Cheap Shots And Piling On

Karl Rove explains that Bush tried to rein in Fannie Mae and Freddie Mac; Matt Ygelsias explains that, since Bush never used the phrase "housing bubble", it never happened.  Not compelling!  This Times story from Sept 1999 tells us that the Clinton Administration was pressing Fannie and Freddie to offer more affordable loans - oops!

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

This old post noted efforts by Bush in both 2003 and 2005 to rein in Fannie and Freddie.  And I promised a cheap shot, so here we go - yesterday, Matt Y assured us that lefty commentators were both smarter and more pessimistic than their righty counterparts.  So let me cite this table-pounding insight from the smartest pessimist of all, Nobel-laureate Paul Krugman, writing about the parlous state of the economy in May of 2006: 

As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.

Now that game seems to be coming to an end. We're going to have to find other ways to make a living — in particular, we're going to have to start selling goods and services, not just I.O.U.'s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.

Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what's happening in the housing market is "a very orderly and moderate kind of cooling." Maybe he's right. But if he isn't, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.

Maybe the housing-led economy will all end badly, or maybe it won't!  Thanks for sharing - it's no wonder Times Select failed as a premium service. 

Comments

[Neo]

The Krugman stuff seems so ironic when Drudge has WE'LL SPEND OUR WAY OUT OF THIS just below a picture of Obama.

[fdcol63]

"We'll spend our way out of this mess ..."

By raising taxes from taxpayers, especially those filthy rich people.

When we in the government take this money away from people, it will leave less money in their pockets to spend in the economy.
And the filthy rich will take their money elsewhere and stop making those luxury purchases.

Of course, this means the economy will continue to spiral downward ....

But hey ... that's okay ... we'll just raise taxes again, and let government spend our way out of this mess.

Can anyone say "circle jerk"?

[Danube of Thought]

The Drudge headline pretty well sums it up. Does anyone else think there has been far too little discussion--just about none--concerning what, indeed, is the best way to stimulate an economy?

Krugman complained that we were getting rich by selling houses to each other. Now Obama says we're going to recover by giving some people's money to other people.

I'm not optimistic. But I guess that makes me smart...

[bad]

As I summarized it awhile back

As I've consistently said...

Krugman sounds like Obama. Blech

[MayBee]

I just can't think of another time when a President has demanded a huge spending bill from Congress, and fast.

It just doesn't seem to me a path to fiscal responsibility.

Yet I feel all hope may be lost when I see the CNN business anchor saying Obama has to be really really honest about how bad things are, so he can get what he wants.

For some reason, what he wants now seems very similar to what he wanted before the economy was so dire. Remember when the stimulus check was the answer to high gasoline prices?

[Sue]

MayBee,

I just can't think of another time when a President has demanded a huge spending bill from Congress, and fast.

It just happened with Bush. The slippery slope I warned about. What moral authority do republicans/conservatives have to say no?

[MayBee]

OK, so tell me why this kind of thing for mortgages wouldn't work:

Banks allow distressed homeowners (or homeowners in distressed areas) to write down the principal on their mortgages to come in line with market conditions.
But if the mortgage holder sells or refinances the house at a certain price, the bank gets to recoup some of it's loss.
I'm not a financial expert, obviously, so forgive my use of incorrect terms.

But people in Detroit that bought during the bubble aren't going to be able to sell their houses at their mortgage level any time soon. If they can write down they are paying the interest on, they can possible save their home ownership. The banks would take a loss on it, but not as much as if the house sits empty due to foreclosure and a bad market.
At the same time, the banks don't deserve to write down the principal only to have the homeowner make a huge profitable sale or refinancing. So they would be protected from that.

I could be suffering from lack of sleep and just babbling here.

[MayBee]

It just happened with Bush. The slippery slope I warned about. What moral authority do republicans/conservatives have to say no?

I think they just say it. You have to be able to say enough is enough.
I sometimes used to let my kids have a cookie before dinner, but I didn't let them eat the whole box of cookies instead of dinner. I had the moral authority to stop a little bit of bad behavior from becoming too much.

