy or naive house buyers, all who thought the housing bubble would last forever.

[Disley]

Ron Paul says the dollar is doomed if this trillion dollar bail out goes ahead, where's the money coming from.
YouTube - Ron Paul on the Global Financial Crisis

[The Real Bingo]

Quote:

Originally Posted by Disley

Ron Paul says the dollar is doomed if this trillion dollar bail out goes ahead, where's the money coming from.
YouTube - Ron Paul on the Global Financial Crisis

Where's the money coming from? The Fed waves its magic wand and there it is. They make money grow on trees!

[MTAtech]

Quote:

Originally Posted by Chuckiechan

One lesson should be clear, and the Bush administration should have listened to the hard right:

Do not let poor people buy homes. By lowering the bar for qualifying for home ownership, you'll get a certain percentage of "riff-raff" who will never be able to manage home ownership.

Keeping the down payments high, keeps the irresponsible out. This also keeps the poor out.

You always take more risk when you give poor people loans.

The Bush administration and the Republican congress are guilty of trying to help increase home ownership in the lower economic rungs by lowering the bar for loans.

Actually, the administration and the Republican Congress didn't give a damn about the poor people getting loans. The Reps were listening to the voices of Wall Street that created a shadow banking system to avoid banking regulation. The motive, as always, was increased profits. Their method was for finance companies to sell subprime and nontraditional mortgages to millions of Americans who they didn't care couldn't afford the mortgage payments. They didn't care because the they assumed that if the borrower defaulted the could foreclose on the house and get their money out. That changed when house prices fell.

While it is true that the Federal Reserve and the Bush Administration was asleep at the wheel, I didn't hear anyone from the "hard-right" voicing any objection. The Bush Administration is the hard right. Their philosophy is that there isn't a government regulation that shouldn't be weakened. However, as early as 2005, liberal economist Paul Krugman was warning about the housing bubble. A year ago, Krugman advocated against bail-outs because that rewarded the people who got us into this mess and instead, advocated forcing work-outs of mortgage loans.