The One Where Moxie Pisses off Righties
Wrote this post a few weeks ago, didn’t publish it and forgot about it until reading Steve’s blog. In the comments one can find some back-and-forth about blame and the Fannie & Freddie Kool-aid. So here is my old post with a caveat:
I’m an idiot. I studied Economics for only 4 years as an undergrad, at a University that values decisions based on empirical research like micro/macro econ, statistics, and multivariate analysis. This was a long time ago, and while I may forget some terms and all the math, I have retained the basic ideas and framework from my coursework.
—-
Some right leaning people I know have strokes when I suggest Fannie & Freddie were only part of the problem with the 2008 mortgage debacle. Forget Barney Frank, forget Raines.
My bad for assuming a conclusion so seemingly obvious and common, has escaped intellectual reach in some corners. Heck, google it and you will see those two GSE’s own or guaranteed only HALF of the US mortgages.
What about the other half?
You wouldn’t like to be around these people when I suggest the financial turmoil would have happened even without our GSE friends with the too-cute-by-half acronymic names — due to a combination of factors including housing costs (the rising bubble), free-market competition, the greedy lending practices of banks, moral hazard on both sides of the lending process, and securitization of these risky loans.
In saying Fannie & Freddie aren’t solely to blame, I am not defending them. Nor am I suggesting government regulation as a solution.
I am saying sometimes our national economic machinery doesn’t run properly. Much like an American car. Or that house you couldn’t afford to buy, but took out an ARM loan and expected the property would be worth more when you went to flip it, or re-finance before rates reset to a higher rate.
My stroke-having acquaintances apparently aren’t the only ones who don’t get it. Even Newsweek saw fit to write the obvious.
However superficially, they covered subprime lenders that are doing great.
That’s not a typo, one of these lenders said they had seven foreclosures this year out of 770 single-family loans. And yes, they loan to po’ folks.
One of the many “money” paragraphs:
What sets the “good” subprime lenders apart is that they never bought into all the perverse incentives and “innovations” of the late subprime lending system—the fees paid to mortgage brokers, fancy offices and the reliance on securitization. Like a bunch of present-day George Baileys, ethical subprime lenders evaluate applications carefully, don’t pay brokers big fees to rope customers into high-interest loans and mostly hold onto the loans they make rather than reselling them. They focus less on quantity than on quality. Clearinghouse’s borrowers must qualify for the fixed-rate mortgages they take out. “If one of our employees pushed someone into a house they couldn’t afford, they would be fired,” says CEO Bystry.
Also worth noting, and something that will please my right wing friends, most of the successful, ethical subprime lenders mentioned in the article “are a mixture of faith-based and secular, for-profit and not-for-profit organizations” — note the lack of Fannie’s & Freddie’s there. We can loan to people who don’t look perfect on paper and not end up with a paper number on the bailout ticket waiting list.
Simply more proof that the government needs to do less, so all of us can do better.
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December 4th, 2008 at 5:56 am
Good Post.
I can’t imagine any of your conservative readers being upset by this post. Its rational and adds to the big picture of the market mess we’re having.
Strawman should take notes. Liberals don’t necessarily contradict conservatives (nor would they get ignored either) if they had a proper rational structure tying their facts together.
Thanks!
PS: Excellent ‘Compassionate Conservative’ quote from the Newsweek article:
“We have to be profitable, just not profit-maximizing,” says Mark Pinsky, president and CEO of the Opportunity Finance Network,”
“Lending small amounts of money, carefully and responsibly, to working-class people isn’t a recipe for riches or grand executive living. At the headquarters of ShoreBank, which occupies a former movie theater built in 1923, the window in one founder’s office looks out onto a brick wall.”
George Bailey Indeed.
December 4th, 2008 at 6:11 am
Besides… you very gently eased into disagreement with certain conservatives instead of saying things like ‘You’re wrong, dumbass’.
A certain woman I know has a bad habit of doing the latter to me which of course does not put me in a ‘dialogue’ mood. Instead I end up saying nothing, thus breaking the bond of communication.
Another woman I have known has said a very good metaphor about dialogue: She likens it to playing catch with a ball. You throw the ball, and I catch it. I then throw the ball back and you catch it. Wash. Rinse. Repeat.
.. and then there is ‘Calvin Ball’.
