Center-left intellectuals in America apparently have a serious problem comprehending the concept of Bullshit.
The entire econ world has borne witness to Paul Krugman tearing out his hair over Zombie Lies. Now, Mark Zandi devotes some several thousands words to overturning the nonsense notion that 70 year old US Government Sponsored Enterprises sparked a 21st century global boom in raw material and land prices during a time in which their influence on the international credit markets was approaching a multi-decade low.
He writes
Getting history right for this dark economic period is critical if we are to design a better mortgage finance system for the future. If Fannie Mae and Freddie Mac are responsible for the debacle, then perhaps government’s role in a future mortgage finance system should be minimal. But if private lenders deserve most of the blame, the case grows for giving government an important role in backstopping and overseeing the system.
Mark, Mark. Clonazepam. It’s a beautiful thing. Let go.
I am betting that maybe five people in the US actually believe Fannie and Freddie caused the housing bubble. Maybe half a dozen more are actively lying about it.
The rest are just Bullshitting. That is, they don’t really care what the truth is one way or the other. This is just a way to gesture in the general direction of the federal government and say Urrhh!!!
If you prefer call it the Chewbacca Analysis
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Saturday ~ January 28th, 2012 at 1:53 pm
amspirnational
Well, the government failed to regulate, being captured by those they should have regulated.
Perhaps the ensuing increase of mistrust of government shows Americans have essentially become an ungovernable people, i.e. by Washington.
This is not an argument for de-regulation of Finance, but a
proposititon which begs a thrust for de-centralization of power in DC…thru at first, (further) destabilization–by any combination of anti-Elite forces, say the best elements of the Tea Party and the best elements of Occupy doing Cairo-style protests…for a start.
Saturday ~ January 28th, 2012 at 8:53 pm
Matt (@MeCampbell30)
More tin foil over here…
Sunday ~ January 29th, 2012 at 9:19 am
Fred Beloit
From Mark Steyn:
“But why stop there? Americans need affordable health care and affordable master’s degrees in Climate Change and Social Justice Studies, so why not take everything that Warren Buffett’s got? After all, if you confiscated the total wealth of the Forbes 400 richest Americans it would come to $1.5 trillion.
Which is just a wee bit less than the federal shortfall in just one year of Obama-sized budgets. 2011 deficit: $1.56 trillion. But maybe for 2012 a whole new Forbes 400 of Saudi princes and Russian oligarchs will emigrate to the Hamptons and Malibu and keep the whole class-warfare thing going for a couple more years.
The so-called “Buffett Rule” is indicative not so much of “common sense” as of the ever widening gap between the Brobdingnagian problem and the Lilliputian solutions proposed by our leaders. Obama can sacrifice the virgin daughters of every American millionaire on the altar of government spending and the debt gods will barely notice so much as to give a perfunctory belch of acknowledgement. The president’s first term has added $5 trillion to the debt — a degree of catastrophe unique to us. In an Obama budget, the entire cost of the Greek government would barely rate a line-item. Debt-to-GDP and other comparative measures are less relevant than the hard-dollar numbers: It’s not just that American government has outspent America’s ability to fund it, but that it’s outspending the planet’s.”
Saturday ~ January 28th, 2012 at 2:00 pm
rjs
you dont listen to right wing talk radio…everyone knows barney frank is to blame for the crisis
Saturday ~ January 28th, 2012 at 2:43 pm
Dan Tyler
The fact that Texas’s regulation of lending prevented the bubble from forming there is one of the ironies that the right has to deal with.
Sunday ~ January 29th, 2012 at 1:36 am
mfsheldon
Whoa!
Texas lets you build a house anywhere and everywhere you want.
Lack of land use restrictions ensured that home prices could barely rise. Go look at new home construction in Texas during “the bubble.”
It was HUGE. If there was such onerous restrictions on lending, how did they build so many more houses than so many other places?
In 2006, Texas built more houses than any state in the nation.
You have to explain that.
The states with the greatest bubbles simply did not allow housing supply to keep up with demand.
The bubble is supply and demand in action. If prices did not rise, it was because there was a cheaper house available.
Period.
