Quick Fact: Fox & Friends pushes tired myth that Fannie and Freddie caused economic crisis
Fox & Friends advanced the false claim that Fannie Mae and Freddie Mac were "the original cause" of the economic crisis. In fact, as economist Dean Baker has stated, holding Fannie Mae and Freddie Mac responsible for the financial disaster is "absurd on its face."
Please upgrade your flash player. The video for this item requires a newer version of Flash Player. If you are unable to install flash you can download a QuickTime version of the video.
Fox & Friends: Fannie and Freddie "got us into trouble in the first place," "original cause" of financial crisis
From the April 22 edition of Fox News' Fox & Friends:
BRIAN KILMEADE (co-host): Stuart, tell me about Chris Dodd writing this bill.
STUART VARNEY (Fox Business host): OK, he wrote the financial reform bill, which essentially beats up on bankers, right? It beats up on Wall Street -- it regulates Wall Street. Not part of that reform effort is the whole housing market -- Fannie and Freddie.
STEVE DOOCY (co-host): Wait a minute. Wait, wait -- stop right there. That's what got us into trouble in the first place.
VARNEY: Thank you, Steve. You're absolutely right.
Go back to square one. Go right back to the beginning. What started the panic of '08 and the recession of '09. What started it? The collapse of the housing market. Why did the housing market collapse? Because politicians had forced Fannie and Freddie to accept low-grade mortgages where they knew -- they were trying to shoehorn people into horses they could not afford. The mortgages went belly-up, Fannie and Freddie ran into trouble, the housing market collapsed. Now, that whole scenario -- that whole mess-up of housing, Fannie and Freddie -- that's not included in this reform bill.
[...]
VARNEY: Fannie and Freddie were the way you shoehorned relatively poor people into houses they could not afford. The Democrats were part of that push in that area. Why are we beating up on the bankers now? Good political reasons. It makes good politics. It does not make good politics to start reining in Fannie and Freddie and reforming them, because they're the original cause of this problem.
FACT: Economist says holding Fannie and Freddie responsible is "absurd"
Economist Dean Baker: Claim that Fannie and Freddie "responsible for the financial disaster is absurd on its face." Economist Dean Baker reported in September 2008 that the accusation that "the financial crisis is attributable to the close government relationship with Fannie Mae and Freddie Mac" is "obviously not true." He further wrote:
Fannie and Freddie got into subprime junk and helped fuel the housing bubble, but they were trailing the irrational exuberance of the private sector. They lost market share in the years 2002-2007, as the volume of private issue mortgage backed securities exploded. In short, while Fannie and Freddie were completely irresponsible in their lending practices, the claim that they were responsible for the financial disaster is absurd on its face -- kind of like the claim that the earth is flat.
Indeed, in a 2006 Securities and Exchange Commission filing covering its activities in 2004, Fannie Mae stated (report available here): "We did not participate in large amounts of these non-traditional mortgages in 2004 and 2005." In the report, Fannie Mae also noted the growth of subprime lending and reported, "These trends and our decision not to participate in large amounts of these non-traditional mortgages contributed to a significant loss in our share of new single-family mortgage-related securities issuances to private-label issuers during this period." In a 2006 Federal Reserve analysis, Souphala Chomsisengphet, a financial economist at the Office of the Comptroller of the Currency, and Anthony Pennington-Cross, a senior economist at the Federal Reserve Bank of St. Louis, reported that the value of the subprime market had increased from $65 billion in 1995 originations to $332 billion in 2003.
Daniel Gross: Investment banks to blame for subprime loans. In an October 2008 Newsweek article, Daniel Gross wrote:
There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb lending virus originated in Greenwich, Ct., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them --frequently using borrowed capital.
Former Lehman Brothers CEO Richard Fuld: Fannie and Freddie played "de minimis" role. Gross further reported that the following happened during testimony by Lehman Brothers CEO Richard Fuld before the House Committee on Oversight and Government Reform:
At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis."
From Fuld's testimony:
MICA: And one of your big com -- well, one of the big packagers, or the competitor, so to speak, was Fannie Mae, which was deep into this. And you were -- you were dealing in some of the paper, I think, for secondary markets and other securitized mortgage paper, to basically package it and make money off it. Is that right?