(JMH,I don't want to hear about my bad analogy :-) )

[matt]

the Chinese are balking at buying more U.S. treasuries, and I'm sure the Japanese are in the same boat. If they decide they have too much invested in the dollar, you're going to see another huge credit crisis, except this time the "full faith & credit" of the United States will go into free fall.

There does not seem to be any responsible fiscal plan in place anywhere yet. The politicians are muddling through, expecting everyone (citizens, financial institutions, foregn investors, governments) to buy into their version of events, even if it contradicts reality and reason.

Confidence is a funny thing. If the global financial herd decides the dollar is no longer a good haven, we are well and truly in trouble.

Throw in a couple few state bankruptcies, some more major institutions or corporations going BK, and you get the idea. It will take a world class team to sort this out, and so far, all we have are clown shoes.

[Pofarmer]

"It just doesn't seem to me a path to fiscal responsibility. "

Ya think???

Hannity has been having a ball quoting all the dingledorfs back in 2000 about how terrible it was for Bush to be talking down the economy and pointing out that we might have looming energy problems.

LOL.

Or not.

I need a drink.

[kim]

Swiss Francs and industrial diamonds, half each. Or EWA, for the optimists.
=================================

[Pofarmer]

Dollar lower

Dow lower

Commodities lower

Energy lower

This is not comforting.

[Rick Ballard]

"I could be suffering from lack of sleep and just babbling here."

Well, if you are, so is Treasury. There used to be a "moral hazard" argument to renegotiation of existing mortgages. That's sort of fallen by the wayside due to the slow witted (but nicely credentialed) bankers/economists who concocted the formulas/algorithms which underlay the marvelous MBS/CDS instruments missing the societal change which has reduced the value of a person's word to somewhat less than nothing (depending on the situation and relatively speaking). We're just damned lucky that the economics/finance geniuses were sharp enough to get the Bankruptcy Act revisions through in time for a sufficient number of debt serf collars to be manufactured. Otherwise, things might be getting serious.

[Rick Ballard]

MayBee,

Zombiegroup (speaking of mental midgetry carried to its logical conclusion) accepts the wisdom of your proposal. Obviously, they grow more intelligent by the moment. A tad late, perhaps. This has a bit of a Black Knight feel to it. (How far is it from Black Knight to Norwegian Blue?)

[Danube of Thought]

In the old days, we would simply say that the market has to clear. What congress and both the old and new administrations seem determined to do is to prevent it from clearing. I may be a victim of too much Austrian propaganda, but I don't think this is the proper course at all.

In other news, former SecDef Perry seconds Joe Biden's prediction. LUN.

[bad]

Rick, Kudlow wrote an article a couple of days ago saying there are signs the economy is bottoming out-the first step to recovery.

Is he on the right track? LUN

[RichatUF]

Maybee-

Mortgage Debt Forgivness: please consult a tax professional for your specific circumstances.

To answer your question in part, it can already be done. However the incentive structure with the last housing rescue bill and "advice" people have gotten from the media, people have been going into default thinking a refi would be as easy as their previous mortgage. And with Congress continuing to tinker with the mortgage finance industry no one wants to take the risk with marginal borrows that the existing programs could help (but those that have already been worked out still seem to go into default at about a 50% clip-a clue that perhaps those people shouldn't have gotten the house in the first place).

It would be so much more honest if the Treasury bought all the problem properties and gave them to the occupier because that is what the end game feels like.

FWIW

[steve sturm]

If only Rove and the rest of the Bush Administration had put as much effort into reining in Fannie and Freddie as they are in trying to deflect blame for the crash...

(as I posted), if Bush thought Fannie and Freddie presented a real threat to our economy, why didn't he push back against Democratic resistance a FRACTION of how hard he pushed when the Democrats stood in the way of his national security agenda?

[glasater]

Years ago I bought a very small franchise in a field related to the real estate market. Had many dealings with the folks in Michigan where business headquarters were located.
Trust me--there was never a real estate bubble in that beleaguered state.