Saturday ~ January 28th, 2012 at 3:03 pm
Ryan Cooper (@RyanLouisCooper)
This post kind of misses the point. Of course they’re bullshitting. But the American right has a stupendous capacity to amplify their bullshit, to the extent that any kind of fact-based analysis doesn’t get traction in the discourse.
In fact, I’d go further. The Republican Bullshit machine, like some demon summoned from beneath the crust of the Earth, has turned on its makers and badly eroded the reasoning ability of that side. GOP lawmakers and thought leaders often really believe this shit.
Sunday ~ January 29th, 2012 at 2:29 am
mfs
Fact free statement there. Nice contribution.
Saturday ~ January 28th, 2012 at 3:05 pm
DocOc
People tear their hair out not because of the bullshit, but because of where its coming from. If Heritage, AEI, where ever can repeatedly bullshit with no apparent damage to their reputation, what does that say about the state of scholarship?
This crisis has been particularly eye-opening for me, as I’ve seen respected economists, who must know better, engaged in manufacturing bullshit with no worries about their reputation.
Saturday ~ January 28th, 2012 at 4:12 pm
frank
The government had nothing to do with creating an artificial demand for bad mortgages by creating GSE’s to buy those mortgages on the secondary market and also providing a line of credit from the U.S. Treasury to the GSE’s, which in no way whatsoever distorted the market or created any type of moral hazard for mortgage brokers and mortgage originators to give “no-doc” mortgages (and/or home equity loans/lines of credit) to people with little or no income or people buying a McMansion for three quarters of a million dollars (while grossing forty thousand dollars a year and have defaulted on every source of credit provided to them in their lives) and putting zero money down. Of course, government created fannie and freddie with a completely different regulator but its not like it is the governments fault! Especially not democRats fault since those bad republicans tried to actually enforce the intended regulations on the GSE’s (http://www.youtube.com/watch?v=LPSDnGMzIdo).
Listen up you fools – if the government creates an entity to buy up loans – bad loans or otherwise (mortgage loans, car loans, student loans, or any other loan for that matter), then originators and brokers are going to feed the government (or their sponsored enterprises) demand. If the govt creates an entity to buy box office tickets to movies from overrated actors, then Matt Damon’s movies will all start sell out.
Saturday ~ January 28th, 2012 at 11:24 pm
nylund
So are these American GSEs also to blame for the concurrent housing bubbles in Britain, Ireland, Spain, Australia, Romania, etc? Fannie and Freddy caused a bubble in Australia too? Is that you’re argument? Or is it just a huge coincidence that all those countries experienced similar bubbles at the same time?
Personally, I think it makes sense to assume that the people running the banks in Australia are just as stupid and greedy as the ones running the banks here. Heck, in this age of multi-national financial institutions, they may even be the same stupid and greedy people in both cases!
It makes more sense than any explanation that lays the fault of housing bubbles in places as wide-ranging as Spain and Australia at the feet of Fannie and Freddy.
Or maybe I’m just mistaken in thinking that there was also a financial crisis in Europe too. Surely, if there was, we’d be hearing something about it’s after effects, right?
Sunday ~ January 29th, 2012 at 1:45 am
mfs
This is pure ignorance on display.
Go look at the foreclosure rate in those countries vs. those here. They are not even remotely close.
The increase in the foreclosure rate (over traditional baseline) in the US is 3-4X that of these nations.
Canada had home prices rise too, but there has been no disastrous foreclosure crisis there either.
The problem was not the availability of credit. The availability of credit caused the home prices to rise.
The problem unique the United States is that a vast number of those people had no means to repay the loan.
The financial crisis was not due to the rise and fall of prices, it was due to FORECLOSURES!
The US stands alone in it’s massive foreclosure rate.
Oh, and WHO did the underwriting on 50% or more of those loans?
YOUR NON-VICTIM GSEs did that. THEY APPROVED THE LOANS.
A mortgage broker can’t originate a mortgage they cannot sell off, right?
Fannie and Freddie bought most of those loans directly or indirectly through private label securities.
It is clear that so many, including the author, haven’t the slightest clue how mortgage finance actually works.
What a joke.
