Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks, facilitated the grand theft of some near $20 billion dollars from AIG by Goldman Sachs (where he was previously CEO), is attempting to change the narrative of the credit crisis and collapse.

In today’s Washington Post piece, Paulson ignores facts, rewrites history, and fabricates causes of the economic collapse:

“A significant root cause of the crisis was the combined weight of government policies promoting homeownership; these are apparent in the housing GSEs, the Federal Housing Administration (FHA), the Federal Home Loan Banks, the federal tax deduction for mortgage interest and various state programs. Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.”

Let us point out a small problem with Paulson’s rewrite: Throughout the 20th century, interest rates were kept in a realistic range, at least relative to economic growth, by bond traders and the Fed.

At the same time, bank lending standards were based upon historically well founded measures: The borrowers ability to service the debt. Factors that impacted this involved such quaint notions as income, employment history, credit score, other debt obligations, and assets. Further, home loans were based on specific Loan to Value — LTV — meaning that a substantial down payment was actually required. And last, legitimate appraisals were performed at the behest of banks that actually kept these loans on their books for 10 or 20 years — not 30 days.

None of this finds its way into Paulson’s assessment of the causal factors.

How about Alan Greenspan? That is a major systemic risk at the root of the crisis. Greenpan’s tenure as Fed chair was one of irresponsibility and recklessness. His Federal Reserve’s generational low rates set the housing spiral into motion originally. Somehow, Paulson did not see fit to so much as mention Greenspan or the Federal Reserve at all.

Despite repeated warnings by some Fed members, Greenspan directed the Fed to commit nonfeasance — to fail to fulfill its obligation as regulator of lenders. They allowed a proliferation of irresponsible, non-bank subprime mortgage underwriters, who abdicated any and all lending standards. If you really want to find the root causes of the crisis, you begin there. Just don’t look for any mention of subprime lending in Paulson’s commentary. Just as astonishingly, Paulson fails to so much as mention the Federal Reserve’s ultra low rates.

Other things somehow missing from the Paulson commentary? How about the word “derivatives?” Perhaps that might have been a factor? Misaligned Wall Street compensation? Excess Leverage of investment houses? The Repeal of Glass Steagall? The Federal Pre-emption of state lending rules? 

Don’t bother looking for any of these either . . . they were not deigned worthy by the former Gioldman Sachs CEO, and are thus omitted from his discussion as well.

Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs. How did THAT happen? Indeed, the boom and bust in the US was smaller than that of many other nations. And the FHA/GSE role in that? Perhaps the former Treasury Secretary can explain the root causes of that.

Paulson oversaw the greatest transfer of wealth in the history of mankind — from taxpayers to insolvent banks and their bondholders. His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy.

If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.

Paulson’s book on the crisis is “On the Brink.” It should be titled “Too Much to Drink.”


Housing policy must be set on sustainable basis
Hank Paulson
Washington Post, July 30, 2010

Category: Bailout Nation, Bailouts, Credit, Derivatives

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

80 Responses to “Hank Paulson: Blame Crisis on FHA/GSEs”

  1. andrelee40@hotmail.com says:

    Paulson’s ass, meet Barry’s foot. Barry, is it right or left? Size? Thank you.

  2. HEHEHE says:

    How this guy is not in prison boggles my mind.

  3. David D says:

    There you go again, bashing another Republican.

    What is it you have against venal, corrupt, moronic GOP assholes? Why are you so (heh heh) biased?

  4. rob says:

    “His commentary is a thinly veiled attempt… ” and that is all it really takes nowadays while people like you have to fight tooth and nail to even get your point recognized. Just do a search on “twitter” for Hank Paulson and look how the information has already disseminated through out twitter society! It’s freaking amazing how dumbed down society has gotten.

  5. srvbeach21 says:

    Perhaps he can also explain how other sectors in the US had similar deterioration of lending standards – CRE, private equity, consumer credit, etc.

  6. crankitto11 says:

    Go Barry, kill those zombies!

  7. rktbrkr says:

    Paulson was silent while Bush was high-fiving everyone in sight and taking credit for the home ownership society he took credit for. Everybody was responsible for nothing those 8 years.

    It wasn’t just an absence of effective regulation during those 8 years, the inmates were running the institution.”self regulation” of industry by “generous” industry insiders brings out the looters.

    Paulson getting legal absolution before ladling out unfathomable amounts of cash in minimally documented Sunday night deals with his Wall street cronies was the ultimate moral hazard.

    The Democrats aren’t without blame, they lacked the courage of their convictions (if they had any) and rolled over for Paulson. Worse, Paulson passed his baton to his acolyte Turbo Timmy who continued the special care & feeding of Wall Street. A new broom sweeps clean but by choosing Geithner O’Bama picked the most worn broom in the closet.

  8. flashcurious says:

    Barry – the Verizon pop-up ads are misbehaving, causing me to never want to do business with the company. Is this the desired result?

    I know that you get paid to display their dreck and you do have a right to a reasonable profit for the value that you create with your site, BUT you have to know that I used to like visiting Minyanville until the site got so noisy and instrusive that I gave up on it.

    Please make sure that you do not go down that path.

  9. NoKidding says:

    “Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs.”

    Perhaps a historian can explain how the world had a global conflict in the 1940s- countries where the German military never set foot. How can you put Germany and its extremist dictator down as a major cause of WW2 when the war was just as intense in France, Russia and the South Pacific! Could Hitler even locate Hawaii on a map!!!

  10. freejack says:

    Sorry to off topic but I saw this and thought of your “Monkey Boy” post from March ’09.


    You now have scientific proof of your theory.


    BR: Yeah, 5 people already emailed that !

