"cavelamb himself" wrote in message
...
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
As always with financial institutions, the fallout from Reaganomics
deregulation has led to some serious screwing of the public. The choices
here are a lot fewer homeowners, on one hand, with an accompanying
multiplication of the financial divide in America, versus responsible
oversight and regulation. Congress has abdicated this responsibility along
with many others; the irony is that it is now Congress (Baker being one of
the more egregious examples) who complain about their own lack of action.
It's worth pointing out, however, comparing such quasi-governmental entities
with private financial institutions, that the total campaign donations that
the article complains about are somewhat less than the transportation,
housing, and greens fees (including large amounts of grease paid to various
officials) that Jack Abramoff paid for a typical week of Congressional golf
junkets in Scotland.
--
Ed Huntress