Sunday ~ January 29th, 2012 at 12:02 pm
Lord
Certainly ignorance on display. Canada had a rise in housing prices but not the fall, so naturally few foreclosures. No the GSEs did not underwrite these loans. They did not even write these loans until they were under political pressure. They did buy the lowest risk tranches and their loss rates have been much lower that of the investment banks who pioneered liar loans. The GSEs only underwrote documented loans to people with substandard credit before that. Yes the GSEs are a large part of the market, all of the market now that the investment banks have fled, but it only takes a few bad apples to spoil the barrel and the investment banks were some really, really, bad apples.
Saturday ~ January 28th, 2012 at 4:50 pm
Lord
Since Republicans trust only Faux News, I think the count may run a bit higher than that. Course they may think truth has nothing to do with it, they just want what they want.
Saturday ~ January 28th, 2012 at 4:50 pm
Jeff
I generally like this post, but I have two sets of quibbles. First, “center-left” is weird. I guess from a strictly ideological perspective you could call Krugman “center-left”, but he’s _awfully_ partisan, which doesn’t fit well with the connotation. Also, Mark Zandi calls himself a lifelong Republican and was a major adviser to the 2008 McCain campaign; _center-right_ would be a better descriptor for him.
Second, I suspect the line between gesturing and going “Urrhh!” and actually believing is _much_ sharper in your mind than in reality.
Sunday ~ January 29th, 2012 at 2:28 am
mfs
Whoa.
Zandi was never a formal advisor to McCain. See below.
He maxed out his donations to JOE SESTAK and The DEMOCRAT in his home district.
He is a DEMOCRAT. Over $10,000 in donations to DEMOCRATS in 2010.
http://www.campaignmoney.com/political/contributions/mark-zandi.asp?cycle=10
You have repeated the same Zandi propaganda that the Left cannot shake.
Take in the facts and evidence. STOP THE LIES, PLEASE.
http://www.cbsnews.com/8301-503544_162-20012543-503544.html
“Whenever Zandi says something nice about the President’s economic policies, the White House seizes on it: “See?! Even John McCain’s chief economic adviser agrees with us!” They act as if that settles the matter. If even our chief critic agrees with us, we must be right.
But Zandi is not even close to their chief critic. If you look at his positions, he’s far from an ideologue. He leans a little left in some places (stimulus) and a little right in others (tax cuts).
I covered the McCain campaign and was briefed by McCain’s economic team many times. Zandi was never involved.
When I called Gibbs on it today, he initially pushed back, insisting Zandi was an adviser to McCain. But he then admitted that Zandi has been an adviser to the Obama White House. The truth is, he’s an all-purpose smart guy who has advised politicians in both parties.
I talked to Zandi after today’s briefing and he said he too was tired of having his role with McCain mischaracterized, and appreciated that it had been clarified. He repeated what’s he’s told me before — that his role in advising McCain was “very modest” and that he was far from being McCain’s chief economic adviser.
For the White House to portray him as such, and to try to use that for political purposes, seems a bit disingenuous, not to mention unfair to Mark Zandi.”
Saturday ~ January 28th, 2012 at 6:57 pm
Greg Ransom
The left has told so many lies about Freddie & Fannie — and Freddie and Fannie have so falsified the record — we’re is the credibility for anyone to believe the bullshitters on the left on this topic?
And the idea that Freddie and Fannie alone are to blame is istself bullshit, not a claim I’ve seen anyone make.
So why are _you_ bullshitting us Karl?
I don’t hope to find honest people on this topic among leftist academics — there just isn’t a track record of honesty to support such a hope, however much one would hope academics would start from a place of honesty. The record shows this just isn’t the default standard operating premise or the place where deep down people are motivated to come from — what drives them is their passion for the politics — and the aim to achieve their ends by whatever spin necessary.
We’ve seen this deep level of dishonest and disregard for getting things true from Krugman, DeLond and others — and it’s a legacy of fraud and dishonesty on the left going back to Marx and before.
Saturday ~ January 28th, 2012 at 8:59 pm
Matt (@MeCampbell30)
Cool story bro…
No hyperbole at all.
Sunday ~ January 29th, 2012 at 2:13 am
mfs
You won’t find any honestly. This is religion to them, man.
It seems to me that the losses that the GSEs have absorbed is Exhibit A, and the only Exhibit you need to prove that they had a necessary role to play in all of this.