FULD: Yes, sir.
MICA: What was Lehman Brothers' exposure to the debt of Fannie Mae and Freddie Mac, and what role did their collapse play in precipitating some of your financial troubles?
FULD: Our --
MICA: It didn't matter or you --
FULD: Our exposure to both Fannie Mae and Freddie Mac was de minimis, sir.
Fannie, Freddie, banks and thrifts are all regulated by the Federal government and/or the respective states. Yes, they did their best to get into the game after things appeared to have really taken off. That amounted to throwing some large sticks of wood onto a roaring bonfire. It helped things keep going a bit longer - but it sure didn't start it.
1. Community Reinvestment Act
2. Land-use restrictions/zoning
3. Artificial interest rate manipulation
4. Tax incentives (e.g. mortgage interest deductions)
5. Fannie/Freddie
6. Loan programs (FHA)
7. Federal Reserve blocking M&A until banks lend to minorities
8. US Attorney General bringing trials against banks for minority lending practices
Wall Street has no bad loans to bundle if the government does not get involved in the first place.
GMAFB
Baloney.
1. Community Reinvestment Act
You've got that listed number 1? That act was passed during Jimmy Carter's Administration. The CRA had nothing to do with it.
...it was that plus countless other government intrusions into the free markets...
More baloney. The government's failure to regulate the "free markets" is what caused this latest (and biggest) reincarnation of Tulipmania.
~
Greedy, unscrupulous lenders and Wall Street Bankers looted the system, and crashed it in the process. Some home buyers were complicit, to be sure, but many were simply lied to and exploited.
And this goes to jms also:
http://pdamerica.org/articles/news/2009-09-19-11-10-04-news.php
The crisis was caused by Wall St. and the lax in regulations.
Actually, that is EXACTLY what the banks are SUPPOSED to do when qualifying consumers for loans . . . we call them underwriters.
Tragically wrong. Underwriters work for the banks and are supposed to make loans for the betterment of the banks. If someone is approved for what they cannot afford, that is the direct result of the underwriter.
because there is money to be made in executing a loan.
This is such a crazy statement i dont even know what it refers to. I guess you think that CRA was the "gun" by which gov't forced banks to make bad loans . . . if that is your premise, you are swallowing AEI Limbaugh talking points.
That was my Huh? I said it is not uncommon.
I apologize, but these were not loans made under the CRA and the primary motive for those unscrupulous loans were greed primarily by the lenders and they were repackaged and sold to other institutions with the seal of approval by credit agencies that should have been the canary in the mine. In other words the system was gamed by those inside the system who knew the rules and manipulated them for financial gain. You want to place the blame on the borrower,I'am saying they were a very small part of the problem if at all. You also fail to address the issue of those borrowers who qualified for legitimate loans but were steered into the sub-prime route.
Your assertions are just simply wrong based on facts not opinion, not liberal philosophy or conservative, but simple facts. You ignore them. The role of the underwriter for financial institutions is clear andn uncontroversial, but your unwillingness to deal with facts makes you the "silly" one.
I am an underwriter, and mhughen is correct.
Wrong-ON, you don't have a clue.
~
Wrong-ON says he doesn't believe something.
Sane people then are more likely to believe it, based on prior history.
For the record, I'm working on five multifamily projects in various stages of application: 160 units in Columbus, OH, 42 units in Dallas, GA, 77 units in Stamford, CT, 193 units in Beloit, WI, and 203 units in Tallahassee, FL.
P.S. You probably haven't noticed, given your demonstrated powers of observation, but most bad underwriters don't have jobs anymore.
~
Wrong-ON has retreated and is now making a semantics-based argument.
~
this is what you said. both are the same question. it's not the underwriters job to tell you what you can afford but it's their job to approve or dis-approve the loan based on weather they can afford it. now that's a truly epic fail..lol
Phony hypocrite.
Potty mouth?!? Jezzz,you are old,in your case wisdom didn't come with age.
"Whose responsibility is it to determine what you can or cannot afford?"
People might decide what they are comfortable with, but that's different than what they can afford.
Loan officers/underwriters figure out how much house and/or how large of a mortgage payment they can afford.
People might decide to buy LESS house, but doesn't mean that they couldn't afford more!