[hrtshpdbox]

I can't figure how a lower dollar and lower commodity (including oil/energy) prices would be uncomfortable. Any downside to a dollar move has a corresponding upside; a lower dollar helps exports. Lower commodity prices are almost always a plus, though; falling prices, due to lower demand, helps provide the framework for eventual recovery. The Dow closed down 20 points; fear about tomorrow's unemployment number is probably vastly overdone - tomorrow should be a good upside day. With stocks, it's not such a bad thing if the government is spending (and printing the money to do it; they can't get it all by taxing the rich - most wealthy folks can figure out new loopholes to jump through when the situation warrants it).

[dk70]

Barron's had a front pager about getting the hell out of Treasuries.

Why would China/Japan or anyone for that matter want more?

[RichatUF]

hrtshpdbox-

But what about China not wanting dollars, or Japan, or GB, or KSA, or Russia(?), or Norway, or South Korea, or Dubai, or Abu Dhabi...

[naturalgasoilslumpautosfree]

BOA bought Merrill who got the bailout after Asian banks bought the mortgages. BOA sold it's China Bank stock interest after they forced China bank to pay allot of debt. It's wonderful how all these get along. China won't do anything until it talks to it's Merrill or BOA pal. They can guarantee things and maybe get Obama on the phone. He's an expert at loan criteria and opening up free loans for everyone. He's also an expert at getting 100s of billions in foreign aid. China is doing allot of that now and this is wonderful and beautiful too. So, maybe China will do the aid thing again and get to talk to Obama and his BOA Merrill pals for some more of that good capitalist deal making.

Fannie and Freddie was a civil right s issue, how Obama and his pals sued over the loan criteria. Try to stop that. It's like the foreign aid five year entitlements. Try to stop that. Fannie and Freddie were so bad I could smell them from a soccer game.

So, we need debt forgiveness like Joe's bank's 'grant loans.' We should work closer with our Comrades on foreign aid and maybe Obama will keep them from taking your house ''cause Obama is really the one that sold it.'

Maybe another food emergency emergency and we can argue about the price of gas emergency five year budgets?

Tax cuts are free cars and houses.

[PeterUK]

The Russian gas shutdown gains a new dimension - NATO involvement. NATO might intervene to aid its allies hit by the gas crisis.
"Just as you think you are out,the drag you back in".
And now a word from the PEBO.

[clarice]

Is the NATO warning one with more teeth than the EU warning? Should we respond to Europe as they did to us when we needed them and they balked at even sending defenseive weapons to Turkey as they were treaty bound to do?

[PeterUK]

Clarice,
Soft power,they are going to pay through the nose.Now,if you could just parachute me a camping stove,some thermals and some tins of Spam....

[narciso]

The lobbyists in the second case, including Rick Davis, (one of the useless advisors on the McCain bus) were marginally moresuccessful
in forestalling things, than in the former; with the Kuwaiti/Quatari/Saudi public relations program 'laundered' through white shoe firms. Plus the former didn't have the likes of Franks and Rangel, and co; calling
racism with every possible look into the GSE
market.

[MayBee]

RichUF- I wasn't asking for me!! I don't have specific circumstances.
The main thing I was trying to ask is if it would make it more attractive to banks if they could require they get some of the $$ back if the homeowner later goes on to sell the house at a price close to what they had written off.
Or if the market went back up again, the bank could readjust the principle back up (up to a % of the original principle) .

[MayBee]

glaster-Had many dealings with the folks in Michigan where business headquarters were located.
Trust me--there was never a real estate bubble in that beleaguered state.

One of my family members is one of the top real estate agents in the state. I know the Michigan housing market and the trouble it's gone through. There are definitely parts of Michigan that had bubbles, areas with large numbers of foreclosures, and a there is currently depressed housing market.

So, I can't really trust you on this one.

[Rick Ballard]

"Is he on the right track?"

Dunno, Bad. He's looking at things that I would look at and the signs aren't getting worse but the improvement could easily be erased. The problem that I have is that the over hype of how 'terrible' the economy is doing is so far out of whack with reality that it's become a factor in the recovery process. Prince Zero did his bit today to worsen the situation and if he keeps the babble up it could offset anything positive achieved by dumping dough on the grasshoppers.

