@parados,
parados wrote:Let's start with some issues here Robert. Your article from the WSJ was written by 2 members of the American Enterprise Institute. While that doesn't make them wrong, it does make their statements suspect.
I don't think that casting aspersions on the basis of the messenger is in any way a legitimate way of denouncing the message. The same trick is not legitimate regardless of political leanings.
It's wrong when conservatives reject it out of hand because it comes from the Daily Kos and it's wrong for liberals to reject it out of hand because it comes from a conservative ideologue.
I am not arguing the conclusions that they draw (which, in effect, is that we have no under-regulation problem, and that over-regulation is what caused it all in the first place, in essence: liberals did it!) because I do not share them. But even if you take the data that the liberal ideologues came up with to "debunk" this conservative attempt to politicize the data, it still shows a huge amount of these sub-prime loans did, in fact, have a GSE holding the bag.
Quote:Yes, the goal of Fannie and Freddie was to purchase 50% of mortgages to at or below median income levels.
As I understand it their goal was for 55% of their own MBS to come from below median income levels, not that they sought to purchase that percentage of the market. I think that is what you may mean by this statement.
Quote: But we can't assume that everyone below median income is poor or does not have good credit. First of all, it doesn't require that 50% of mortgages written by banks be of that level. Nor does it require that people with bad credit or no income be given mortgages. It only sets a level of 50% of mortgages Fannie and Freddie buy be below the median income.
It isn't unreasonable to assume that 40-50% of all mortgages written would be for persons below median income based simply on the meaning of median.
I'm not sure what your point is. Mine was simple. Long ago, the government promoted the idea of MBS to spread out the risk of these mortgages as a way to make them more affordable to those with lower incomes. There was increasing pressure on the GSEs to do more and more*. The GSEs declared that they would buy 1 trillion of the MBS by 2011.
My argument is that this created a very large
moral hazard. That a huge amount (even if you want to dispute the 70% figure the opposing side comes up with figures like 50%) of this market that the government essentially insured provided incentive to gamble very riskily.
Quote:The most interesting thing about the realities of those loans Robert is they were NOT for people with bad credit.
A study by the St Louis Fed in 2006, prior to the implosion, found the majority of the loans were for people taking cash out when refinancing. The vast majority of those loans were considered A- in risk. Over 60% of sub prime loans were to people with credit scores above 600.
PDF of study
The FED makes this conclusion about the subprime market in 2006.
Quote:Furthermore, the sub-
prime market had reduced its risk exposure by
limiting the loan amount of higher-risk loans and
imposing prepayment penalties on the majority
of ARMs and low credit-score loans.
I really don't know what it is about my claim that you think this addresses though. Could you make it more clear to me?
Quote:If you want to point fingers after the fact, then you better look at who was saying what before then. Fannie and Freddie weren't the cause. Nor were they acting in a fashion that created the problems.
This is just vagueness over tone. If you want some liberal-friendly tone, to make this all more palatable to you, I will entertain you:
1) The private sector led this rush. Which make sense, the GSEs don't make the loans, they are buying them from them.
2) The GSEs were much more risk averse than the private sector on average.
3) The non-residential market suffered from many of the same excesses, regardless of not having the same incentives.
So yeah, I'm not trying to blame everything on anything in particular. I have no interest in these stupid politicized talking points (of arguing or debunking that one side is entirely at fault).
But there's no denying that these policies contributed in a meaningful way to the crisis. And it's worth pointing out because I think the policies should be revised. Using MBS purchases as government policy to make housing more affordable is not a good idea. I am not even convinced that the fundamental philosophy of the "Ownership Society" is a good idea in the first place, and even if it is MBS has a remarkable ability to obscure risk through distribution even while reducing it through distribution.
Quote:Quote:70% of the sub-prime mortgages were held by companies that the government required to have increasing quotas of loans going to sub-average income homes.
That statement is completely unsupported.While Fannie and Freddie had a less than median requirement of 50%, no one else did.
There were other regulations (not necessarily 50%) that affected non-GSEs. But this misses the point, by declaring that they were going to buy these MBS a moral hazard was created. Even if the others aren't
required to loan this way this creates some incentive for them to. The GSEs declared that they would purchase up to a trillion dollars of these mortgages, they are guaranteeing a huge chunk of this market and this creates a large incentive.
Quote:This was about companies trying to make as much money as possible. The majority of companies making sub prime loans had no quotas they had to meet.
These concepts are not mutually exclusive. If a company is only thinking about making money, and the government is guaranteeing home loans more and more aggressively it makes sense, to the company, to take advantage of the moral hazard.
My argument is not that companies are not trying to make money, but that we have created incentives for them to do so in ways that do not benefit the society as much as they benefit them.
Can you draw the connection for me, to
my argument?