    I have a post going up at 10:30 or so

  11. No Kidding wins this week’s prize for the dumbest comment of the week.

    Please see the man about picking your too-freaking-ridiculous- to-be-unmoderted GWB memorial award and salad bar on the way out…

  12. darekkkk says:

    I will try to be a Devill’s Advocate
    “Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs”
    May be other countries have their own GSEs?. Housing market in allmost every country is overstimuleted by goverment. If you do not have GSEs you may have state guaranties, interest rates subsidies, tax dedaction etc…
    “Indeed, the boom and bust in the US was smaller than that of many other nations”
    Barry- you are correct if price change is consider- but what if we take into conisderation the aggragate amount of housing boom and bust?
    What bubble is bigger? A few hundred thousand houses market in which prices have risen 300% or a hundred million houses market in which prices have risen 100?


    BR: So you think the US housing market is bigger than the rest of the world’s?

  13. b_thunder says:

    “Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks,” – inept? I don’t think so! He was not inept, he knew EXACTLY what he was doing. Moreover, the “ruling elites” that placed him as the Treasury Secretary in June 2006, very well knew what was about to happen, as both RE prices and the corporate profits started to roll-over in Q2 2006. So they sent Hank Paulson, then the most respected banker on The Street (and perhaps in the entire world), to make sure their interests would be served. That, and to try to postpone the “great recession” until the next administration took over.
    Well, Hank didn’t quite succeed on the latter, but with Bernanke’s and Geithner’s help he certainly fulfilled the former. I don’t think the Wall St could ever have expected such windfall of free money and “cash for trash” from the US Treasury and the Fed.

  14. CTMike says:

    It is stunning to me that there is not more anger over this issue. I have long suspected that divisive issues like same sex marriage and illegal immigration are used to deflect attention from the widespread looting of taxpayers and pension funds.

    I generally believe that the tea partiers are extremists and I do not like most of their viewpoints, but I can appreciate their anger. I’m angry too. I wish they would exercise a little more independent thought and point it at more deserving targets.

  15. In biochemistry, it takes enzymes to catalyze the metabolic processes that turn food into energy. If the housing market is viewed as a living organism, the Federal Reserve provided the food (money). Government policies, including all those things cited by Paulson, promoting homeowership were one of the catalysts. Private lenders seeking to maximize the energy in the food were another.

    The organism still has plenty of food, but only the GSE’s, and a few other government programs for catalysts. The beast is starving. Good. Kill the beast.

  16. not_baldwin says:

    BR…you might want to consider “moving on” from this topic…It is getting old, and giving Paulson and others more publicity than they probrobably deserve.

    Our mutual friend, Bill Fleckenstein, stays relevant not just because he is incredibly skilled and an excellent trader/risk manager, but he also has been able to always live in the present. Lately, maybe due to your tough travel schedule in July, you seem to be *holding on to the past* with posts like this.

    Only constructive suggestion if you want to continue to attract new readers like I was once. People I encourage to check your blog have commented to em that it seems like you stay on limited topics. I have disagreed, although when I see this topic posted on a day when the recession is officially measured by the MSM’s reporting of the fraudulent govt stats to be as bad as many of us know, I’d rather read your insights on the affect of the probable coming of ten year ust yields @2.50% or the dramatic curve flattening of the past 4 months possible ramifications… All good, otherwise. Keep up your hard work and efforts.


    BR: if you haven’t figured out, after 14,000 posts, that I write about whatever the fuck catches my eye, than you have not been paying much attention.

  17. ywsimw says:

    Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs. How did THAT happen?


    Foreign countries did have SIMILAR programs in place. Many “rich” countries had ways of encouraging home ownership that looked like the ones you are mentionning ! I know, because I live in one :-)

    Apart from that, I agree with your terrific analysis.

  18. Mark S says:

    Hey, I can’t stand Paulson as much as the next guy, ok probably more than the next guy, but everyone was in on this as far as the political class was concerned. Bush was just continuing Clinton’s policy just like Giethner/Obama is following Paulson.

    FNMA and FHLMC were stacked with politicians in the managemet structure and boards and through the Bush years they were mostly Clinton camp followers. Go look at the boards now…of course as wards of the state it is a lot less fun.

    Again, Paulson is repaulsive (get it?) but, he wasn’t the only one and at the end of the day, the political class covers each others ass. Does anyone think anything substantial is going to happen to Rangel? Any chance anyone in the Bush adminstration is going to jail for anything – NOPE. Because at the end of the day the political class cares about the political class, and that means no on is ever held repsonsible.


    BR: You go that way.

    Or, you can actually look at the data to figure out what was done by who, and when, what its impact was, etc. Either way — use data, or don’t.

    I prefer data

  19. slacker kate says:

    derekkkk RE GSEs in other countries: relatives in Ireland indicate not really – big rental sector. Also variable-rate mortgages are usual for them.

  20. Dennis says:

    Again, I have to repeat my original question: How do you really feel?

  21. Mannwich says:

    These scoundrels really make me sick. I can’t muster up any more of a comment than that today.

  22. [...] you observe and thank you framers of the Constitution for making sure we can shout.  In “Hank Paulson: Blame it on the FHA/GSEs“, Barry takes on Paulson’s abdication of responsibility. Hank Paulson, the criminally [...]

  23. Mannwich says:

    And thank you, Barry, for staying on top of these criminals, and these issues. Their lying, obfuscating, absolving themselves of any blame, and ultimately trying to re-write history is relentless, so it is our responsibility to be just as relentless in countering their lies with facts.

  24. pschaeffer says:

    Mr. Ritholtz,

    I yield to no one in my disdain for Paulson and his errors of omission and commission as Secretary of the Treasury. However, even a stopped clock is right twice a day. The reality is that Federal housing policy did play a role in subprime/housing/Wall Street disaster. The key phrase here is ‘some role’. Did the banksters, (mis) rating agencies, (non) regulators, Greenspan, etc. play a role as well? Of course, they did and they should be held fully accountable. However, that doesn’t eliminate the role of public policy in promoting home ownership on behalf of NINJAs.

