Not surprising, but again, ammunition to beat back the revisionist history the political class (mostly on the left, but some on the right) is marshaling to scapegoat banks and Wall Street for what was, in effect, a failure of governmental and social hubris. From professor of finance at the Columbia Business School and a research associate of the National Bureau of Economic Research Charles Calomiris, writing in the WSJ:
Occupy Wall Street is denouncing banks and Wall Street for “selling toxic mortgages” while “screwing investors and homeowners.” And the federal government recently announced it will be suing mortgage originators whose low-quality underwriting standards produced ballooning losses for Fannie Mae and Freddie Mac.
Have they fingered the right culprits?
There is no doubt that reductions in mortgage-underwriting standards were at the heart of the subprime crisis, and Fannie and Freddie’s losses reflect those declining standards. Yet the decline in underwriting standards was largely a response to mandates, beginning in the Clinton administration, that required Fannie Mae and Freddie Mac to steadily increase their mortgages or mortgage-backed securities that targeted low-income or minority borrowers and “underserved” locations.
[…]
Politics—not shortsightedness or incompetent risk managers—drove Freddie Mac to eliminate its previous limits on no-doc lending. Commenting on what others referred to as the “push to do more affordable [lending] business,” Senior Vice President Robert Tsien wrote to Dick Syron on July 14, 2004: “Tipping the scale in favor of no cap [on no-doc lending] at this time was the pragmatic consideration that, under the current circumstances, a cap would be interpreted by external critics as additional proof we are not really committed to affordable lending.”
[…]
The decision by Fannie and Freddie to embrace no-doc lending in 2004 opened the floodgates of bad credit. In 2003, for example, total subprime and Alt-A mortgage originations were $395 billion. In 2004, they rose to $715 billion. By 2006, they were more than $1 trillion.
In a painstaking forensic analysis of the sources of increased mortgage risk during the 2000s, “The Failure of Models that Predict Failure,” Uday Rajan of the University of Michigan, Amit Seru of the University of Chicago and Vikrant Vig of London Business School show that more than half of the mortgage losses that occurred in excess of the rosy forecasts of expected loss at the time of mortgage origination reflected the predictable consequences of low-doc and no-doc lending. In other words, if the mortgage-underwriting standards at Fannie and Freddie circa 2003 had remained in place, nothing like the magnitude of the subprime crisis would have occurred.
Taxpayer losses at Fannie and Freddie alone may exceed $300 billion. The costs of the financial collapse and recession brought on by the mortgage bust are immeasurably higher. Unfortunately, the Obama administration has perpetuated the low underwriting standards that gave us the crisis and encouraged the postponement of foreclosures by lending support to various states’ efforts to sue originators for robo-signing violations.
Now they are trying to deflect blame from Fannie and Freddie by suing the originators who fulfilled the politically motivated demands of the government-sponsored agencies that drove the mortgage crisis. If successful, all of those efforts will further postpone the ability of banks to grow the supply of credit, and they will sow the seeds of the next mortgage bust.
[my emphasis]
This is the way of the political status quo, particularly, those who use their power to demand the market bend to their will, citing “compassion” for others — but in effect, themselves benefiting from the power that comes with directing the flow of wealth through law and regulation.
They create the crisis. They find a scapegoat onto whom to blame that crisis. Then they pretend to ride in as champions of the people most hurt by the crisis they created, promising to punish the scapegoats onto whom they’ve transferred their own culpability.
Nice work if you can get it.
(h/t TerryH)
They create the crisis. They find a scapegoat onto whom to blame that crisis. Then they pretend to ride in as champions of the people most hurt by the crisis they created, promising to punish the scapegoats onto whom they’ve transferred their own culpability.
Works every time.
Re: #1
Worked for the “crisis” named in the previous post too.
“You can see it in their eyes as they sit and work the wheels and levers of government – there really IS such a thing as a free lunch.”
“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
New York Times, September 2003
The fox was guarding the henhouse, and now people are wondering what happened to the hens. It must be the rapacious farmer…
It’s not as easy as they make it look(the true mark of a master at his trade). It takes tons of prep work, exhaustive policing of the hive mind, constant creative input designing distractions, endless self-esteem massages; working with the smelly hippies of today, and the perfumed hippies of the ’60’s, now pretentious as a French king and earning six figures from DC.
If they would use all that industry for good, the Chinese would owe us money and we would have that space station on Mars by now. And flying Fords instead of glorified golf carts.
The fox was guarding the henhouse, and now people are wondering what happened to the hens.
My guess? Buggery was involved.
TCW,
More along those lines…
Always keep this in your memory banks: NY Times, 30 September 1999: ‘Fannie Mae Eases Credit To Aid Mortgage Lending”
Emphases mine.
Sometimes the first draft gets it right.
Can’t let a crisis go to waste, don’t you know?