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Michael Myers
Byrne Robotics Member
Joined: 28 December 2004
Posts: 831
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| Posted: 14 September 2008 at 11:17pm | IP Logged | 1
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Joe wrote:
Dear Mike, you wrote:
"Well, the Fannies have never dealt in sub-prime loans, and their
difficulties are due ENTIRELY to overvaluation and their status as GSEs
in the first place."
According to the Herald Tribune in July 2007:
" Fannie Mae, the largest provider of money for U.S. home loans, said
it held $47.2 billion of securities backed by subprime mortgages at the
end of June. Freddie Mac, the second-largest, held $120.8 billion of
such debt as of May 31." |
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My genuine thanks, Joe. The sloppiness is inexcusable. I should have written "had never " as opposed to "have never".
Here's that portion of my post again, unchanged, read it with 'had' in place of 'have':
Joe, you've somewhere linked the former GSEs directly to the subprime
crisis. Well, the Fannies have never dealt in sub-prime loans, and
their difficulties are due ENTIRELY to overvaluation and their status
as GSEs in the first place. Overvaluation was a world wide phenomenon;
in fact, our domestic overvaluation lagged BEHIND worldwide markets.
As it stands, both companies reported assets exceeding their
liabilities and 98.3% of the GSE's loans are recorded as paying timely
in 2008. Now, despite the arguments in favor of them, I have never
supported the concept of the former GSEs and don't agree with the
extent of the Fed's restructuring plan; yet, the restructuring does
actually offer a method of downsizing those institutions. Joe, do I
need to remind you that the former GSEs were always a democrat baby and
that part of the problem with their lending practices was government
mandate, reinforced under BOTH President Clinton's and President Bush's terms, that they should make greater efforts to finance lower income borrowers at prime rates?
Now, Joe, what does their "status as GSEs"in the first place" mean to you? As of their inception and the most recent GSE Act, HUD and Congress said that it meant that the GSE Act established a set of escalating performance goals that measured, as a percentage of the GSEs' total business, the availability of housing financing for a typically unattractive market. These are low and moderate income families; for very-low-income
families; and for families living in central cities, rural areas, and other under-served areas. In other words, Congress via the GSE Act stated that the GSEs were not doing all they could to benefit low-income families and those in under-served communities. To address these concerns, the GSE Act required the Secretary to "establish, monitor, and enforce" specific annual performance goals in terms of servicing those markets. This was the government mandate I was referring top in my original post.
My criticism wouldn't have made much sense, if the GSEs were not, in fact, suffering under a government mandate to buy a certain percentage, increasing every year, of subprime mortgage securities. That meant that for every prime mortage dollar spent, a portion had also to be spent on subprime CDOs. Now, would you care to tackle my assertion that the problem with the GSEs is entirely overvaluation as opposed to subprime default? I'll remind you that, "both companies reported assets exceeding their liabilities and 98.3% of the GSE's loans are recorded as paying timely in 2008."
QUOTE:
" Joe, what could President Bush have done to reign in sub-prime lending, Joe?"
I was referring to Greenspan. Here's a NY Times article about his and the Fed's failure to heed warnings as far back as
2001. |
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Joe, I already addressed Greenspan's involvement with Michael Retour. My assessment of Greenspan, overall, was sterner than the NY Times for the entire length of his run as Chairman of the Fed. As was my rundown of worldwide events more involved. Here:
"You're even misrepresenting the extent of the actual problem with Greenspan's decisions as Chairman, Michael. The problem isn't the cheap rate, per se, as this is a viable and understood mechanism. The problem was the clear moral hazard which his policies as Fed chief engendered in the market at large and to which Greenspan could do little to avoid by adopting once more his preferred remedy. Over, and over, and over.
One quarter, or even a few successive quarters of cheap money isn't
going to do anything but achieve its purpose; however, when the Fed, as
under Greenspan, begins to abuse just one aspect of money supply theory
and supports backed bailouts at every whif of a crisis--in order, the
'87 stock crash, Gulf War, Mexican Peso devaluation, Pacific crisis,
the Y2K joke, the tech bubble, September 11th attacks--then you are
giving the unmistakable impression that everything is risk free because
the government will step in if it goes sideways. And, this is moral
hazard."
Get the picture?
You weren't referring to President Bush? And, should I likewise chalk up your actual statement to carelessness?
