On Sat, Nov 15, 2008 at 1:56 PM, Nick Arnett <[EMAIL PROTECTED]> wrote:
> Ah, yes, the McCain argument that Fannie Mae and Freddie Mac (via the CRA) > supposedly caused the sub-prime meltdown. The only trouble with that > "explanation" is that it is baloney. You have confused the tail with the > dog. Those two were LOSING market share rapidly from 2002 to 2007 as the > sub-prime market exploded, led not by them (or they'd have increased their > share) but by investment bankers and mortgage brokers. They only got > involved (unfortunately) after the private market led them there. Actually, FNM and FRE are the largest players in the mortgage markets, by far. Looking at their combined (both companies) assets, from 1998 to 2008, they are 806, 962, 1134, 1417, 1640, 1813, 1816, 1640, 1657, 1677, 1776 billion dollars. That is $1.776 trillion even today! Total assets did go down a bit in 2005, but they have since come back up almost to the 2004 levels (of course, if the bad mortgages were marked down it may be lower). The government subsidizes FNM and FRE (through the implicit guarantee and the loose capital requirements) so that they can borrow money at lower rates, thereby having lower costs than all of the competition. This has the effect of making business tough for any smaller players, without government subsidies, trying to compete in the prime mortage market. It is not surprising that many of them resorted to subprime, where FNM and FRE initially did not play. If that is not bad enough for you, then FNM and FRE were pushed by Congress to help support low-income borrowers. Their management knew it was a bad idea, so instead of directly buying subprime mortgages, they bought mortgage backed securities that contained subprime loans. Since FNM and FRE are so huge, this significantly increased the demand for subprime mortgages, and again, it is not surprising that people started making the subprime loans to sell those subprime mortgages. By the way, do you really get your information from McCain? I don't think I mentioned McCain in my examples, so I don't really understand why you brought him up. > So, any *real* examples of how government regulation caused the sub-prime > crisis? Not all of the reasons I listed involved FNM and FRE. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