I watch the HI (health insurance) contributions to FICA as a measure of economic 'reality'. They were up 3.83% in October YoY v 3.71% through Q3 (again, YoY). As a comparison, 2007 showed an increase in HI contributions of 5.84% over 2006.

So, translated into classical lefty stupidese, the change in the rate of increase is a "decline" of 36%.

Man, I could feel brain cells dieing by the million just writing that.

[Pal2Pal (Sara)]

Is the NATO warning one with more teeth than the EU warning? Should we respond to Europe as they did to us when we needed them and they balked at even sending defenseive weapons to Turkey as they were treaty bound to do?

Not that I would advise anyone to take my son's advice about world affairs as he is so far right, he makes Pat Buchannan look moderate, but his answer to the EU this morning was "Screw them, they wouldn't lift a finger to help us."

I tried to explain that it was a little more complicated than that, his answer was, "so screw them all!"

I sometimes doubt I gave birth to this hardline conservative spawn, but there you have it and most of his peers feel the same way. If they had their way, America should just blow the rest of the world right off the face of the earth.

[hrtshpdbox]

"But what about China not wanting dollars, or Japan, or GB, or..."

Is that the reality, though? The Dollar Index is lower than it was a few weeks ago, but considerably higher than it was in July, and right where it was through most of '07. Currency value will always be chiefly a reflection of relative interest rates; if 10-year Treasury's yield more than foreign paper, they'll be bought (with dollars). Now, the question of just how much debt the gov needs to float to finance any Obama adventurism (as well as the already-in-the-can TARP needs), and if anyone actually has the money to buy all those bonds...I guess that's something else (I just heard it peripherally, but I think Germany went straight to the printing presses to participate at the generally miserable U.S. Treasury auction a couple days ago). The ever-more-entwined de facto "new world economy" caused by global bailouts (and the resultant global need to inflate) should be a topic of lively debate for the economic theorists.

[clarice]

PUK:"Now,if you could just parachute me a camping stove,some thermals and some tins of Spam.... "

I have a better idea, parachute yourself in here until summer..

[Danube of Thought]

God, I do love this new clown who posted a while back: "It's Bush's fault because he didn't push back hard enough against the Dems." Boy, are these screwballs gonna miss W when he's gone.

[PeterUK]

Clarice,
Who would handle this end of the "Antiques and Objet d'art for Light and Heat" (Registered Charity)?

[RichatUF]

hrtshpdbox-

I suppose you could call be a dollar realist. The countries I listed are oil exporters and re-export manufacturers. China will stop using dollars when their largest market isn't the US and they don't have to pay for oil (and other raw materials) in dollars anymore. Oil won't be priced in dollars when the US isn't the largest oil import market anymore. The big scary Barron's article today can go right alongside their gold at $2000/oz editorial.

[clarice]

You might suggest that the antiques are too fragile to be handled in freezing households and therefore their sales will be temporarily suspended. Unless Russia caves to soft power, of course.

[RichatUF]

I suppose you could call be a dollar realist.-> I suppose you could call *me* a dollar realist.

I'm not even drinking.

[07]

NATO wants to kill Russians over gas now? Americans already kill people over oil and that Georgia guy got 3 billion from Joe and Obama for murdering his own people; what should a a NATO country in Afghanistan think?

[Carl]

Hrts at 6:05

"But what about China not wanting dollars, or Japan, or GB, or...

Is that the reality, though? The Dollar Index is lower than it was a few weeks ago, but considerably higher than it was in July, and right where it was through most of '07. "

That used to be a fair way to think of it. But it is a new day when the cheerleader in chief, the soon to be CEO of the world's largest borrower, in a huge speech designed to calm the markets, tells our lenders the world over:

"...And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."

I have borrowed a lot of money in my life, but I never told the lender that. Carter wasn't even that stupid. Even Clinton learned to respect the bond market.

Yea. That makes me want to stuff Rick's floorsafe with Benjies or US Bonds. I'm accepting Kim's suggestion of emeralds in addition to the diamonds, and Clarice's advice to mix industrial stones in with the D Flawless. My wife has been sent back out with a new shopping list.