    Since I am not likely to convince anyone, please consider the words of Raghuram Rajan, former Chief Economist of the IMF. Back in 2005, RR gave a paper anticipating the financial crisis at a conference in Jackson Hole. His reward for his prescience was the somewhat overt hostility of his peers. Indeed Krugman (who did not share the group think mindset) has apologized for how RR was treated.

    RR hasn’t gained the fame and notoriety of Nouriel Roubini for being ahead of the curve. However, he has written a book, Fault Lines outlining the origins of the financial crisis. He emphatically states that housing policy did indeed help to create the environment that led to the financial crisis. The following is from a Q&A over at “Predicting the Financial Crisis: A Q&A With Fault Lines Author Raghuram Rajan” (http://nyti.ms/bpOTwt).

    “Q. Income inequality has been on the rise in the U.S. for some time, but it’s not often identified as a contributor to the financial crisis. What’s the link between income inequality and the crisis? What kind of reforms would you suggest to address this problem?

    A. The housing boom and bust was at the center of the crisis. This was an atypical boom and bust in that the up-and-down movement of house prices for the poorest people was much more than the movement for people at the top. Why did the “greedy” bankers suddenly develop a social conscience and start lending to poor people? The answer is that they were guided to lending to the poor by the money directed into low-income housing, much as sharks are drawn to blood. And why did so much money flow to the low-income housing? Because the government was trying to solve a deeper problem — growing income inequality.”



    BR: Let me stop you here to point out that the stopped clock are the CRA blamers — of which Raghuram Rajan is a leader.

    This talking point has been debunked ad infinitum. For those of you who want to see a solid refuation, try starting with Dan Gross.

  25. Arequipa01 says:

    A small quibble- “criminally inept”. I would argue that Paulson did exactly as he was instructed and that rather he was “criminally adept”. These people, put simply, are monsters. It isn’t that they are indifferent to the suffering they propagate, they LOVE the suffering. It is how they nourish themselves.

    For a little perspective:


  26. mrmike23 says:

    Maybe I’m naive but when “everybody deserves a home” [BR: That is a gross overstatement] began with Clinton and continued with Bush, weren’t they just doing what any other president would do? I mean I know some politicians are venal bastards and after the computer and internet craze of the 90′s died, Bush and his puppeteers directed Greenspan to keep the “growing, vibrant economy” ball rolling by encouraging a building boom to employ tons of workers. Greenspan realized that we would soon run out of qualified buyers so he directed his employees and those he influenced to ease back on lending standards so that he would not be the one who screwed up the economy. But, what the hell else could he do? Tell minorities they weren’t qualified? Yeah, that will work. Come up with some other driver of the American economy? OK, what would that be? They may all be to blame for what happened but tell me, what else would anyone in their positions at that particular time do differently?

    As far as Paulson giving away the American treasure to GS, well, as I remember, that particular few weeks was a pretty chaotic and frightening period. He saw GS as the premier bank, the strongest, most reliable partner to help the United States recover from this dangerous predicament. But as the former head of GS, he knew it was staffed with some of the brightest guys there are. Who else would he trust? Bank of America? Wells Fargo?

    In hindsight, maybe he made the wrong decisions but there still is a United States and I still make money everyday in the market. How about you, Barry?


    BR: Not every day . . .

  27. AHodge says:

    The comment landscape including here looks like it usually does 3 mo before election. Paulson is not too bright,a self enriching stooge at the nations expense, and a 100% bailer outer of bank bondholders. He happens to be right on this. and also on accounting marks. this is like planet R invoking Pelosi, Pelosi it must be wrong.

    he is being a complete hypocrite on FF. He says, yes i bailed them but that should be temporary. What he actually did was make it permanent.

    As Paulson explains in On the Brink, (you should read it) his Treasury lawyers came up in Sept 2008 with a creative funding arrangement For F/F called a “keepwell” agreement. Congress gets to skip reauthorizing–FOREVER.. P 167-168 . In its latest use Feb 2010 the now serially increased $400 billion line to the two agencies was revised to “unlimited.” After markets and the news cycle close Friday, Feb 19,2010, an unnamed (DEMOCRATIC )Treasury official reassured that it was unlikely it would need to be used. The word Bazooka was not mentioned.
    We all ought to get used to half $ trillion losses from the two agencies and more from Ginny. This is, mostly not yet in the budget and continues to get bigger every year. Back in 2008, Like paulson I accepted we had to support housing that way. But I find the running bipartisan dishonesty about the losses and the eventual taxpayer bill really appalling.

  28. clipb says:

    and he/they “rescued” bsc, but couldn’t do anything with lehman? paulson is nothing but a self serving bs artist. if you want the book (i don’t know why anyone would) maybe you could get a 2 for the price of 0$ (what they’re worth) including greenspans mythology.

  29. Greg0658 says:

    pschaeffer @ 10:03am .. wow that was good and KISS (KeepItSimpleStupid)
    but KISer is because J6P the plumber needs a job he can handle with his intellect … food – housing – temperature control – recreation .. and transportation to get that stuff

  30. It wasn’t even so much the low interest rates. It was the low interest rates to sucker everyone in and then the slamming them into the wall by cranking them back up by 4 1/4 percentage points after creating the perception of a free money, easy money, low interest rate environment

    Here is a chart to see the wall that the borrowers, many variable rate borrowers (as guided by Greenspan), were slammed into:


  31. NoKidding says:

    Hurray I won a prize! I never won a prize before.

