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Thursday, February 05, 2009

Fannie and Freddie mess? Blame the Democrats

There's an interesting and fact filled article in "Public Opinion" that's worth reading.. it's a timeline of sorts.

Here are a few thought of my own.

As I was driving home this evening I had my car radio tuned to NPR (National Public Radio) and during my half hour drive heard several references to banks, bankers and their responsibility for the economic mess we are currently in.

It seems that here are two sets of culprits.

The Left (made up of Democrats, and the media) who place all the blame on greedy bankers.

And the Right who believe that government policies were at the root of the problem.

I have no doubt at all that there are villains in both camps. But no one, even a greedy banker, goes out to do business that destroys his company and his job.

As the Liberals like to say, the “root cause” was government policy. It was the thing that got this snowball rolling. When you tell people who are in the lending business that they have to lend to people who will have trouble paying off their loans, you are creating a problem.

If this problem is small enough, it’s manageable. Bankers can treat it like a protection racket. Give some loans you figure you won’t get back and add the cost into the loans that will be repaid. But when you are forced by the government (or the mobster, take your pick) to make more and bigger bad loans, you are creating s hazard that your bank may not survive.

Enter Fannie and Freddie.

What if you could make loans without having to worry if they would be paid back? What if you did not have to own the loans you made? What if you could sell them to someone else and be out of them when they defaulted? Then you would not care (unless you had a conscience) how many loans you made to people who could not afford to pay them off.

Congress told Fannie and Freddie that they were required to buy big chunks of what we euphemistically called “subprime” loans. And Fannie and Freddie were glad to go along because while the real estate bubble grew, defaults were low. People were flipping houses. There were TV shows and public seminars that taught people how to make a fortune in real estate by buying houses with no money down, putting on a coat of paint and making a fortune.

So banks and mortgage companies went into the business of giving loans to just about anybody. They were not checking people’s ability to pay. They didn’t care. They lowered lending standards so far that they made half-a-million dollar loans to people who made minimum wage washing dishes or mowing lawns. And they were lauded for their public spirit. They made their money up front in closing costs. They sold the loans to Fannie and Freddie before the ink was cry on the contract. Then they took the money from the sale of the loan and made even more loans to indigents and flippers. And sold them. Not their problem any more.

Fannie and Freddie execs were making hundreds of millions; Wall Street bond salesmen were making millions because as we all know “real estate always goes up.” Banks who saw their competitors making billions from trading mortgage backed securities felt they had to get into the business to get their share of the profits. Rating agencies were giving the mortgage backed bonds AAA ratings. Life was good and the leading lights in Congress like Barney Frank and Chris (‘Friend of Angelo”) Dodd, Fannie, Freddie and the media were congratulating themselves for bringing home ownership to the underprivileged.

Until the whole mess blew up. The music stopped and lots of people found themselves without chairs. And then the hunt for culprits began. And the guys with the megaphones, the guys with the microphones, the guys for whom the answer to the problem - any problem - is “the government,” made the people who could not talk back the villain.

And that, children, is why NPR is focused like a laser beam on the evil bankers. Because they don’t want to bother the people who subsidize their livelihood. If you’re NPR you don’t have to worry too much about pissing on the big bad bankers. What can they do to you? But piss off Barney Frank or Chris Dodd and you’ve got a problem.

It always ends with a little banjo music sung by the sort of nasal balladeers that are a fixture on NPR singing a newly written song about having lost his job because the banks screwed him over.

Now on to how Government is going to solve this problem. Stay tuned.

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