They ARE the secondary mortgage market, PERIOD.
At their PEAK, Private Mortgage-Backed Securities accounted for 20% of the market. At their PEAK.
Through most of the bubble period from 1996-2006 they accounted for only 10%.
At their LOW, the GSEs were 40% of the market and for most of the period were 60% of the market.
Now, this is not rocket science here.
We are exonerated the entities that comprised roughly 50% of the market, and convicting the entities that comprised perhaps 12-15% of the market?
That is effing retarded. Meet Mr. Zandi.
(politically incorrect term is applied literally in this case!)
Sunday ~ January 29th, 2012 at 3:19 pm
Matt (@MeCampbell30)
^That would mean something to me if defaults were equally distributed across all mortgage types. But they weren’t. The disproportionate majority of Sub-prime and Alt-As made came from the private sector.
You MAY (PERHAPS) say that the GSEs forced the private market into risky investments, but even that’s a strech when the GSEs are decreasing market share in a time when mortgages were exploding.
You get residual losses (as experienced by the GSEs) because when the market tanks that fast even good mortgages aren’t immune.
Saturday ~ January 28th, 2012 at 7:52 pm
Tom Maguire
From the NY Times, Sept 1999:
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
”Fannie Mae has expanded home ownership for millions of families in the 1990′s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”
Sunday ~ January 29th, 2012 at 2:06 am
mfs
Wait, you are hitting them with facts and evidence!!!
A historical record! No!
No, Fannie was not leveraged 65 to 1!
No, they did not mask their exposure to sub-prime loans by dealing in Private-Label Mortgage Securities!
No, their losses do not exceed mortgage losses of all other banks combined!
No, they did not spend tens of million in lobbying both sides of the aisle to lock in their influence over the mortgage market!
No! No! No!
Let them close their eyes and keep saying that none of it is true.
…but it all is true. It is. The GSEs became an unstoppable force. The moment they decided to devour subprime, they gave it the Good Housekeeping stamp of approval.
Subprime did not explode until the GSEs blessed it with their patina of prudence.
Facts.
Saturday ~ January 28th, 2012 at 8:15 pm
Khal Mojo
I do agree that it’s all bullshit, but…
“In the summer of 2002, after I had written an article in Esquire that the White House didn’t like about Bush’s former communications director, Karen Hughes, I had a meeting with a senior adviser to Bush. He expressed the White House’s displeasure, and then he told me something that at the time I didn’t fully comprehend — but which I now believe gets to the very heart of the Bush presidency.
The aide said that guys like me were ”in what we call the reality-based community,” which he defined as people who ”believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ”That’s not the way the world really works anymore,” he continued. ”We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors … and you, all of you, will be left to just study what we do.”
— Ron Suskind in the New York Times, October 17, 2004
In other words, it doesn’t matter what is bullshit and what isn’t. If it’s repeated over and over again by the media and used to create law (or destroy them through the courts), then it’s not bullshit anymore – it’s reality formed by bullshitters. Politics is not a science, nor is public opinion. There is no way to remove the bullshit from public discourse, especially in the Internet age. While you can call politicians and economists or whomever you want on their bullshit, enough people WANT to believe it (to justify their preconceptions and prejudices) that it’ll become a reality for at least half the population.
This, ladies and gentlemen, is the absolutely most serious issue that we’re facing in the US. The jobs issue is very important, but we’ll eventually recover. However we are now seeing a demographic in the US which is literally defacing facts for political and economic expedience – and it’s something that will have very long lasting effect.
Saturday ~ January 28th, 2012 at 9:10 pm
Tel
I can see that your “Say Anything” strategy is ticking along nicely.
What Western Civilization needs right now is a bigger memory hole, `cos what we got ain’t big enough to swallow it all.
Saturday ~ January 28th, 2012 at 9:27 pm
Morgan Warstler
Karl is correct but only if we first agree Fannie and Freddie must be shut down.
That’s the greater truth. It isn’t fist shaking at the Gvt.
it is a clear desire to end gvt. backing mortgages for home buyers.
And since it is the greatest truth – blaming ANYTHING on Fannie and Freddie is justified. Always justified.