  32. gloppie says:

    I’m with B-Thunder. There’s no ineptness here, just plain ol’ greed and corruption.
    But nevertheless, I like the strong whiff of righteous indignation in your piece, Barry.
    I wish more Financial types like you would see things the way you do, because what is lacking is serious resentment against the pervasiveness of crony capitalism.
    Thank you.


    BR: I have lashed out at Crony Capitalism repeatedly

  33. arogersb says:

    You need to ask yourself what was the effect of the 6 trillion the government injected into the residential real estate market. The answer is, of course, price increase. Then ask yourself by how much it incerased prices and do the math and you will see that most of the price increase of the las 10 years can be explained by those 6 trillion dollars injected, laser focused on the residential real estate market.

    Yes lending standards were down, yes rating agencies suck, yes interest rates were low, yes derivatives can be toxic, but do the math and please tell me if any of those can nearly match the impact of a 6 trillion subsidy laser focused on one single market.


    BR: What are you referencing ? What money, over what time period, from what period, and what is your source?

  34. JF says:

    A substantial increase of at least $440 billion in the financial commitment made by the government-sponsored enterprises involved in the secondary mortgage market, under George W. Bush.

  35. chuckmycheese says:

    BR = foaming at the mouth partisan

    Yes, there is several “root causes”. One has to be a total fool to not think:

    “A significant root cause of the crisis was the combined weight of government policies promoting homeownership; these are apparent in the housing GSEs, the Federal Housing Administration (FHA), the Federal Home Loan Banks, the federal tax deduction for mortgage interest and various state programs. Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.”

    Notice the sentence starts with “A”, not the. Wipe the slober from your mouth and enjoy November!


    BR: I keep asking those of you who espouse this view to prove it, with facts and data and actual evidence, rather than squishy theory and talking points.

    The deafening silence speaks volumes . . .

  36. TomOfTheNorth says:

    I submit that a more appropriate title for anything by (or even about) former Treasury Secretary Paulson is:

    “What’s That Stink?”

  37. tawm says:

    AHodge said:

    “But I find the running bipartisan dishonesty about the losses and the eventual taxpayer bill really appalling.”

    Thank you for pointing out it that the rot runs across the political spectrum, not just one or two prime actors in the Bush admin.

  38. bobopapal says:

    Your argument that the GSE’s were not the drivers of the crises is spot on, and it’s obvious that Paulson is now towing the Republican barge of crap. However, there obviously was a major problem with the GSE’s during that bubble time, evidenced by the deep losses, and reform needs to take place.

  39. Rescission says:


    I have carefully read Paulson’s statement about “a significant cause” and its hard to disagree. You are correct about all the other items you mentioned as being “root causes” as well. Any perhaps you are correct that he should have mentioned those as well.
    However, most of the banks have repaid the Tarp money with interest. That is a fact. Fannie and Freddie were right in the middle of all this shit. You and I both know that. They piled on and got as much of that paper as they could and enjoyed the ride. Clinton and Bush pushed homeownership with reckless abandon, and wrongfully so. I think that is all he is saying.
    Q: How much have the taxpayers spent on Fannie and Freddie? Where is your outrage? Compare losses of Fannie and Freddie to the losses on Tarp. Now that is something to write about!

  40. What he ignores and what he emphasizes is quite telling.

    Understand: I am not a defender of GSEs — remember, we were short Fannie in 2008 — but the most I can say about them in their role here is they were just another crappy bank — like Citi and Coutrywide and Wamu — making stupid loans in a mad chase for a profit. And for most of the housing boom, they could not even buy non-conforming mortgages — all the piggy back/IO/APR/NINJA junk.

    Fannie was losing market share to Wall Street securitization, and by the time they requested permission to start buying that garbage in 2005, it was all over but the crying. These are the facts based on timelines and what occurred legally.

    In my analytics and estimation, based on years of extensively studying and writing about mortgage and housing data, if Fannie and Freddie did not exist, the entire collapse would have happened anyway.

    But that is not what Paulson is suggesting. He is strongly implying a BUT FOR — if it wasn’t for the GSEs and the FHA, none of this would have happened. That is simply not true.

  41. plantseeds says:

    BR said…
    “If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.”

    so if that doesn’t work – the attempt at self-exoneration- (and aparantly it didn’t) he’s trying this…


    huh? …….that should be enough to keep him out of prison …. he also believes humans are causing global warming (what is he crazy ?)


    “After he married ….. he bought five acres of his family’s farm and built a house there. It was a zoo, in every sense of the word. Besides two children, they raised raccoons , flying squirrels, alligators, mice, birds, dogs, cats, turtles, frogs, lizards, a tarantula
    —and, of course, snakes. “

  42. wunsacon says:


    >> However, most of the banks have repaid the Tarp money with interest. That is a fact.
    >> Q: How much have the taxpayers spent on Fannie and Freddie? Where is your outrage? Compare losses of Fannie and Freddie to the losses on Tarp. Now that is something to write about!

    Are you kidding? Where would bank balance sheets be without the FF bailout? …Oh wait… Is that you, Hank? (Or, is your name “Ben” or “Timmy”?)

  43. DeDude says:

    You have to look at this as a convenient way for Paulson to wash his own hands and the feet of his masters at the same time. And all the little minions yell “hurrah” as he obfuscate the real issues by telling them that the big bad gobinment with its FHA and GSEs are the real culprits. Not because he in any way can finger them with facts, but because the minions have been trained to feel good when someone claims that gobinment is bad. I understand and share you anger at our masters success in disconnecting history from facts to sell the minions their own death sentences. Neither the minions nor the gobinment has been harvesting all the wealth created the past 3 decades – yet the minions line up behind our masters and chant “death to the gobinment”. But at some point you have to come to terms with the fact that you can lead the horse to the water you cannot force it to drink.