December 4th, 2008 at 6:12 am
Strawman just comes here to upset himself. He’s not going to change our minds. We’re not going to change his. He never really answered my question about what he hopes to gain by commenting here. Did he?
But yes, the article does have several “compassionate conservative” quotes.
Conservatives and libertarians alike get upset when I say the blame is not just Freddie, Fannie, Frank, Raines et al. Especially when I say it would have happened without GSE’s.
December 4th, 2008 at 6:18 am
American cars run just fine if cared for propely!!!…..Nino
December 4th, 2008 at 6:23 am
“Did he?’
No he didn’t. His coming here has been an overall negative for all parties. Still I did have some amusement (though it does leave a bitter after taste in my mouth).
“Especially when I say it would have happened without GSE’s.”
Hmmmmm….. interesting point. Your comment begs to be questioned. Does this mean you’ll write another post? Or do I need to coax it from you with questions?
December 4th, 2008 at 6:25 am
We all don’t have you nearby, Nino!
My Dad owns an American car (much to my dismay), so far so good. Knock wood.
December 4th, 2008 at 6:30 am
Cond0, I’m happy to write another post about how this *could* have happened even without Fannie & Freddie. But I prefer not to.
Again, I’m not an economist, even though many with less training than I, write as one and get paid for it.
Just the other day I looked up a columnist at a fairly major paper, writing opinion about the economy, and he was an ENGLISH LIT major ungrad. Nice.
December 4th, 2008 at 6:38 am
I see. Blogs are more formal: Quasi authoritative. Thankfully I am just a commenter (which is even less authoritative).
http://www.youtube.com/watch?v=fXhVwavupig
I too, only have an informal education on business and the economy - though I do have some education (3 years) in Electrical Engineering. Too bad I can’t use it except to say “be careful not to let the magic smoke out of the circuit board!”.
As you can tell, I ’shoot form the hip’, alot.
Perhaps theres a better forum for that, besides a post?
December 4th, 2008 at 6:56 am
“I didn’t call my education informal! ”
One thing I can say about you is that you ARE a very passionate woman.
“I’ll find the staff mathematician at the compound and put him to work.”
Cooool…. I drool in anticipation, my mistress of the night.
December 4th, 2008 at 6:57 am
Oh… back out of warp… whew… that was fun.
Lets do the time warp again!
http://www.youtube.com/watch?v=zdu7xoHU9DA
December 4th, 2008 at 8:00 am
I might have changed it again. Are we back in order?
December 4th, 2008 at 8:00 am
“I was trying to fix the time problem….did I make it worse?”
Hmmm… not sure. I think we need the help of … Franken (furter). Perhaps he won the election in Minnesota?
December 4th, 2008 at 8:00 am
yep.. fixed!
December 4th, 2008 at 8:02 am
Nothing you wrote here pisses off this rightie, Mox. Your analysis is dead-on. There were plenty of financial institutions that made questionable decisions all on their own.
Both majors on my diploma (a Bachelors of Science, not Arts), required heavy studies of econ/stats/multivariate analysis rather than memorization of dates and names.
Smart chicks are hot.
December 4th, 2008 at 8:03 am
As you can tell, I ’shoot form the hip’, alot.
Nothing wrong with that! We Texans love to do so.
December 4th, 2008 at 8:04 am
Hey, it looks like all three of us are here right now. Party time!
December 4th, 2008 at 8:04 am
I didn’t call my education informal!
Both majors on my diploma (a Bachelors of Science, not Arts), required heavy studies of econ/stats/multivariate analysis rather than memorization of dates and names.
Thought some econ blogger might already have written this non-GSE scenario. It would require some math to figure out numbers, and I no longer do math. But if you people insist, I’ll find the staff mathematician at the compound and put him to work.
December 4th, 2008 at 8:05 am
“Nothing wrong with that! ”
Thanks Pilgrim! Shouldn’t you have saddled up for all the lil doggies in the morning?
No offense… It is good to ’see’ you at this time of morning.
December 4th, 2008 at 8:05 am
Like Cathy, I hate math.
December 4th, 2008 at 8:05 am
Okay, but neither of my BS majors can help me correct the time problem on the blog. SO sorry, tried to correct to the UTC -8 (I think), but it is what it is.
December 4th, 2008 at 8:06 am
Re: the time problem on this blog, we can just pretend we’re Canadians living in the maritime provinces.
December 4th, 2008 at 8:08 am
“we can just pretend we’re Canadians living in the maritime provinces.”