Saturday ~ January 28th, 2012 at 9:34 pm
Annon
Agree with substance of story but “Clonazepam. It’s a beautiful thing.”
NO. It can be an effective drug when used properly and when it is needed. It can also kill. Don’t joke about drugs used for mental illness. Some of us have lost loved ones to doctor-administered overdoses, and while these drugs are beautiful when they allow you to retake your own life they are not a joke.
Saturday ~ January 28th, 2012 at 11:52 pm
Greg Ransom
Just how many times did we see the “center-left” Zombies in academia, journalism & from the econoblogs repeat the FRAUDULENT data being “disclosed” by Fannie & Freddie?:
ABCNEWS, Dec. 2011: “Three years after taxpayers footed the bill to bail out mortgage giants Fannie Mae and Freddie Mac, the top six executives at the government-supported lenders were charged by the Securities and Exchange Commission with fraud for failing to disclose billions of dollars in risky subprime mortgages.
“Investors were robbed of the opportunity to make informed investment choices on whether or not to invest in the companies,” said Robert S. Khuzami, the SEC’s director of enforcement. “All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”
“They sought to maintain the illusion that their businesses involved minimal and manageable credit risk,” Khuzami said. “They led investors to believe that Freddie Mac was disclosing subprime exposures, however that was not the case.”
The SEC suit alleges that while Freddie Mac’s CEO Richard Syron publically stated that the company had basically no subprime exposure, the company was in fact exposed to $141 billion in subprime loans in 2006. By 2008 these risky investments grew to $244 billion, or 14 percent of Freddie Mac’s portfolio.
The commission’s charges that Fannie May also failed to disclose the extent of their risky loans.
In 2007 Fannie Mae reported that only .2 percent, approximately $4.8 billion, of its Single Family loan portfolio was comprised of loans “made to borrowers with weaker credit histories” when in fact, the exposure to subprime loans was nearly ten times that amount, the SEC alleges.”
Sunday ~ January 29th, 2012 at 1:57 am
mfs
True.
Let’s toss aside credit history…what % were made to borrowers with NO credit history and with NO money down?
The fact that the GSEs losses account for more than 50% of this mess says that anyone who exonerates them of any role is, as they say…
…bat-guano crazy.
I see the have a little meeting club here.
Sunday ~ January 29th, 2012 at 12:03 am
Greg Ransom
Let’s be honest, Karl.
Mark Zandi gives us a pathetically tiny slice of the wider story.
A pathetically tiny slice.
So pathetic that the narrowness — the shallowness — of his discussion completely overwhelms everything else.
Sunday ~ January 29th, 2012 at 7:25 am
Karl Smith
Greg:
This thread is likely to turn ugly. If you feel strongly about this and want to talk about it, email me
Wednesday ~ February 1st, 2012 at 10:51 am
frank
Why would we email you when we can comment on your post and call out your innacuracies out in the open?
Sunday ~ January 29th, 2012 at 1:51 am
mfs
The $400B gaping hole that the the taxpayer is filling called Fannie and Freddie says all of you here are dead wrong.
Who should I believe? You?
….Or my $400 Billion lying eyes?
Whose bailouts exceeded all of the banks combined (excluding AIG, an insurance company)?
Whose? The victims?
Who was leveraged 65 to 1? Far more than any bank?
Who? The victims?
Who has paid the vast majority of the bailout money back?
…and who is still racking up an insurmountable tab?
Who? The victims?
Yeah, right.
I think this is what they refer to as a “circle jerk” going on here…an echo chamber on steroids.
Good Might and Good Luck!
Sunday ~ January 29th, 2012 at 1:52 am
Terry Mahoney
Wow, you guys sure covered all the bases. I guess the only thing left to say is…
“Look at the monkey!”
*pop*
Sunday ~ January 29th, 2012 at 2:40 am
mfs
This post reminds me of the scene in Animal House when the guy gets run over by the mob at the end of the movie.
“All is well, stay calm. ALL IS WELL!”
It was a complete disconnect from reality.
…or the Wizard of Oz:
“Pay no attention to the man behind the curtain!”
What sort of Belgian Abbey do you have to live in to believe that only 5 people think Fannie and Freddie have any blame in this mess?
