The Wall Street Journal recently reported: "To keep funds flowing to the housing market, the government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loan portfolios. To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government's various mortgage arms and another $300 billion in Treasurys, which set the benchmark for home lending."
Bear in mind that Fannie and Freddie were, in effect, the two great landfills where mortgages went to die, and the bailout was a government backstop of, (and 80% ownership stake in), their $5.1 trillion dollar mortgage portfolios, about 50% of all US mortgages. Now the banks are busy looking for new landfills where they can again pass on the risk of lending to someone else. Their solution? Ginnie Mae and the FHA. These two agencies are now backing about 80% of current mortgage traffic. The Fed is presently purchasing billions of mortgage backed securities, (read "toxic assets"), issued by these institutions, with a target of $1.2 trillion. All told, Treasury bailouts and Fed programs have thrown $7 trillion at this problem alone--all, as the WSJ reports "To keep funds flowing to the housing market...to keep mortgage rates low..." Yet the banks have reduced lending, relentlessly, for the last six months!
Lord, is this an expensive way to do things, or what? As long as the government is going to virtually own 70% to 80% of bad US mortgage paper, I'd say a much cheaper way to keep funds flowing to housing would have been to simply demand all funds committed to bank bailouts be used for lending, not new securities purchases, acquisitions, bloated CEO salaries, and expensive parties. And a much cheaper way to "keep mortgage rates low" would have been to simply mandate the rate by passing a law. After all, with this massive government intervention in the real estate business, we don't really have an operating free market now anyway. Why not just bite the bullet and legislate these goals, instead of paying banks $7 trillion and ... well, having them say "thanks, now please go away" as they get right back to their game of buying securities.
Fannie and Freddie were leveraged in this toxic paper at 50-1 levels. Guess what. The FHA, our new landfill, is now leveraged in this same stew at a rate of ....(drumb roll) ... 50-1.
Have we learned nothing from what happened to Fannie and Freddie?
Bear in mind that Fannie and Freddie were, in effect, the two great landfills where mortgages went to die, and the bailout was a government backstop of, (and 80% ownership stake in), their $5.1 trillion dollar mortgage portfolios, about 50% of all US mortgages. Now the banks are busy looking for new landfills where they can again pass on the risk of lending to someone else. Their solution? Ginnie Mae and the FHA. These two agencies are now backing about 80% of current mortgage traffic. The Fed is presently purchasing billions of mortgage backed securities, (read "toxic assets"), issued by these institutions, with a target of $1.2 trillion. All told, Treasury bailouts and Fed programs have thrown $7 trillion at this problem alone--all, as the WSJ reports "To keep funds flowing to the housing market...to keep mortgage rates low..." Yet the banks have reduced lending, relentlessly, for the last six months!
Lord, is this an expensive way to do things, or what? As long as the government is going to virtually own 70% to 80% of bad US mortgage paper, I'd say a much cheaper way to keep funds flowing to housing would have been to simply demand all funds committed to bank bailouts be used for lending, not new securities purchases, acquisitions, bloated CEO salaries, and expensive parties. And a much cheaper way to "keep mortgage rates low" would have been to simply mandate the rate by passing a law. After all, with this massive government intervention in the real estate business, we don't really have an operating free market now anyway. Why not just bite the bullet and legislate these goals, instead of paying banks $7 trillion and ... well, having them say "thanks, now please go away" as they get right back to their game of buying securities.
Fannie and Freddie were leveraged in this toxic paper at 50-1 levels. Guess what. The FHA, our new landfill, is now leveraged in this same stew at a rate of ....(drumb roll) ... 50-1.
Have we learned nothing from what happened to Fannie and Freddie?