Here is what you said:
Joe Zhang wrote:
| Through Alan Greenspan, GWB created the housing bubble which ended up as the sub-prime crisis. |
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Michael Myers
Byrne Robotics Member
Joined: 28 December 2004
Posts: 831
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| Posted: 14 September 2008 at 11:20pm | IP Logged | 2
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Joe Zhang wrote:
And here's an article about how Fannie Mae and Freddie Mac quashed the state of Georgia's attempts to stop sub-prime lending in 2003.
"The 2002 law made everyone up the line, including investment banks on distant Wall Street and rating agencies like Standard & Poor's, legally liable if the loans they sold, securitized or rated were deemed unfair." |
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Joe, Rich and I already wrangled this one. From the Newsweek article:
"Ultimately, the Georgia Legislature, under Barnes's successor, gutted his law in early 2003 after a dramatic eleventh-hour vote in which a Republican senator warned that Freddie Mac was about to cut off most of its business with the state. "It broke my heart," Barnes says. (Fannie and Freddie declined to comment specifically on any efforts against Georgia's liability law, but in general they say they have "always supported efforts to fight predatory lending," says Fannie spokesman Brian Faith.)"
Newsweek is, starkly, in error. Part of the entire controversy revolved around the fact that Freddie Mac had actually come out in favor of *some* provisions of GAFTA and Barnes claimed that the "Republican senator" had made up his claims. Again, when the memo from Freddie Mac was actually received it actually endorsed some of the bills provisions...and was exempt from most of them anyway.
GAFTA, prior to amendment, was BAD law. The reason is demonstrated, in part, by your own quote fromn the article. For good measure, that portion of my post to Rich concerning GAFTA:
"...But, a word to the wise, learn about what you're talking about. At the very least, learn more than the legislators in Georgia whose predatory lending law was so ineptly constructed that the federal Office of the Comptroller of the Currency immediately claimed pre-emption and almost immediately exempted federally chartered banks from that laws' purview; that the state followed suit by exempting state chartered banks; and which was amended in less than FIVE months because elements like its 'unlimited liability' claim (as opposed to a determinable dollar amount and due diligence) had placed the state of Georgia in the position of not having ANY large entity willing to handle mortgage loans originating in the state...with the exception of federally backed Freddie Mac, and they didn't handle "high-cost loans" in Georgia the first place. And, even they had problems with the "low-cost" buys from the state. How is Freddie Mac or Fanny Mae supposed to size a loan which carries "unlimited liability" for an undetermined time for even a misspelled word? Just how do you get that through your buyer's compliance shop? The Georgia law was so poorly constructed that even the definitions of 'annual percentage rate,’ ‘creditor,’ ‘home loan,’ and ‘points and fees’ had to be amended.
And what happened? Well, since most all mortgage loans made by traditional lenders are sold in the secondary market, the secondary market all but closed its doors to Georgia. The national buyers of mortgage loans even changed their underwriting standards to require lenders to agree to provide for a "take back" on ANY loans made under GAFLA, even if it was years after the loan was closed, sold or even paid off. With fewer national companies willing to buy mortgage loans originated in Georgia, the end result was a reduction of overall credit availability from traditional lenders. Tell me, was the reduced competition in the mortgage market a good deal for borrowers in Georgia?
Georgia didn't think so, and changed its law."
If you think you can argue in favor of Georgia's original Gafta, please do so.
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Joe Zhang
Byrne Robotics Member
Joined: 16 April 2004
Location: United States
Posts: 12843
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| Posted: 14 September 2008 at 11:26pm | IP Logged | 3
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I should have written "had never " as opposed to "have never".
===============================
Mike, you're not making any sense here.
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Joe Zhang
Byrne Robotics Member
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Location: United States
Posts: 12843
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| Posted: 14 September 2008 at 11:28pm | IP Logged | 4
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"
You weren't referring to President Bush? And, should I likewise chalk up your actual statement to carelessness?"
=========================
Greenspan could have done something directly.
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Michael Myers
Byrne Robotics Member
Joined: 28 December 2004
Posts: 831
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| Posted: 14 September 2008 at 11:29pm | IP Logged | 5
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Joe, the BofA/Merril merger and Washington Mutual have been on the table.
As for Lehman Brothers? What's the matter, you couldn't trust my earlier post and had to wait for a newspaper? At about 1:30 Mountain Time, before Bloomberg's confirmation, you and I had already discussed this eventuality. It was old news, then, lacking only the actual statement.