Because home ownership is the most property the vast majority of Americans who own property will ever get involved in, and over the lifespan of most adults, property investment is the best investment one can make, it's a great idea for people to buy close to the most expensive house they can afford to maximize their returns on that investment! And underwriters figure out what they can afford.
My answer is fact, whether you like it or not.
If you wanna sit around your dinner table and figure out your finances I encourage you to do that. You will be better for it. When you got to a bank to obtain a mortgage, professionals called underwriters will evaluate your finances and determine if the loan is a proper fit for you and therefor a good investment for the bank he represents.
We don't outsource such responsibility based on underwriting guidelines, how ridiculous. And that is why often times we are approved for more than what we can realistically afford. If you don't think that ever happens, think again. Just because you're approved for a $500 loan to buy a house does not mean you can afford it. Which is why it is our responsibility, not some faceless banker. And because we are responsible, any creditors who fall victim to our irresponsibility will come after us, not the faceless banker.
Because, the faceless banker is not responsible. If something so simple still escapes you, I tried. You can call me dishonest all day long, but you should look at your arguments first.
I am beginning to think you are the Andy Kaufman of trolls. You are elevating disregard for facts to an art. When you reveal yourself to be a performance artist I will laugh along with you.
If you believe these things you say, than you have never been through the mortgage process. I hope one day you find yourself the opportunity to be a responsible homeowner.
And you have continually dodged my statements about responsibility so unless you address it directly, I am not interested in your dishonest and ridiculous arguments any further. Your cute insults might mask your avoidance in your eyes, but to me you just look foolish. Sorry.
Do you believe that a bank has a responsibility to "vet" a borrower?
Do you believe that faceless bankers have a responsibility to vet a borrower?
That is your version of reality?
Banks hold no responsibility for the efficacy of the 500k they just handed out?
Even bankers would think you are being rediculous at this point. . . but you are entertaining like a car wreck.
I guess so. lol
http://mediamatters.org/research/201004220008#828518
But I suppose you dont care because its not the answer you like. It does not fit your worldview.
Are you going to continue to ignore my questions?
I suspect you will.
He HAS been revealed as a paid troll and therefore a performance artist.
"I think you and congero are talking about two different things. Everyone is responsible for themselves on a personal level as you are saying.
However, one person cannot bring down an economy, they can only bring down themselves. The banks, however, should know what collective risk they have out there and they mismanaged it badly in the name of greed..."
Yet you are still arguing the same old tired silly point that was answered over 3 hrs. ago. WTF!
"...The right-wing case against the CRA is entirely bogus--a diversionary tactic to take the heat off the financial services industry and its allies, like McCain. The CRA applies only to depository institutions, like commercial and savings banks, but thanks to Congress's deregulation mania, there are now many other lenders, including private mortgage companies like CitiMortgage, Household Finance and Countrywide Financial (which was recently bought out by Bank of America). These outfits, which exist in a shadow world without government oversight, account for most of the predatory loans in trouble today.
When Congress enacted the CRA in 1977, the vast majority of all mortgage loans were made by lenders regulated by the law. In 2006 only about 43 percent of home loans were made by companies subject to the CRA. Indeed, the main culprits in the subprime scandal--the nonbank mortgage companies, which successfully grabbed the bulk of the mortgage market away from the CRA-regulated banking industry--were not covered by the CRA.
Wall Street investment firms--including Lehman Brothers, Goldman Sachs, Bear Stearns and Citigroup--set up special units, provided mortgage companies with lines of credit, then purchased the subprime mortgages from the lenders, bundled them into "mortgage-backed securities" and sold them for a fat fee to wealthy investors worldwide, typically without scrutiny. By 2007 the subprime business had become a $1.5 trillion global market for investors seeking high returns. Because lenders didn't have to keep the loans on their books, they didn't worry about the risk of losses..."
Quite a different story than the one you and RO are trying to peddle.
"...The explosion of subprime mortgages was touched off in the early twenty-first century, as the number of lenders regulated by the government and covered by the CRA dramatically dwindled. In 2002 subprime loans made up 8 percent of all mortgages; by 2006 they had soared to 20 percent. Since 2004 more than 90 percent of subprime mortgages have come with exploding adjustable rates.