[kim]

NATO wants to huff and puff. How the Hell can they turn on the gas?
===================================

[bgates]

his answer to the EU this morning was "Screw them, they wouldn't lift a finger to help us."
That wouldn't do at all. I suggest, "We are grateful to our European allies for teaching us to move beyond the barbaric anachronism of 'hard power'. Our new President was justly celebrated for his speech in Europe in which he spoke of 'a world that stands as one'. It appears that Russia wants to return to those heady days of unity. We couldn't be happier."

[PeterUK]

Clarice,
Seriously though,isn't the timing of all this remarkable? Looks like the world has looked at the PEBO and decided it is everyone for themselves.Looks like you have Jimmy Carter on downers.

[Danube of Thought]

Great Scott--"Kennedy Seen As Model For Re-Entry Women." Hell, I guess that's reason enough to appoint her to the Senate; what better way to re-enter? You have to read this nonsense to believe it was actually written. LUN.

[MostEmailedNews.com]

It's astonishing that there is so little regulation that these butthead wall st jerks could gamble on whether people were gonna pay there mortgages. What were they thinking! Now the house has 21 and we are all screwed.

- T

http://mostemailednews.com

[glasater]

MayBee--of course I was painting with a pretty broad brush and Michigan is a very large state area-wise.

The folks I was dealing with were up in the very most Northern part where they assured me things were bad five years ago and were advising me on pricing the product they offered via moi--virtual tours--from the local scene. So that's how I got the perspective.

No biggee and like politics--real estate is like local:-)

[MayBee]

Have you all seen this at Political Punch?
Tops will like it. It's a letter from John Conyers expressing his displeasure at the nomination of Sanjay Gupta:

"January 7, 2009

"Dear Colleague,

"Please join me in signing a letter to President-Elect Barack Obama that Dr. Sunjay (sic) Gupta not be nominated for the post of Surgeon General.

"I join in opposition with respected Noble (sic) Peace Prize award wining economist Paul Krugman, who has very serious concerns with having Dr. Gupta be the nation’s Surgeon General. (See January 6, 2009, New York Times Hosted Blog, 'Conscience of a Liberal.' Available at http://krugman.blogs.nytimes.com/2009/01/06/the-trouble-with-sanjay-gupta.)

"Also, there are highly experienced medical professionals who question whether Dr. Gupta has the necessary experience or even the medical background to be in charge of some 6,000 physicians or more who work in the United States Public Health Service. Gerard M. Farrel, Executive Director of the Commissioned Officers Association, stated in the January 7, 2008 Washington Post that Dr. Gupta will certainly face a 'credibility gap' because he never served in the National Health Service Corp, and furthermore, does not have the 'experience or qualifications to be the leader of the nation’s public health service.' Clearly, it is not in the best interests of the nation to have someone like this who lacks the requisite experience needed to oversee the federal agency that provides crucial health care assistance to some of the poorest and most underserved communities in America.

"For more information, please view my web site at www.house.gov/Conyers. ...

"Sincerely,

"John Conyers, Jr.

"Member of Congress"

[PeterUK]

"I join in opposition with respected Noble (sic) Peace Prize award wining economist Paul Krugman, who has very serious concerns with having Dr. Gupta be the nation’s Surgeon General."

That would be Paul Krugman MD?

[matt]

A big Kumbaya shout out to all of our friends in Europe....

from my understanding, they will be harnessing the natural gasbags in Brussels to help remedy the crisis. Then they can burn all their memos in an environmentally correct solar powered wind stove....that will keep them warm. Or they can all vacation in Marrakech. They're Europeans after all and have plenty of vacation time left at this time of year.

[Daddy]

Don't know much about the EU powergrid network, but...I seem to recall that France gets about 75 percent of its electric power from Nukes, but that the German's have tried to completely oust Nukes in favor of Enviro-friendly alternatives. If this goes on for an extended period during a cold as carp European winter, will be interesting to see if the German public starts making any noises about Enviro-unfriendly alternatives.