    Besides his idiotic attempt at putting the blame for the financial crisis where it does not belong there is some interesting ideas such as: “Any entity that Congress creates to serve a public policy goal of reducing mortgage costs cannot also be driven by shareholder returns”. There is also the issue of whether government should try to promote home ownership at all – does it make any sense besides its huge political popularity?

  44. Robespierre says:

    You know Barry there is no way you will convince many of the people on this board that it wasn’t the GSAs even though as you point out this was global and there are not GSAs in the other countries. Truth be told the role of the government was huge in the sense that they gave the financial oligarchy whatever they asked for. Example:
    What the SEC did (at Paulson’s behest) was to allow the Investment Banks to increase their leverage from 12:1, up to 30:1, even 40:1, and later 50:1.
    Anyone who denies that leverage of that magnitude didn’t amplified the consequences of the bursting is either in denial or make his/her money working for the industry that caused the problem. Also lets not forget Rubini’s role: The passing of the the Gramm-Leach-Bliley Financial Services Modernization Act, opened the door for banks like Citibank to become financial conglomerates. After the passage of Gramm-Leach-Bliley, Mr. Robert Rubin accepted a very highly paid position with Citibank!


    BR: I do believe I may have made some passing mention of those items here . . .

  45. grcvegas says:

    corrected it for you:

    “Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs [or Federal Reserve’s ultra low rates, Misaligned Wall Street compensation, Excess Leverage of investment houses, The Repeal of Glass Steagall, The Federal Pre-emption of state lending rules] How did THAT happen? Indeed, the boom and bust in the US was smaller than that of many other nations. And the FHA/GSE [etc] role in that? Perhaps the former Treasury Secretary can explain the root causes of that.”


    BR: Do you believe the Fed 1% rates were not global?

  46. leonardcrook says:

    It would be nice for us locals, here in the land of the spin, if something as energetic and straight-forward as this were to appear on the op-ed page of the Washington Post. By the way, the new narrative building here is that the Gulf Oil spill also was caused by the government.

  47. Robespierre says:

    And just in case anyone here is expecting some kind of just retribution against the banking syndicate have a read of the following:
    “So….what do we have here? A $75 million fine, imposed on the company…and so coming out of Citi’s coffers, which comes (in theory) from shareholders (but given that financial firms pay high percentages of revenues in bonuses, this fine would have a microscopic impact on pay levels).

    More striking is the mere slap on the wrist of the execs involved. The former Citi chief financial officer, Gary Crittenden, who held the job from March 2007 to March 2009, will pay $100,000 of the total $180,000, with Arthur Tildesley, then in charge of investor relations, agreeing to cough up $80,000 to settle charges. “

  48. comet52 says:

    Thank you for giving Paulson a dose of what he richly deserves.

  49. Tarkus says:

    I think everyone is being too hard on Hank. It’s not like he lobbied to increase leverage so that GS and others could churn out and suck up more subprime trash.

    And it’s not like he did a bait and switch on the use of TARP funds.

    He was only doing what he had to do, seeing that Bush went AWOL for the financial crises.

    GW’s response was a self-deprecating whine “Oh, why does the financial crises have to happen on my watch?” He was right in that the crises was all about him. No one can fault him for that.

    Hank saved the world after those nasty Wall St firms generated a ton of crap and had them mis-rated. He said that he really didn’t understand those CDO type things while he ran GS. They probably didn’t contribute much to profitability (and indirectly, his compensation) so why would he? No effective CEO bothers himself with trivia. And underlings at GS might have been PowerOoint-challenged, so how’s a CEO ever going to learn about these things?

    You are all ingrates.

  50. ThreeFold Commonwealth says:

    The new Alan Greenspan Chair in economics at NYU paid for by Paulsen and Paulsen can study the problem. Until then. Racketeering and Corruption Act for them all. Punitive damages. And for a prison sentence The Great March…walk them from coast to coast and each night they beg for food at the American foreclosed home where they sleep.

  51. Rescission says:

    Okay, Paulson is a bum. He’s wrong. Okay, now can we move beyond the past and for once look to the future?
    Or is that not enough fun?

    We are here TODAY! What is going to be done to fix the Fannie/Freddie crime of Today? I will submit and let you have all the blame for the past cast on GWB and Paulson. Fine. Who gives a shit? Where are the people who live in the “real world” and not the matrix? I ask again: does anyone know how much the taxpayers have forked out to Fannie and Freddie? is it unlimited? How much are we wasting and have wasted? The lack of intellectual honesty here frustrates me. This blog has become a political comment page where ideology trumps knowledge.

  52. Robespierre says:

    Rescission Says:
    July 30th, 2010 at 2:09 pm

    “Okay, Paulson is a bum. He’s wrong. Okay, now can we move beyond the past and for once look to the future?
    Or is that not enough fun?”

    Cognos is that you? So in your moral compass crimes need not to be prosecuted after a couple of years had passed? Forgetting equates to reward behavior. Would you be ok not to prosecuted a criminal who kills some one in your family after a couple of years? And to re-reinforce my point:

    Jack Lew’s nomination for OMB example of Washington’s relationship with Wall Street bankers
    Latest News in World

    Jack Lew’s nomination for OMB example of Washington’s relationship with Wall Street bankers

    Obama’s preferred candidate for the profile of Chief Budget Officer, had pocketed a bonus of more than $900,000 from Citigroup Inc. after the group received a huge bailout package from the TARP fund.

  53. Rescission says:


    Not defending Paulson. I am fine with prosecuting the guy if he’s committed crimes. I’m no fan.
    My point was about Fannie/Freddie and how we are getting bilked today, still, in even larger amounts.
    FHA is another one that will blow up in the future and we will get bilked again. I feel like a voice in the wilderness on this one.