Either that or dodging icebergs in the atlantic.
At least we are in linear time now…
December 4th, 2008 at 8:09 am
I was re-stating, Mike. Cond0 called my 4 years at Cornell an informal education! He’s worse than my X-boyfriends~!
December 4th, 2008 at 8:09 am
You deleted some of my comments Mox… I’m so sad.
December 4th, 2008 at 8:11 am
“He’s worse than my X-boyfriends”
Does that mean I’m in line to be your next boyfriend (I have to brush up on my knuckle dragging!!!!)?
Well… a long distance one, but still…
December 4th, 2008 at 8:14 am
“Party time! ”
Yaaaaaaay! Get those Go go boots, Moxie!
December 4th, 2008 at 8:16 am
I was re-stating, Mike. Cond0 called my 4 years at Cornell an informal education! He’s worse than my X-boyfriends~!
Ah, I see. You need a boyfriend that respects your Cornell education! Myself, I’ve heard Cornell is a good university…
December 4th, 2008 at 8:16 am
I never said I was single
Just free of X-boyfriends who insulted my education!
December 4th, 2008 at 8:16 am
“Cond0 called my 4 years at Cornell an informal education! ”
Oh… uh… Excuse - ay - moi. There. i even said it in …ugh… french. Feel better? =)
December 4th, 2008 at 8:18 am
I never said I was single. Hey! you’re… Married? Engaged? Have a bFriend?
Congrats on any of the above (if thats the case… of course)!
December 4th, 2008 at 8:20 am
Mox, what you need is a good, conservative history professor boyfriend, not some knock-off. Ain’t nothing like the real thing!
By the way, “studies show” that long-distance relationships can be healthy…
By the way, is Obama Claus still bringing me my 2008 Porsche 911 Turbo? Thought I might as well ask while I’m wishing for the moon.
December 4th, 2008 at 8:20 am
“I never said I was single ;( ”
Whats with the unhappiness? Was this an … heh … arranged thing?
December 4th, 2008 at 8:21 am
I never said I was single
Ah, my hopes are dashed!
December 4th, 2008 at 8:22 am
Whats with the unhappiness? Was this an … heh … arranged thing?
Hmmm…good question!
December 4th, 2008 at 8:22 am
Ok i need to go have my coffee n watch the news.
December 4th, 2008 at 8:25 am
lol. You’re too funny Mike.
December 4th, 2008 at 8:27 am
I need to sleep. Off the normal schedule thanks to extended insomnia, which was relieved with mucho slumber.
December 4th, 2008 at 8:29 am
Good night, Mox. Sweet dreams!
And good night Cond0 and Nino!
December 4th, 2008 at 8:31 am
Night sweet Moxie! Sleep well…
Night Mike!
Night Johnboy… Mary-ellen… its been a hoot!
Thanks for watching Nino. I wish you said more. You can be a funny guy.
December 4th, 2008 at 10:17 am
Okay, econ minor at a mediocre land grant school in the midwest. Guns and Butter, marginal propensity to consume- that good enough?
Anyway, outstanding post. Liked the premise that fannie/freddie weren’t the ONLY cause for ruination.
Didn’t like the fact that you completely left out the part where the G was “encouraging” lenders to make borderline loans to various disadvantaged populations. Worked a couple years in the mortgage department of a multinational bank here in Chicago, and part of the daily routine was to produce a report that went to the feds itemizing how the bank was compliant in lending the right amounts of money to the correct blend of different colored people.
Granted there were many lenders out there needing little encouragement, but I’d posit that the G meddling in places they had no business meddling- in this case trying to engineer some bogus solution contra to the laws of capitalism- yet again caused way more problems than it solved. And yet again the solution was/is to throw scads of cash at the problems and hope they go away.
At any rate, great post that made me check my premises. Well done.
December 4th, 2008 at 12:05 pm
Mike, Obamaclaus has brought your moon.
December 4th, 2008 at 1:36 pm
Norv Effect,
Oy, guns and butter. Pay attention anyway! I’d kill to be back at my University right now, studying this subject again.
Thanks, first and foremost.
The reason I never published the post was because I didn’t have the time to get into what you pointed out — the “giverment” was encouraging loans to people who shouldn’t have them. Could have rectified that, I think, with one line saying, “Despite the fact, …”
Given the most liberal stats I can find, show Fannie & Freddie buying no more than half of the US mortgages — and other supply and demand effects on the housing market in big cities especially — I have reason to believe we would have ended up here anyway. Sooner or later.