Here:
Lehman brothers? The same, with the proviso that Lehman faces the very
real threat of bankruptcy [hence the emergency derivatives trading
session and meetings this weekend which resulted in Barclays' and BofA
saying sayonara! to any deal]. The BIG news is that the Fed seems to
have, at the time I write this, WISELY chosen to finally ABANDON ONE
ASPECT OF GREENSPAN'S FISCAL POLICY of backstopping every institution
that indulges in moral hazard and then seeks government succor! And,
why has the Fed said it won't guarantee Lehman? Because its loss
DOESN'T affect the U.S. economy anywhere near the manner you suggest
(as employees own upwards of 25% of its shares). Nor could it EVER.
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Joe Zhang
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Posts: 12843
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| Posted: 14 September 2008 at 11:31pm | IP Logged | 6
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"Tell me, was the reduced competition in the mortgage market a good deal for borrowers in Georgia? "
=========================
The "competition" in the sub-prime turned out to be a fantastic deal for all of us, Mike.
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Michael Myers
Byrne Robotics Member
Joined: 28 December 2004
Posts: 831
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| Posted: 14 September 2008 at 11:33pm | IP Logged | 7
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QUOTE:
| Mike, you're not making any sense here |
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Joe, what wouldn't make sense is mentioning a government mandate to purchase subprime loans if GSEs weren't obligated to balance their market share with such loans.
QUOTE:
| Greenspan could have done something directly. |
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Like what? We were actually in a recession in the early 2000s, are you advocating a credit crunch ion the midst of a recession?
At least, you're backing claims you can't support regarding President Bush engineering anything. Oh, wait...
QUOTE:
| Bush's sub-prime shithole gets deeper and deeper: |
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Joe Zhang
Byrne Robotics Member
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| Posted: 14 September 2008 at 11:34pm | IP Logged | 8
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Because its loss
DOESN'T affect the U.S. economy anywhere near the manner you suggest
===============
Lehman's not an isolated case, by far.
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Michael Myers
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| Posted: 14 September 2008 at 11:38pm | IP Logged | 9
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QUOTE:
| The "competition" in the sub-prime turned out to be a fantastic deal for all of us, Mike. |
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Joe, GAFTA was a Georgia state law. Its direct effect, precisely for the portion of the article you quoted, was to make it almost impossible for anyone in Georgia to make appeal to the secondary market.
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Joe Zhang
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Joined: 16 April 2004
Location: United States
Posts: 12843
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| Posted: 14 September 2008 at 11:39pm | IP Logged | 10
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We were actually in a recession in the early 2000s, are you advocating a credit crunch ion the midst of a recession?
========================
Still not making sense, friend. Preventing bad lending practices such as sub-prime protects the credit market.
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Joe Zhang
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| Posted: 14 September 2008 at 11:40pm | IP Logged | 11
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Joe, GAFTA was a Georgia state law.
=====================
At a national level, sub-prime has been a wonderful thing for all of us. Yay for the free markets !
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Michael Myers
Byrne Robotics Member
Joined: 28 December 2004
Posts: 831
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| Posted: 14 September 2008 at 11:43pm | IP Logged | 12
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QUOTE:
| Lehman's not an isolated case, by far. |
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Joe, how's this, from the 6th of September?
"Lehman Brothers? If you call a company laying off 7,500 in a year and taking a hit for 80% of its value in seven months insolvent; then yeah, I think you could say there had been a rumor or two. There are more such falls to come."
I've got more.
QUOTE:
| Still not making sense, friend. Preventing bad lending practices such as sub-prime protects the credit market. |
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Joe, you just suggested that we should have increased lending rates in the middle of a recession. Wanna talk about 'bad practice'?
And no, subprime lending, in and of itself, is NOT a bad practice. Or do you also advocate denying ANY hope for affordable home ownership to low income citizens? I'd like to think the discussion between Michael Retour and I, as one instance, was a little more complex than that. Suffice to say, you can't have a "bubble" without overvaluation, but you can have overvaluation without subprime lending. We are discussing the bursting of a housing "bubble", Joe. Well, you can't have a bubble without overvaluation, can you?
QUOTE:
| At a national level, sub-prime has been a wonderful thing for all of us. Yay for the free markets ! |
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Sigh.
Edited by Michael Myers on 15 September 2008 at 12:25am
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Topic Closed)
