How Do You Solve Fannie and Freddie?
by The New LedgerIn this week’s edition of Coffee and Markets, featuring The New Ledger’s Francis Cianfrocca, we’re talking about the latest GDP numbers, Fannie and Freddie, and the challenges facing small businesses with Congressman Kenny Marchant of Texas. We’re brought to you as always by BigGovernment.com and Stephen Clouse and Associates.
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Related Links:
TNL: The New New Economics
BusinessWeek: The Schizophrenic Economy
TNL: CBO’s New Report on Deficits
WSJ: The Democratic Fisc
Bloomberg: Few Solutions on Fannie Mae and Freddie Mac
TNL: Risk and Regulation
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24 Comments
Sell them to the Chinese and privatize them. Let them hold the bag.
But first, clean out the Clinton and Obama cronies running the snake pit and claw back their huge bonuses.
Sell them to the highest bidder or privatize them. Save the taxpayer a few trillion. The private segment is out to make money. They can turn it around.
Podcast Lunch Summary:
"GDP growth based on an asset bubble"; I wish Francis would have explained where this bubble exists because from my perspective it appears we are in a deflationary period. Is the bubble in the stock market?
"Consumer savings rate going up at expense of consumer spending" as refelcted in low consumer confidence rating
Dodd Frank Act does little to address underlying problem of Fannie and Freddie (pumping subprimes). They hold $5 trillion worth of Assets. These assets are low valued now but should be worth soemthing in the future.
Private secondary mortgage market is dead. Fannie-Freddie now does 95% of secondary business.
Treasury has loaned Fannie-Freddie capital at terms of 11% of which Fannie-Freddie have to borrow back from the treasury in order to pay.
Cause of credit shortage originates from banks lack of incentive to assume risk. They are allowed to borrow from the Fed Reserve at essentially zero interest and turn-around and buy Treasuries with a 3% spread.
It is time we reached out for a more sustainable model for financing housing. To do this we have to understand some basic issues and then design a system that is self-sustaining and self-regulating in nature so that government cannot corrupt it by virtue of attempts to "fix" it for the benefit of providing more housing opportunities for the political class to take advantage of at our expense and risk.
The key issues are foreclosure risk, market risk, deferred maintenance risk, inflation risk and the creation of these housing "bubbles" that always lead to tremendous market distortions due to the inherent frailties and structural shortcomings that mortgage lending in general, and fractional-reserve banking in particular create on an ongoing basis.
In structured finance we say that if you cannot manage a risk adequately for the benefit of your company and your investors, then you have to eliminate your exposure to the risk altogether or the outcome will be a failure no matter how good of a manager you really turn out to be. The same is true with the housing industry. We have found that government corruption will destroy the markets, so we have to create a system that doesn't require any form of government support in order to extend housing ownership opportunities to whoever wants to take advantage of them. We also know that fractional-reserve lending requires that the lender exercise discriminatory lending practices as a matter of course, so we know that the resulting "new" financing model must not be based upon the mortgage financing model. We also know that if we do not enforce responsibility and accountability, then there will be even bigger problems that lead to fraud and failures and credit bubbles, so we need to have a new financing system that inculcates these matters and challenges as part of its systemic structure of operations. In other words, if we don't create a structural solution that produces these benefits as a routine outcome, then we will end up right back where we are today.
Lovellian economics provides the Housing Plus Partnership approach as part of "The Fix" that eliminates foreclosure risk, eliminates deferred maintenance risk, has a built-in secondary market "engine", is self-sustaining and self-regulating in nature because it is based upon the equity financing (or Tenants-In-Common "TIC") real property financing approach that provides a more efficient financing approach than can possibly be contrived in a mortgage approach because the contract is based not upon a set monthly payment, but a percentage of income and includes a built-in reserve system and payment assurance system design that eliminates transaction fraud and the ability of homeowners to abuse the opportunity. In fact, the Housing Plus system demonstrates a level of efficiency that is scalable for those earning as little as minimum wage to have the opportunity to own a piece of the American Dream and create financial leverage for their benefit and savings that cannot otherwise be matched in the market today. Truly the idea of using fractional-reserve banking and mortgage lending can be said to be as outmoded as the horse and buggy.
The answer for Fannie, Freddie, Sallie, Betty, Pebbles and Bam-Bam are all the same: when government intervenes in the market the only outcome can be bad because of the way the economy is currently structured. This means all government intervention in the private-sector economy is, by definition, an act of corruption being undertaken for the benefit of one group of stakeholders over all others. Time to close them down and use a system that can completely replace them if the government will just say yes.
That's just too easy to answer!…..:)
Good podcast-
During the Fin Reform debate, McCain and Gregg's Amendment, which failed, proposed a plan to put FNMA and FHLMC on 2 year time table to demonstrate profitability and if they did not, to liquidate them over the following 3. One problem with that would have been if the private market didn't achieve rates that were low enough, or failed alltogether to fill the void. Serious economic consequences, there.