  54. Rescission says:

    the fact that one of the largest costs by far to the taxpayers (F&F) was not even addressed in financial reform is disgusting.

  55. AHodge says:

    so barry
    my taxpayer outrage aside
    I am LONG Fannie both the stock and with put writes
    I want MY bailout, with Fannie stock still around and a little higher. Back up to $1/share is all i need. And i expect your posse in DC to deliver. I’m not wrong am i?

  56. This recession was the result of many factors, all coming together, the so-called “perfect storm.” One of those factors was the reduction in growth of Federal Debt Held by Private Investors. This money growth reduction has preceded the vast majority of deficits and even depressions, in U.S. history.

    Today, that money growth again is beginning to decline, and one can only pray it does not have the same consequences as it has had in the past.

    Rodger Malcolm Mitchell

  57. This was not a perfect storm of random factors, but rather, the inevitable result of very bad decision making by many players.

  58. StatArb says:

    Global warming ?????

    FNM/FRE housing problems ?????

    I always get a kick out of who sides with these two issues …. political asswipes

  59. Dan Gross says:

    We’ve now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday’s congressional roasting of Lehman Bros. CEO Richard Fuld and continued on Tuesday with Capitol Hill solons delving into the failure of AIG. On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there’s a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

    The thesis is laid out almost daily on the Wall Street Journal editorial page, in the National Review, and on the campaign trail. John McCain said yesterday, “Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread.” Washington Post columnist Charles Krauthammer provides an excellent example, writing that “much of this crisis was brought upon us by the good intentions of good people.” He continues: “For decades, starting with Jimmy Carter‘s Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity.” The subtext: If only Congress didn’t force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel’s Neil Cavuto put it, “I don’t remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.”

    Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it’s the fault of Jimmy Carter, Bill Clinton, and poor minorities?

    These arguments are generally made by people who read the editorial page of the Wall Street Journal and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let’s be honest. Fannie and Freddie, which didn’t make subprime loans but did buy subprime loans made by others, were part of the problem. Poor Congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.

    Here’s why.

    The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn’t apply. There’s much more. As Barry Ritholtz notes in this fine rant, the CRA didn’t force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

    Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multiyear plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least-subprime housing markets in the nation.

    Third, lending money to poor people and minorities isn’t inherently risky. There’s plenty of evidence that in fact it’s not that risky at all. That’s what we’ve learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York’s outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project’s 3,900 homes. That’s a rate of 0.25 percent.

    On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it’s even more risky, since they have a lot more borrowing capacity. And here, again, it’s difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33 to 1, which instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients’ money, and that required its septuagenarian CEO to play bridge while his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Bros. to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can’t find it. Did AIG plunge into the credit-default-swaps business with abandon because Association of Community Organizations for Reform Now members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private-equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton’s fault?

    Look: There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.

    At Monday’s hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman’s demise on Fannie and Freddie. After comparing Lehman’s small political contributions with Fannie and Freddie’s much larger ones, Mica asked Fuld what role Fannie and Freddie’s failure played in Lehman’s demise. Fuld’s response: “De minimis.”

    Lending money to poor people doesn’t make you poor. Lending money poorly to rich people does.

    Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at moneybox@slate.com and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.

    Article URL: http://www.slate.com/id/2201641/

  60. [...] should be blamed as a major cause of the financial crisis, but FusionIQ CEO Barry Ritholtz disagrees, saying the former Treasury secretary ignores facts and is rewriting history. “His commentary [...]

  61. DeDude says:


    “I ask again: does anyone know how much the taxpayers have forked out to Fannie and Freddie? is it unlimited? How much are we wasting and have wasted?”

    I think most of what we have given them were loans so none of it has been wasted until or unless they fail to pay it back. In return for that we have about 2/3 ownership in them and the remaining is still in private hands. If you look at the speed at which they have requested funds it is pretty clear that only with a severe downturn in housing will they have to ask for more on the unlimited line of credit that we gave them.

    In return for that we have an economy and a housing market – both of which would have been destroyed if the credit freeze in housing sector had been extended to a freeze on all loans from Fannie and Freddie. The cost of a depression rather than a severe recession is many fold larger than the funds loaned to Fannie and Freddie so a clearheaded and fair evaluation would suggest that the investments made by “we the people” in saving the GSE’s has been an unprecedented success.

    Your predictions of things that will “blow up” sounds like yesteryears broken records. Neither they nor the FHA is in any danger of blowing up unless Armageddon arrives – and then we are all dead, so it wouldn’t matter anyway. If you want to challenge that statement then show me the numbers that suggests that they are in anything but temporary and waning trouble (you know look at their assets, liabilities, etc).

  62. Andy T says:

    BR said: “In my analytics and estimation, based on years of extensively studying and writing about mortgage and housing data, if Fannie and Freddie did not exist, the entire collapse would have happened anyway.”

    I can’t believe you honestly believe it would have played out the same way. Do you really believe we would have had the same housing market across the 1980′s, 90′s and 2000′s without the massive support of the GSEs?

    That’s utter and complete nonsense.

    In the early 1980s when the Foreign Investment exemption came to be, it opened up the flood gates of private investment into GSE debt because it was seen as “backstopped” by the USG. The rest is history. Their business exploded afterwards and things were never the same.

    Without the GSEs, mortgage rates would have been much higher. Many people would have been priced out of the market. You would not have seen the persistent trend of of “ever increasing” homeownership and prices across the decades. It would have been a more “lumpy” and cyclical market. The appearance of a “secular” bull market in home prices attracted the dumb/fast/loose money at the end, as it always does.

    Between 1971 and 2003, the GSE “book of business” rose from 1% to 33% of GDP.

    For those of you counting at home….that’s a big number….

