Housing finance, TBTF and more

Now, I know that housing finance is probably about as interesting to you as a dead language, but knowledge is power when it comes to what is shaping up to be a nasty fight in DC about the future of Fannie Mae, Freddie Mac and FHA. These agencies have effectively provided support to the massive US housing market for more than 70 years and now the Republicans and some Democrats, most notably the President, have decided to turn them into a political football.

So, if the politicos are bound and determined to have the debate, we should make sure they understand that knowledge is power and those on the other side, like me, will make damn sure we expose their stupidity on the issue.

First up is this from Angry Bear regarding a USA Today article detailing the problems with the Fannie and Freddie. The author of this piece, clearly a dumbfuck who did no research other than to call Ed Pinto, DIDN’T distort the market. In fact, their market share was declining until they went chasing after the same risks that the banks were chasing. That was a market decision by the board of directors, not a mandate from the Federal government. Further, of the loans on the books that could really be considered toxic, the majority didn’t even come through Fannie and Freddie’s origination channel… they came DIRECTLY FROM THE BANKS.

Now, all this is no big deal… if you want to get rid of Fannie and Freddie it’s pretty easy… stop them from making new originations. Of course, this would create absolute chaos in the markets since they’re pretty much the only liquidity available in size. However, that doesn’t stop people from proposing, stupidly (and the President is in on this too), that we ‘need to restart the securitization business’ which there’s nothing wrong with even now. The problem is that the only securities anyone wants to be buy come with Fannie, Freddie or FHA’s name on them. The banks don’t make as much on these as they do on private label MBS (what they generate themselves) so naturally they figured out the best way to compete would be to eliminate the competition by using (and you had to see it coming) THE GOVERNMENT. Free market? Oh, pish!

Next up is my post of the of the month… a beat down of well known liar Ed Pinto and his uneducated attacks on FHA.

Now, I know all this is a little far afield but if you are going to buy or sell real estate in the US, this stuff matters because this is one of the largest sectors of the US economy and we can’t afford to fuck it up. Know the facts and make sure you’re holding the politicos and talking heads accountable.

On to the TBTF banks, questions have been asked about what the subsidy is to them of being TBTF. This is a good quantification of the dollar amount benefit of being too big to fail and it comes to about $82 billion over between 2009 and 2011.

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