Ed Huntress wrote:
"Ignoramus30183" wrote in message
...
On 2008-07-16, John R. Carroll jcarroll@ubu wrote:
Ignoramus30183 wrote:
On 2008-07-16, Larry Jaques novalidaddress@di wrote:
On Tue, 15 Jul 2008 20:18:57 -0500, with neither quill nor qualm,
Ignoramus19502 quickly quoth:
On 2008-07-15, John R. Carroll jcarroll@ubu wrote:
You know reconditioning well Chudov but apparently not finance.
I have a Master of business administration degree in finance from
University of Chicago. Which is admittedly not that much, but at
least I studied it a little bit.
Well, at least you gave it up for something more real and honest:
hawking wares on eBay and doing new/used metalworking. 
That's not my day job,
Well you are very good at it.
Thanks John. I respect your opinions, experience etc. But at the same
time I also think that these GSEs created an enormous market
distortion and should be phased out (at least as "government
sponsored" entities).
If the value of mortgages decliness further, and if the government
steps in and assumes guarantees given by Freddie and Fannie, this
could potentially expose it to very large liabilities.
Which brings us to the question that always arises when there is a proposal
to privatize some large government entity, or quasi-government entity like
these two: Why were they created in the first place, and what would have
happened without them?
The role of government encouragement for home ownership in our society often
is underestimated. In general (and I haven't studied Freddie and Fannie for
decades, so I'm not being specific here) they're created because the market
isn't producing some desired result. Home ownership has been a desired
result for a long time, and anyone who thinks the market would have emerged
to deal with the relatively low rates of ownership doesn't know the history
of it. In the "free" market, down payments and interest rates were too high,
largely because risk exposure was too large. And the "free" market had
created a number of non-equity payment schemes, such as the infamous "land
contract," which destabilized the whole system when there was an economic
downturn. Freddie and Fannie made it possible for more people to buy houses
and they stabilized the system, having enabled the general use of mortgages
that accrued equity for the homeowners even as the loans were being paid
off.
The upshot is that these two entities maybe -- probably -- created more
wealth and more stability in our economy, not to mention the enormous
fallout of economic activity from home building, than any damage their
troubles are likely to cause. In other words, be careful what you wish for.
--
Ed Huntress
This on CBS this morning...
http://www.cbsnews.com/stories/2008/...n4264014.shtml
(CBS) It was during the Great Depression that Fannie Mae was founded -
in 1938 - with a simple purpose in mind: to give lower and middle income
Americans more access to the Great American Dream, owning your own home.
It did it by guaranteeing if a homeowner defaulted on a loan the bank
would get paid, CBS News chief investigative correspondent Armen
Keteyian reports.
Today Fannie and its smaller sibling, Freddie Mac, hold a pivotal place
in the home loan market - one that has grown to include special
advantages, such as:
# guaranteed lines of credits from the U.S. Treasury
# exemption from state and local taxes
# limited government oversight
Their privileged status is that of government-sponsored Fortune 500
companies, powered by a vast political machine.
"Fannie and Freddie have probably had more influence than any set of
institutions in modern times," said former Rep. James Leach.
As the former chairman of the House Financial Services Committee, Leach
tried for years to hold Fannie and Freddie to tougher financial standards.
"You'd have people in Congress that would make it very clear that they
wanted nothing to touch Fannie and Freddie," Leach said.
CBS News has learned Fannie and Freddie now boast nearly 150 lobbyists -
spending more than $5 million this year alone.
In addition, the mortgage giants have doled out about $2 million more in
campaign donations in the last four years to key member of Congress.
"The view was always held that if they lost even a small battle, it
might slide into something more meaningful," said former Rep. Richard H.
Baker, R-La. "So every threat was taken seriously."
A few years ago, Fannie was fined nearly $400 million after overstating
earnings by $10 billion to maximize bonuses. In 2006, Freddie paid a
record $4 million fine for illegal fundraisers.
Both Fannie and Freddy say they've changed their ways. But, more and
more, it appears two companies designed to help average Americans have,
in fact, been helping themselves.
--
Richard
(remove the X to email)
America has become thouroughly convinced that the lunatics
are running the assylum and good idea or no, it will take
more that George W Bush at a press conference to reclaim
the public trust this administration has wantonly destroyed.
John R. Corroll