The opposite is far closer to reality, though I choose not to exaggerate my credibility away, as this author has.
The only reason Zandi is out there is that he is fighting what he perceives to be the conventional wisdom. that he and his firm were completely full of crap, and continue to be.
Don’t forget, it was his incompetent FIRM (Moody’s) that said Fannie and Freddie securities were all AAA…riskless.
Nice call, Zandi.
So, why are we listening to this joker again? Does he really think we are going to buy the fantasy that they would have been AAA except for all of those villians in the mist?
This is called CYA people.
The ratings firms are a joke, and it is hilarious to see the Left adore this guy as he seeks to curry favor to avoid having his FIRM regulated.
You have to be blind not to see it. There are blind people it seems.
Sunday ~ January 29th, 2012 at 4:19 am
Karl Smith Watches Mark Zandi Join the HSRILL!! | FavStocks
[...] Fannie, Freddie and Chewbacca « Modeled Behavior: Center-left intellectuals in America apparently have a serious problem comprehending the concept of Bullshit. The entire econ world has borne witness to Paul Krugman tearing out his hair over Zombie Lies. Now, Mark Zandi devotes some several thousands words to overturning the nonsense notion that 70 year old US Government Sponsored Enterprises sparked a 21st century global boom in raw material and land prices during a time in which their influence on the international credit markets was approaching a multi-decade low. He writes [...]
Sunday ~ January 29th, 2012 at 9:00 am
Bob
Karl,
Sorry but Krugman and Zandi are providing a useful service. Sure, not many people familiar with the housing meltdown really believe the Fannie/Freddie meme. But that doesn’t stop thousands of people smart enough to know better (WSJ Editorial page readers) and millions of clueless people (FOX News viewers) who use those sources as a proxy for more in depth analysis from believing it. And, while I greatly respect Dr. Krugman, he is counter-indicator for the right-wing. If he’s fer it they’re agin’ it. Zandi has holds a more centrist position.
While most of those misguided WSJ Ed page readers and FOX viewers won’t be swayed from heir deeply held, faith-based convictions, we don’t need to reach everyone – just enough to get to 51% of the vote.
Sunday ~ January 29th, 2012 at 9:56 am
Fighting the Bullshit | The Militant Left
[...] Fighting the BullshitPosted on January 29, 2012 by Militant1 in MotherJonesKarl Smith says lefty intellectuals have a problem dealing with bullshit. Case in point: Mark Zandi spending several hundred words this week demonstrating, yet again, that Fannie Mae and Freddie Mac weren’t responsible for the 2008 financial meltdown: [...]
Sunday ~ January 29th, 2012 at 1:01 pm
Browsing Catharsis – 01.29.12 « Increasing Marginal Utility
[...] Karl Smith is VERY aggressive towards the argument that Freddie and Fannie helped cause the crisis. While I don’t think much of the argument either, I don’t think his facts are quite right; there were changes in 1997 that strengthened the Community Reinvestment Act. Basic economics will tell us that implicit subsidies (through implicit guarantees) will cause a directional change. The size of the directional change is unknown, but that the 1997 changes would push the economy to build too many houses is essentially a priori. Whether it accounts for 5 of the houses or 50,000 of the houses is the question. The reason I believe it is more like 5 is that the movements in the prices of residential versus commercial real estate don’t make any sense otherwise. But the whole thing was way to complicated to call the position bullshit. [...]
Sunday ~ January 29th, 2012 at 2:20 pm
Jon
This is post is just another sad example of a ‘leftist’ fingers in the ears approach. Worse is that it has gone meta; rather than just argue the point, it’s declared the whole argument superfluous.
I don’t want to pick a fight about what “caused” the housing bubble–if that’s even what it was. I want to focus on that quote from Mark.
At the end of the day, partisans need to recognize that Freddie and Fannie are outliers in the severity of their post-2008 crash. It remains:
1) Freddie and Fannie were among the largest participants in the Alt-A/subprime space after 2005 (as defined by credit scores and other traditional metrics, as opposed to the one-side attempt to claim that ‘Prime’ is anything Freddie and Fannie would buy–these used to be the same but in the post 2005 time frame they were not).