Not surprisingly, the foreclosure rates on subprime, adjustable-rate and other exotic mortgage loans have run four to five times higher than the foreclosure rates on conventional CRA mortgages. Testifying before the House Financial Services Committee in February, University of Michigan law professor Michael Barr reported that only about 20 percent of subprime mortgages were issued by banks regulated by the CRA. The other 80 percent of predatory and high-interest subprime loans were offered by financial institutions not covered by the CRA and not subject to routine examination or supervision. "The worst and most widespread abuses occurred in the institutions with the least federal oversight," Barr told Congress.
In contrast, the CRA actually penalizes banks for reckless, irresponsible or otherwise predatory lending. According to Ellen Seidman, director of the Treasury Department's Office of Thrift Supervision from 1997 to 2001, federal regulators warned CRA-covered institutions that "badly underwritten subprime products that ignored consumer protections were not acceptable." Lenders not subject to CRA did not receive similar warnings.
And unlike the institutions that offer unregulated predatory subprime loans, banks that make CRA loans are required by federal regulation to verify borrowers' incomes to make sure they can afford the mortgages. In 2006 the Federal Reserve reported that just 11.5 percent of mortgages made by CRA-regulated institutions were high-cost loans, compared with 33.5 percent for lenders not covered by the CRA. Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, has criticized those who blame CRA lending for the subprime crisis: "Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."
While the CRA helped boost the nation's homeownership rate, particularly among black and Latino borrowers, subprime and other exotic mortgages had very little impact on homeownership. Most subprime loans were refinances of existing mortgages. From 1998 through 2005, more than half of all subprime mortgages were for refinancing, while less than 10 percent of subprime loans went to first-time home buyers. Moreover, a significant number of borrowers who took out subprime loans could have qualified for conventional, prime-rate mortgages with much better terms. Even the Wall Street Journal acknowledges that "plenty of people with seemingly good credit are also caught in the subprime trap." Brokers and lenders misled many of these homeowners, replacing safe thirty-year fixed-rate mortgages with deceptive, risky loans..."
But it's not. It's a common misperception, certainly, pushed by the right. It's not a fact.
It is not my job to come here and educate the uneducated or brainwashed.
No, it's your job to push that false meme because it's all you've got. You can't win this argument using facts.
However, one person cannot bring down an economy, they can only bring down themselves. The banks, however, should know what collective risk they have out there and they mismanaged it badly in the name of greed.
That's the way I see it.
The experts have access to calculations and projections that the average person isn't going to be confident using and interpreting.
Almost no people knew they were getting in over their heads, since they didn't understand from the experts they were listening to that their home could lose 25% of its value in one year, instead of appreciate, and they didn't understand that change would make them upside-down and likely unable to sell it for many years.
And then, top that off with the fact that the scenario above was only a teensy part of the problem.
The economic crisis was mainly caused by two things in the USA - timing was one. It was simply time for a recession. We have those every once in a while. But the accerbation of that 'normal' recession was caused by the people in the financial market getting greedy and thinking short-term, and behaving badly to achieve the goals of "winning" for themselves short term!
I know, if that nonsense from Sue above isn't the most asinine thing I have ever read. It's so stupid, even for her, and as you say, typical of something that would come out of a mouth of a liberal elitist.
But perhaps she is speaking for herself. Maybe she can't do her own finances, so she needs the "experts"
I understand that FACT destroys YOUR opinion. That must be frustrating. That's why you lashed out.
Too bad, so sad. You have no credibility here.
So you know I have your number, and more and more are beginning to see you for the phony you are. Enjoy the rest of your time here, it's borrowed, my dear.
And don't apply for any loans either if you aren't up to your own financial management.
It's solely YOUR behavior that I address.
You need to stop holding up a mirror when you try to throw accusations at someone else. It's YOU and your cohorts who attack ME, rather than the content of my posts.
And yeah, after bintx totally misrepresented what had happened on this thread and on previous threads on similar topics, displaying that she wasn't willing and/or able to fairly discuss the topic, but was only expressing her personal animus towards me since I have caught her in kneejerk reactions and I have called out her inability to admit her errors, I called out that behavior.
That's what one is SUPPOSED to do.