The government guarantee probably isn't necessary, my opinion. It means lower rates, but some large private bank will come up with a program that will attract investment and keep rates fairly low. Of course, the "private" banks most likely to do that still have a guarantee, or implied FDIC support after their stock and bond investors get wiped out in receivership. The mortgage bond buyers would be safe. -That's how Dodd-Frank works. There's a strong disincentive for CEO's to take terminal risk, but, in fairness, no telling how long taxpayers would be dragged along for the ride before a viable institution would emerge.
The guest was a Republican Congressmen from Texas. What should we expect him to say about Fin Reform preventing the next crisis? There are all kinds of preventative measures. The 5% retention rate on mortgage pools, Broker licensing, less opportunity to make money when loans fail, Collins capital requirements for holding co's, derivatives, Swaps, Volcker Rule. Some good stuff I think he left out. A silver bullet, its not.
Dissolve them and sell of their assets. These organizations are corrupt from top to bottom.
http://www.youtube.com/watch?v=_MGT_cSi7Rs
Government Sponsored Enterprises Fat Fannie and Bloated Freddie need to be divested into the private sector, ASAP. Why? Because among other things, Constitutionally, the United States have no business whatsoever using taxpayer dollars to compete with private enterprise, nor to bailout, or prop up banking etc. The same applies with the U.S. owning General Motors, Chrysler, and insurance companies. Plain and simple folks, it's called SOCIALISM. Also, repeal the "1977 Community Reinvestment Act," and the two 1990s Clinton era add-ons thereof, because again, the government does NOT belong in the real estate business either!
A simple solution to "Hedges, derivatives, default credit swaps" would be to outlaw them. Why again? Because financial institutions that received TARP bailouts, really didn't need the funds, because they had plenty of out-of-sight dollars with their non government oversight, or uncontrolled "Hedge, derivatives, default credit swaps" boiler room operations going. If Wall Street want these types of business operations, then they should not run dual operations. Instead separate legal stock operations from boiler room, and take their ideas and wares to the La Vegas crap tables.
Get rid of them!! The Government is incompetent and is being run by a bunch of malignant CROOKS AND LIARS AND THIEVES!! Dismantle the whole thing or privatize it. We have to reduce the size of government by at least 3/4th or we will sink and die as a Republic. Vote OUT all DemocRATS and RINO Republicans and hire fresh new blood who will truly uphold the Constitution and the Rule of Law. The IDIOT in the White House doesn't have a friggin' clue about anything except RADICALISM, RACISM, AND COMMUNISM! Throw him OUT!!
MyKu:
Need to euthanize
Fannie and Freddie, known as
FrankNDodd's Monster.
Blah, blah, blah. Nobody's listening, dude—and your syntax is so bad that nobody understands a single word of your post.
That was obviously a well-read and well thought response. Your proposal sounds well in theory, Getting the Government out of the private sector is much easier said than done.
Need to hang up Barney, Chris, and Andrew C., by the balls.
I'd say privatize them and let them pass or fail, but you'd have to pry them out of the big socialist hands of the Democrats.
Let them fail. Bawney Fudd and Chris Dudd have created a black hole and the only thing to do is let it run its own course. You cannot Ba'al out a black hole by offering it sacrifices.
In a sane society Fudd and Dudd would be in prison for foisting a Ponzi scheme on Americans. But in this insane world, they are rewarded for their evil doings. After all they are both dimocraps.
Brilliant response. So, was Ronald Reagen a Socialist for bailing out Chrysler and Continental Illinois? You, and your avatar, make today's Republican look like a racist moron.
FYI, The Community Reinvestment Act had no teeth and its "credit default swaps". If you had a clue, you'd know it was Byron Dorgan's amendment that would have banned them. He was, um, a Democrat. His amendment was tabled. So, wrong side, dude. Not that options, futures, or many other derivatives had much to do with this crisis.
You can thank your buddy Phil Graham for his "Commodities Futures Modernization Act" and Graham, Leech, Bliley, too. Those let CDS and "dual operations" back onto Wall Street. But, heck, that deregulation was probably pedaled to you, and your ilk, as taking care of unconstitutional law anyway.
Do you always comment in an incoherent manner? Good, because it appears I hit the bulls-eye with the truth, and sent your common senses scattering. You poor Lie-beral/Progressive/Socialist/Marxists useful idiots never will get it, but come November, you'll get educated. When was the last time you changed the water in your bong pipe, because on historical economics, I'm the last person you should attempt to lecture on the cause and affect of why this country and the world is on it's financial ass. You should be questioning your Pinko thieves Barney Fagot, Maxine Waters and Chris Dodge for America's train wreck.
First, swear to never send another big spender like Dodd and B.Frank to Congress.
You just shut it down….period…and all those that has been overseeing it all these years….you seize their their assets and throw them in prison with Madoff for conducting a PONZI scheme…
Glad you changed your avatar away from whiteface Obama. That alone is going to make me more polite in this post.
You're hurdling all kinds of names, and a warning of scholarly ability, but I don't see much substance.
Frankly, I don't give a rats-ass if you like, or dislike what content, or material I post. I have several hundred or more images to rotate in, or out, when I CHOOSE.
And to think some people are merely two-faced.
Are you still talking and mumbling to yourself?
Here, print this out, then throw darts at them.
http://i50.tinypic.com/bg1cvm.jpg
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