  63. crankitto11 says:


    Barry did not say that without Fannie and Freddie,” it would have played out the same way.” Obviously they have had a major impact on the US housing market. What he said was, “the entire collapse would have happened anyway.”

    Barry laid out chapter and verse on how excessive risk taking by greedy private sector actors was a primary cause of the crash.

    Where’s your fact-backed, cause and and effect proof that it was primarily Fannie and Freddie?

    Fannie and Freddie are major players in the mortgage market, the crash originated in the mortgage market, therefore Fannie and Freddie were the major causes of the crash–, is not a valid argument.

  64. alfred e says:

    @Dan Gross: Great article. Nailed the key points.

    Nobody made companies like Countrywide go bust. And it was not because of Fannie and Freddie.

    Everyone on Wall Street bought into the new financial instrument model: write mortgages, get your cut and bonus off the top, securitize it, and cut it loose.

    If Fannie and Freddie were fueling the fire by buying these mortgages, why is it the other companies were the ones that went broke? Seems everyone would have passed them mortgages off to Fannie and Freddie. Theyw ere peddling junk to “preferred customers”, as a favor, if you can believe that.

    And the rating agencies’ role? How did Fannie and Freddie influence them?

    Maybe Fannie and Freddie created some competitive pressure to play, but that’s what WS is all about.

    My lie is bigger than yours.

  65. DeDude says:

    “In the early 1980s when the Foreign Investment exemption came to be, it opened up the flood gates of private investment into GSE debt because it was seen as “backstopped” by the USG”

    So it was Reagan’s removal of the Foreign Investment Exemption that is to blame, not the GSEs? Or are you trying to postulate that the foreigners would not have invested in anything else (like Black Rock) that was not seen as backstopped by USG? It should be pretty obvious that as soon as yields on treasuries became an inflation adjusted negative, everybody (including foreigners) were ready to take the risks and avoid the sure loss (we are all monkeys -even the foreigners).

  66. Tarkus says:

    Is it too much for Hank Paulson to ask for some recognition that he worked hard to try and avert a global economic meltdown that he helped cause? C’mon people…

  67. peterwf says:

    How we are all continuously duped. Our politicians, bereauocrats, lobbyists, corporations, their lackeys all love to see us arguing as to who is on first and who is to blame. Thus they all get a free pass for continuing their criminality and never having to pay for screwing the taxpayer. They do this over and over. Everyone orchestrating this crap is a party to the money tree.

  68. grcvegas says:

    corrected it for you:

    “Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs [or Federal Reserve’s ultra low rates, Misaligned Wall Street compensation, Excess Leverage of investment houses, The Repeal of Glass Steagall, The Federal Pre-emption of state lending rules] How did THAT happen? Indeed, the boom and bust in the US was smaller than that of many other nations. And the FHA/GSE [etc] role in that? Perhaps the former Treasury Secretary can explain the root causes of that.”


    BR: Do you believe the Fed 1% rates were not global?

    Not global in their effect on each individual country’s mortgage rate….but the obvious point I’m making is that you selectively subject these domestic variables to cross-border comparisons, especially when slamming folks like Paulson. Many of the variables you lay blame on are arguable quite domestic, you need to examine them systematically in the cross-border analysis. Invoking the international comparision argument when it suits you, and ignoring it when it doesn’t isn’t the basis of a reasoned argument, it is pure sophistry.

    Incidentally, the influence of the “Federal Reserve’s ultra low rates” has almost a laboratory test example with our neighbor. Canada’s monetary policy was very similar to ours during most of this period pre-crisis. How did that eventually work out?

    at any rate, keep up the good work Barry! Your blog is always work a look, and your public presence on this issue (dispite our disagreements), is very valuble to the discourse! AND the non-financial posts, like stuff for car gear-heads and rock ‘n roller like me, is also terrific!

  69. mcnet says:

    Perhaps you’ve turned off your GSspeak parser/translator:

    Hank speaks the truth ( as enigmatically as any experienced GS spokesperson does)

    “Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.”

    He may neglect to point out that the overstimulation was a direct result of GS ‘servicing’ (some of) its clients, (Magnetar, Paulson, et al) , but he’s smarter than you, don’t you know. So while you can’t really call him a liar, you can certainly call him disinigenuous. And he can counter that Greenspan was a bit player, (since it wasn’t necessarily low rates alone that led his firm to find such attractive opportunities for its clients), so there’s no need for Hank to discuss his role much.

    How credible is anyone at the center of the biggest finacial crisis history who writes his memoirs from memory. No paper trail translates to total deniability, and to infinite distracting arguments re his real motives/role. What a masterstroke, mystery wrapped in enigma, (or vice versa) personifed. Paulson’s the poster boy of the era, the vomitting shadow.

  70. gman says:

    You need to post about this until CRA,FNM and FRE stopped being blamed. Their are many high rent media and pr types pushing the “CRA caused it” line. If you stop, it makes it easier for those types to rewrite history.

  71. mcnet says:

    Re: your conclusion that it’s pathetic is too kind.

    It’s barbaric ( and powerfully effective, to boot).

  72. fyouell says:

    BR and others…

    A key problem here is blind, naked, partisanship. People seem convinced that either public policy (of which the CRA was one minor element) is exclusively to blame for the crisis or wholly innocent. Isn’t anyone here capable or recognizing the notion of ‘multiple contributing factors’? Is that so hard?

    We have the folks on the right either blaming the CRA+F&F or more subtly blaming the Fed for keeping interest rates too low for too long (notably John Taylor). If know that BR subscribes to the same theory and he is not ‘on the right’. However, this is a (mostly) right wing talking point.

    On the left we have the greedy banksters and their corrupt allies in Washington.