2) Their involvement in the Alt-A/subprime space was driven in part by a quest for profits but it was also driven from substantial (bipartisan) political pressure to expand homeownership rates.
3) Freddie and Fannie have been allowed to operate with smaller capital buffers and some how we were told over the years that this was fine. It wasn’t fine.
4) Some large, fairly successful, fairly egalitarian countries manage to do without government involvement in the mortgage space. e.g., Canada.
5) Any marshelling of the GSEs for Federal housing policy should be viewed with some suspicion, the same suspicion with which we now view other examples off balance-sheet vehicles. If there is a public policy purpose here, it should be executed with in the confines of the Federal budget.
Sunday ~ January 29th, 2012 at 6:20 pm
Lord
The right always like to emphasize moral hazard and have this notion that all we have to do is let people suffer the consequences of their failings to cure them. The problem often becomes they are not the only ones to suffer and in extremis everyone suffers, so the question becomes what if anything can be done to prevent, reduce the likelihood or magnitude, and/or most simply, inexpensively, and quickly ameliorate it. These aren’t the questions BSers want to discuss or even contemplate. They have the idea the suffering of others is their opportunity. This is the moral hazard of moral hazard and the one they seem blind to.
Monday ~ January 30th, 2012 at 6:01 pm
Gepap
Its hillarious how the comment section is basically just one huge piece of evidence on why Mr. Zandi is right – just look at how vehemently those “five people” came out on this comment thread. Face it Karl, spew enough bullshit and people will believe it – just look at your own readership!
Tuesday ~ January 31st, 2012 at 10:32 am
Bill Ramsay
Fannie and Freddie were horrible monstrosities, but clearly were not the cause.
As an example, they were primarily buying the highest rated tiers of subprime CDOs- the tranches that could be sold all day long even if the GSEs weren’t around.
What kept the CDO machine rolling after housing peaked in 2005 were the hedgies buying the lowest rated tranches. Without those buyers, there’s no way the investment banks could continue to produce the crap.
And the hedgies were able to make bank on those bets because CDSs were mispriced- primarily because there were no regulations on them at all (thanks Uncle Alan and Aunt Ayn).
The Magnetar trade provides insight
http://www.propublica.org/article/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going/single
And wtf with synthetic securites? Who could possibly think that’s a good idea?
Wednesday ~ February 1st, 2012 at 10:47 am
frank
“Fannie and Freddie were horrible monstrosities, but clearly were not the cause. As an example, they were primarily buying the highest rated tiers of subprime CDOs- the tranches that could be sold all day long even if the GSEs weren’t around.”
Hah! Is that your attempt at a comedy routine? No – Fannie and Freddie own $6 TRILLION worth of U.S. mortgages… and at its peak the residential mortgage market was $11 trillion. This isn’t a problem because of synthetic mortgage tranches that weren’t worth half of what they were trading for, and this isn’t a problem because of an unregulated CDS market — BOTH of those issues are symptoms of the real disease, and the real disease is poor gov’t policy: HUD, FHFA, and the secondary mortgage market players that bought up everything from a mortgage on a dilapidated 100k mortgage in a run down urban area with $0 down and a misleading teaser rate, to a 750K McMansion no-doc mortgage sold to someone with piss poor credit history and annual income of 35k a year. Those secondary mortgage market players were Fannie and Freddie, and they were (and still are) the genesis of the problem.
Wednesday ~ February 1st, 2012 at 10:56 am
Bill Ramsay
frank, just because Chewbacca is hairy doesn’t mean that he clogged your shower drain
http://bonddad.blogspot.com/2011/11/no-virgina-cragses-didnt-cause.html
Thursday ~ February 2nd, 2012 at 2:18 pm
frank
Nice analogy (even if it doesn’t work). We are talking about 6 Trillion in mortgages via (poor) gov’t policy, and you, Karl, and Terry are talking about ficticious Star Wars characters. Very cute.
Wednesday ~ February 1st, 2012 at 1:13 pm
Terry Mahoney
Having consumed the reasoned commentary, spiced with vitriol (always tasty!) I think a fair concensus would be that the FMs contributed to the severity of the housing bubble, but there is no consensus as to the size of that contribution.
Good work, people!