Bizarre to say the GSE’s are somehow at fault for what happened more than say, private sector Goldman that securitized the paper and sold the bonds, or private sector AIG that backstopped them selling insurance to speculators, or private sector Countrywide that originated the ridiculous loans in the first place.
Oooooo! Big government. Watch out. (Boo!)
Ironically, it’s just the opposite. If federal/state government and agencies had retained their historic role in regulating the financial-related industries, it would have prevented much of the speculative excess. The Fed, with responsible leadership, perhaps would have even tightened credit when the bubble had so clearly presented itself.
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Any thoughts on the whole Coke-Pepsi thing?
I go for Mountain Dew.[/quote]
Absolutely. As a matter of fact, the GSEs traditionally made very boring, traditional mortgage loans. It was only when the govt forced them to start buying the toxic stuff (people were able to refi their toxic loans out of the private market and into the GSE product) that the GSEs really became the monsters that needed to be “saved.” The GSEs were actually reducing their portfolios and increasing capital ratios after the 2003/2004 issues, but were told to reverse action when the PTB saw that the private market was getting into deep trouble. IMHO, the private market would have been hit even harder if not for these moves.
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“The retained portfolios of mortgages and mortgage-backed securities (MBS) held by Fannie and Freddie grew strongly in the years preceding the OFHEO orders. For example, if we look at year-end figures for 2002 and 2003, we see that over the course of 2003 the two firms’ retained portfolios grew by a net of 12.3 percent and, at the end of 2003, they held 22 percent of outstanding mortgages on 1-to4-family properties. Net growth of their retained portfolios then stopped; over the course of both 2004 and 2005, their total portfolios of mortgages and MBS fell slightly. In 2006, their retained portfolios continued to decline and by the end of the third quarter their portfolios were below year-end 2005. Meanwhile, the total market continued to expand. The combined market share of Fannie and Freddie fell from 22 percent at the end of 2003 to 14 percent at the end of the third quarter of 2006.”
[I copied the above quote from pages 4-5 from the following link. All typos are mine. CAR]
In other words, as the mortgages were becoming ever more toxic, the GSEs’ share was growing smaller and smaller **because the majority of “toxic” mortgages were originated and traded in the private (non-GSE) market.**
Anyone claiming the CRA or the GSEs were at fault (common talking points of the Republican propaganda machine) don’t know what they’re talking about. While the GSEs certainly posed some risks, it was the private market that came up with the continuous stream of ever more toxic mortgages that enabled the housing market to take off like it did, especially post-2003.