You have massively failed every time you've tried to back me into a corner. I NEVER said that bintx lied - that was PROVEN to be YOUR (and her) poor interpretation of very clear words that I said, where you confused "merely" and "just". You NEVER caught me forgetting to log off and log back on again as a sockpuppet, despite your efforts to link back to that thread multiple times. I could list 3 other things, and yeah, I have all the links saved should you want to continue to bring it up. And this effort TOO will fail, because it's not based on reality!
And again, you insist it is wise for the bank to use these averages to make these decisions yet the averages on rates of refusal can't be used to demonstrate racism.
How does that comport with what you also wrote below...
JMS -
Maybe it's me, but it seems in the first post above you state one can not divine racism from approval rate percentages by race. And in the second you assert that certain minority groups were less qualified on average. Can you clarify the seeming contradiction?
No that not what you did.
So you are saying without knowing the average approval criteria (?) one cannot extrapolate racisim by approval percentages.
But you also state...
Which you claim disproves racism. But how can that be when you don't know the average lending criteria
And stating that because asian americans received high loan approvals than whites proves there was/is no discrimination at all in lending practices is specious at best.
THIS WAS A SCAM ON THE AMERICAN PUBLIC, get over it already and demand some flesh!
This was compounded many times over through betting on those loans, aka credit default swaps.
The explosion in subprime lending was due to reckless, unchecked greed by financial institutions (socializing risk, privatizing profits).
The Community Reinvestment Act had nothing to do with subprime crisis.
Once again, we see the usual problem with debating anything with this country's rabid right wing: their refusal to acknowledge even the plainest of facts.
~
Exactly. Just read jms post.
This IS a diversion though, you are right. In your example, it would be like only going after the used car dealer that resold the lemon and ignoring the manufacturer that actually CREATED the lemon.
http://www.slate.com/id/2201641/pagenum/2
"WE WANT EVERYBODY TO OWN THEIR OWN HOME" GWB 2002
In 2003 GWB signed the American Dream Down Payment Act, a measure designed(*) to subsidize first time house purchases among lower income groups. Lenders were encouraged by the administration not to press sub-prime borrowers for full documentation. (emphasis added) THE ASCENT OF MONEY, Nail Ferguson
* It is not a coincidence that this coincided with the largest trade deficit in US history and fully 1/2 of these toxic CDO were sold to overseas borrowers. It is called the Global Flow of Funds (read Greg Palast, Armed Madhouse)
http://www.pbs.org/wgbh/pages/frontline/warning/view/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist
Numbnuts like jms and wrong-ON have no specific knowledge about the causes and effects of the real estate bubble, whatsoever.
They are simply regurgitating the AEI/wingnut propaganda they have absorbed. Obvious problems with their logic go right down the memory hole.
How come an Act passed in 1977 became a huge problem under the Bush Administration, which had a lax approach to the CRA and every other bit of financial regulation? Wouldn't it make more sense to look for what changed, rather than blame things that didn't?
This is completely aside from the fact that the specific attempt to blame the CRA (began by AEI in a handwaving argument devoid of statistical backup) has been utterly debunked.
~
<crickets>
Fed Interest rates.
Quoting the referenced economist: "Fannie and Freddie got into subprime junk and helped fuel the housing bubble". [More like created it.] Fannie and Freddie were created by progressives in the federal government and hold fully have of the mortgages in the country.
F&F have a bigger responsibility for the recession than any of the NY banks or even all of them together. If the government had not created Fannie and Freddy, the housing bubble that we saw would never have happened.
F&F are being scapegoated in opposition to the facts of the matter. The bulk of the responsibility still lies with out of control speculation by the private sector.
Very few of the subprime mortgages were through Fannie and Freddie and they were very late to the game. Should they have stayed out altogether? Yes. But they had almost nothing to do with the subprimes fiasco that was created. Fannie Mae was created somewhere around 1940, Freddie Mac was created in 1970, The CRA was created in 1970. The CRA and Fannie and Freddie have all worked. And that is your real beef. The regulation and government programs have worked. The laissez-faire free market has not worked when left to its own devices. I know it goes against your ardent ideological mindset. But, the world has a way of throwing facts in your face even when you don't like it. Sorry.