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AMEN!

By JLP | December 28, 2011

One thing I have learned over the years is that every decision has consequences. If I choose to spend my entire savings on a new car and then the air conditioner breaks, I have to live with the consequence of spending all my savings on the new car and will have to figure out a way to pay to fix my air conditioner. Unfortunately, those in elected office don’t seem to face the same consequences for their decisions.

Case in point: HUD quotas and government-sponsored agencies (GSEs). HUD quotas and GSEs drove the housing crisis. From The Financial Crisis on Trial (WSJ):

For the first time in a government report, the complaint has made it clear that the two government-sponsored enterprises (GSEs) played a major role in creating the demand for low-quality mortgages before the 2008 financial crisis. More importantly, the SEC is saying that Fannie and Freddie—the largest buyers and securitizers of subprime and other low-quality mortgages—hid the size of their purchases from the market. Through these alleged acts of securities fraud, they did not just mislead investors; they deprived analysts, risk managers, rating agencies and even financial regulators of vital data about market risks that could have prevented the crisis.

Further…

The GSEs began acquiring large numbers of subprime and other low-quality loans in the mid-1990s, as they tried to comply with the government’s affordable-housing requirements—quotas for mortgage purchases imposed by the Department of Housing and Urban Development (HUD) under legislation enacted by Congress in 1992.

These quotas initially required that, of all the loans bought by Fannie and Freddie in any year, 30% had to have been made to borrowers earning at or below the median income in their communities. The quotas, however, would increase—they rose to 40% in 1996, 50% in 2000, and 55% in 2007. HUD also added and raised quotas for “special affordable” loans that were to be made to borrowers with low or very low incomes (in some cases a mere 60% of the area median income).

In other words, the government essentially created the demand for subprime mortgages and then when everything imploded, they hauled in all the evil bankers for questioning. This is typical.

Please note that I am not taking the bankers’ side on this. I am not saying that bankers and loan originators were not greedy. What I am saying is that HUD’s desire for affordable housing was the match that lit the fire.

Topics: Credit Crisis, Housing Market | 13 Comments »


13 Responses to “AMEN!”

  1. Matt Says:
    December 28th, 2011 at 1:50 pm

    “Through these alleged acts of securities fraud, they did not just mislead investors; they deprived analysts, risk managers, rating agencies and even financial regulators of vital data about market risks that could have prevented the crisis.”

    I wouldn’t argue that the GSEs were in any way blameless, but the above sentiment is, bar none, the biggest load of crap the WSJ has ever tried to foist upon us. How many stories have we heard about the investment banks pushing AAA derivatives that they internally referred to as “dogsh*t.” And so now the WSJ and the American Enterprise Institute are actually trying to get you to believe THEY HAD NO IDEA? And you promote this as truth on your blog??

  2. JLP Says:
    December 28th, 2011 at 2:09 pm

    You missed the point, Matt. I did not say banks weren’t guilty. What I said was, this was started by HUD’s “affordable housing” goals. Why do you dismiss this?

  3. Matt Says:
    December 28th, 2011 at 3:00 pm

    “Why do you dismiss this?”

    Because I think it’s disingenuous of you to feature a story that appears to place the onus of the financial crisis on GSEs while simultaneously suggesting that banks were just in the dark, title it “AMEN!”, and then attempt to play down your deeply conservative beliefs that are manifest in just about every single post you write.

    If you want to run a right-wing blog, just do it. No one would blame you. You already post hacky graphics about “fair share” and talk about how much you liked Herman Cain. But don’t hedge. We all know where you stand.

  4. Jon Says:
    December 28th, 2011 at 3:47 pm

    @Matt,

    This is a natural consequence of aggression. It is better not to use aggression for anything, especially monopolists called governments.

    I don’t know why people like hate and violence so much. It may not be their intention but that is the results. The means truly do matter as much as the ends.

  5. JLP Says:
    December 28th, 2011 at 3:50 pm

    I titled it “AMEN!” because I agree with what the says. AFM readers know where I stand on these issues. I make no apologies for my political views, nor do I try to mask them. I have ALWAYS been against the bank bailouts and against the banks taking TARP funds and using them to pay bonuses. It’s disgusting.

    BUT…

    Without the HUD pushing affordable housing, none of this would have happened.

  6. BG Says:
    December 28th, 2011 at 7:26 pm

    Thank goodness Saint Gingrich got his $1.6 million cut before the scheme imploded.

  7. Jack Says:
    December 28th, 2011 at 11:34 pm

    > If you want to run a right-wing blog, just do it.

    It’s pretty much impossible to write a serious economics blog and have it NOT be a right-wing blog.

  8. Ed Says:
    December 29th, 2011 at 11:37 am

    right wing left wing….it’s all the same

  9. BG Says:
    December 29th, 2011 at 11:41 am

    Jack) This is an economics blog? Could’ve fooled me. JLP has claimed he is not an economists (neither am I, nor you I presume). JLP has articles covering a vast array of subjects, some of which are economics based, and yes, some of which has right-leaning bias (but not nearly as bad as your blog).

    As it is, these posts are just opinions, and I applaud JLP for putting his opinions out in the public for others to criticize / agree with.

    For this particular article, my opinion is that GSEs should not exist, period — problem solved (I agree with Michelle Bachman / Ron Paul on this one). However, these GSE behemoths are not ONLY the product of liberal (democratic/socialist/communist as you like to refer to liberals in your blog) — ex-President Bush (and even ex-Speaker Newt Gingrich) had a huge influence creating the mortgage bubble.

  10. Jack Says:
    December 29th, 2011 at 1:58 pm

    BG, we agree that GSEs should not exist. While we conservatives blasted Bush for many things — in many ways he is NOT conservative — I do not know what he or Gingrich had to do with the mortgage mess.

  11. BG Says:
    December 29th, 2011 at 3:42 pm

    Bush: Home Ownership and President Bush
    Gingrich: Definitely Not a Lobbyist?

    If the GSEs were (even partly) responsible for the housing crisis, then you must blame Bush & Gingrich for growing and empowering the GSEs.

  12. JLP Says:
    December 29th, 2011 at 3:51 pm

    Thanks for finding that, BG.

  13. Jack Says:
    December 29th, 2011 at 4:55 pm

    Thanks, BG. I did not know either of those things. I knew Bush was no conservative, but Gingrich is more of a surprise. OTOH, if someone offered me that much money, I might say some things too!

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