As I said, I didn’t do the math, it’s an educated guess which half of the sinking ship brought it to the bottom.
My point was, it sunk, and there was a leak from both ends.
When people are priced out of a housing market as has been the case since the Clinton administration here in Los Angeles, mortgage brokers made riskier loans so they got their bonuses and could feed and shelter their brood. Securitization is natural but it got out of hand.
I’m not convinced how much it had to do with CRA/GSE’s.
What I found so remarkable was Newsweek’s willingness to show non-government mandated subprime loans actually work, giving us proof gov’t mandated ones and liberal policy sunk the ship.
December 4th, 2008 at 5:18 pm
Wow, a real live response from the whatchacallit… that there blogmaestra. Dang, I’m in the tall cotton now.
Anyway, good response. Especially this bit:
“When people are priced out of a housing market as has been the case since the Clinton administration here in Los Angeles, mortgage brokers made riskier loans so they got their bonuses and could feed and shelter their brood…”
Pull “Los Angeles”, insert “Chicago and the inner suburbs”, and you’ve just described the place I worked at. Don’t claim to know the mortgage bidness, but it was apparent even to a compu-geek like me the loans that were being approved were complete dogshite.
Factor in the smoggy cloud of doublespeak and hypmobabble thrown whenever I asked for an explanation of how they were packaging and reselling their loans, and you’ve got the leak at the other end you referred to, or strong evidence of it at the least.
Think what is so remarkable about Newsweek in this case is they actually made a cogent point that wouldn’t insult a 14 year old- c’mon, they need to rename that rag “Obama beat”.
December 4th, 2008 at 5:53 pm
Mike, Obamaclaus has brought your moon.
Ha! That figures. Makes me afraid to ask Obama Claus for anything else!
December 4th, 2008 at 11:28 pm
I read your post and still don’t see where the market failure was. The only examples you gave of subprime lenders not involved with Freddie and Fannie were ones that were succesful.
Plus, as one of the commentators pointed out, the government’s interference was not limited to F and F. There was the CIRA and lawsuits against redlining. Not to mention the Federal reserve keeping interests rates too low for too long.
I agree that markets aren’t perfect but I still don’t see how we could have this housing bubble (and the subsequent fallout) without the government distorting prices and creating moral hazard.
December 5th, 2008 at 10:00 am
[…] (Found by Moxie.) […]
December 5th, 2008 at 2:46 pm
You’re right, Moxie, the truth is subprime lending is a financial instrument to achieve certain goals. Used sparingly, it can provide useful results. Just like ‘junk bonds’ which financed what were then considered speculative investments like CNN. Used excessively, they can cause havoc. Of course, NewsWeek has had a history of obfuscating
the other half of the subprime bubble, specially when political ties were involved. In California, and most specially South Florida, they were used without restraint and we see the result.
December 5th, 2008 at 11:46 pm
Yep, and the best place for such instruments is NOT in the hands of the “givernment”.
One outraged emailer insists the gov’t-backed half of the mortgage market was enough to drag it down, and neglects the power of the other half. It’s not even logical bickering.
Half of all mortgages means HALF. Had the rest of the private sector not played it greedy and diversified unnecessary risks, or all behaved as the folks in this Newsweek article, we’d still be floating.
But you can’t reason with the unreasonable.
December 6th, 2008 at 10:04 am
“Had the rest of the private sector not played it greedy and diversified unnecessary risks, ”
A fool and his money is soon parted…
They could have at least given the money away. Being greedy and losing money is FAR more painful.
Oh well. ‘Pain breaks the shell of understanding…’
December 6th, 2008 at 9:13 pm
You really are unreasonable.
I said that federal government policy as a whole did - not just F and F; but (as one of your posters argued) Congress leaning on the banks about redlining, as well as the fed setting rates too low.
And I didn’t say that markets are blameless.
I said that you didn’t show how they were.
Which was the point of your post.
I even provided a link to a Cato debate where both sides were represented.
I’ll leave you alone now.
December 11th, 2008 at 7:55 am
Craig,
You make assumptions about the point of my post which aren’t there nor implied. At all.
Perhaps the givernment will learn you some reading for comprehension. Or at least teach you your liberal debate talking points.