    “I keep asking those of you who espouse this view to prove it, with facts and data and actual evidence, rather than squishy theory and talking points. The deafening silence speaks volumes . . .”

    OK, no more silence. The purpose of what follows is not to ‘prove’ that public policy (of which F&F and the CRA were only a part) caused the bubble and crash, but to demonstrate that public policy (which included much more than F&F and the CRA) did play a role. See http://bit.ly/c7oAgb. A few quotes.

    “Thus, in a 2004 address to home builders, Bush called for the Federal Housing Administration to issue zero down payment mortgages in order to aid 150,000 first-time buyers per year, saying,

    To build an ownership society, we’ll help even more Americans to buy homes. Some families are more than able to pay a mortgage but just don’t have the savings to put money down.”

    At the time, this person called ‘Bush’ was the President of the United States.

    ” Yet the political agenda triumphed—with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion.

    No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: ‘discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.’

    Liebowitz asked:

    Some of these ‘outdated’ criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.”

    The above notes are from “Insight on the News reported – 1999″

    “The Bush Administration announced on June 17, 2002:

    Today, President Bush announced a new goal to help increase the number of minority homeowners by at least 5.5 million before the end of the decade… The President also issued ‘America’s Homeownership Challenge’ to the real estate and mortgage finance industries to join in his effort to increase the number of minority homeowners by taking concrete steps to tear down the barriers to homeownership that face minority families.”

    That’s the same ‘Bush’ we found earlier.

    “MSNBC reported in a March 27, 2004, article subtitled “President wants to add new minority home owners:”

    He also proposes to make zero down-payment loans available to first-time buyers whose mortgages are guaranteed by the Federal Housing Administration.

    The Washington Post reported on June 10, 2008, in “How HUD Mortgage Policy Fed the Crisis:”

    In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more ‘affordable’ loans made to these borrowers. … Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.”

    That’s the WaPo, not the dastardly Raghuram Rajan.

    Read the entire article. Note that the author does not blame public policy for the bubble/crash. He states that it was ‘one factor’.

  73. fyouell says:


    Just for fun I checked what Raghuram Rajan actually says about the CRA in his book. Anwer? Not much. The CRA is mentioned a total of 5 times in a 260 page book and the references are not profound.

    Of course, RR does have a lot to say about the overall role of public policy. I quote

    “By 2000, HUD required that low-income loans make up 50 percent of Fannie and Freddie’s portfolios. Out of “compassionate conservatism,” perhaps, the Bush administration raised that mandate to 56 percent. Rajan cites Fannie Mae’s former chief credit officer, Edward Pinto, who notes that, by 2008, “the FHA and various other government programs were exposed to about $2.7 trillion in subprime and Alt-A loans, approximately 59 percent of total loans to these categories.” Peter Wallison of the American Enterprise Institute found that government-mandated loans accounted for two-thirds of “junk mortgages.””

    You don’t have to trust the AEI to see that these are big numbers. 59% doesn’t make F&F, the FHA, etc. solely responsible for the bubble/crash. However, it doesn’t exculpate them either.

  74. HankP says:

    I can forgive the bailout, bad as it was, because the alternative was horrendous. What I can’t forgive is the lack of accountability and follow up afterwards.

  75. DeDude says:

    It makes no sense to suggest that Fannie and Freddie were the “drivers” of increased house prices when they actually were losing market share pretty much until the very top of the bobble. The “driver” of a parameter is supposed to be in front of it not behind. The actual drivers of the increase were the financial innovations that allowed people with way below median income to purchase houses priced above median house price levels. That is how prices are “driven” up because agents are incentivized to brings people to the most expensive house they can “afford”. The new “innovative” financing changed to formula for what people could “afford” and that gave below median income people access to above median houses – driving up prices. Fannie and Freddie were also way behind on “innovative” financing having an even lower market share of those products than they had on the regular financing products.

  76. DeDude says:


    I agree, a bailout was the least bad option. What I cannot forgive is the way they bailed companies out. It should have been “we save your sorry a$$es but then we own you – from now on you are our bi…..”. You can save companies and institutions without saving their owners, loaners and leadership. Why were the financial institutions not saved the same way Obama saved the auto-industry. Was it the fear of being accused of Sociali$m? I say that if that tough a$$ free market ideology of yours is about to throw you into the abyss, then be a man and give it up for real, not half a$$ed.

  77. arogersb says:

    I am referring to the market share of the mortgage market the GSEs have. The mortgage market is 10.7trillion dollars, Fannie Mae and Freddie Mac own or guarantee 53% of that according to a Federal Reserve Report.


    The question is: What was the impact of those 6 trillion dollars on the price of real estate? According to the calculation I have done, that is responsible for a good chunk of the real estate price inflation.


    BR: The data I see says $5.5 trillion; the Bloomberg article you reference uses $5.67T

  78. arogersb says:

    Those are Fannie & Freddie, if you include Ginnie Mae with approx 500billion you get to 6 trillion.

  79. phxguy says:

    Uh, he said “a root cause,” not “the root cause.” And policies encourage homeownership were clearly a cause.

    Moreover, the fact that he didn’t list Greenspan’s control of rates as part of the bundle of policy problems doesn’t indicate he thinks they weren’t a problem. His piece was about fixing policy, and there’s not much you an (realistically) do to legislate the Fed’s discretionary interest rate choices, right?

    And give me a break about the grand theft characterization of Goldman collecting on its swaps. Seriously. That people line up with pitchforks to agree doesn’t make that less ridiculous.


    BR: Does Correlation vs Causation mean anything to you ?

    If macro choices were half as simple as writings like this pretend they are, every corner of the globe wouldn’t have experienced a serious recession in the last 20 years.

  80. [...] you get the idea. But the talking point that this all was caused by Fannie & Freddie? The data simply is not [...]