There are two OpEds in today’s New York Times regarding the GSEs. One of them is full of insight and intelligence and rationality.

The other is by John Carney.

The insightful column, Say Goodbye to Fannie and Freddie, was written by former St. Louis Fed president Bill Poole.

During the credit bubble and housing boom, the Alan Greenspan led FOMC was terribly irresponsible in their actions and inactions. But there were two voices of reason at the Fed: Ed Gramlich and Bill Poole. Both were unfortunately ignored by the Maestro (as he was then known). Gramlich warned against subprime loans and predatory lending, while Poole was a sharp critic of the GSEs.

I cited Poole in Bailout Nation for “his many cautionary warnings about the GSEs.”

As to the less insightful OpEd, well, John and I have disagreed about this — and other things — for years. He seems to prefer talking points to data; he started putting the crisis blame on the CRA, before he moved on to blaming the GSEs. His arguments tend towards the blissfully data-free.

In the Times, John begins his column with this misleading statement: “Despite their central roles in the housing bubble, the Federal Housing Administration, Fannie Mae and Freddie Mac now back more than 95 percent of new mortgages.” (Update: I don’t have a problem with the 95% -post-bailout receivership figure; since the collapse, FNM/FRE are the only game in town). I lose interest when an author’s premise is based on a false talking point, especially one that lacks supporting data.

Far too many electrons have been sacrificed in detailing my views on FNM/FRE, but the short version is they were just 2 more crappy banks — as much to blame as Citi and Countrywide and Bank of America  and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill and . . . well you get the idea. But the talking point that this all was caused by Fannie & Freddie? The data simply is not there.

Regardless of your thoughts on the GSEs, these two OpEds illuminate how — and how not to — write a persuasive editorial . . .

>

Sources:
Say Goodbye to Fannie and Freddie
WILLIAM POOLE
NYT, August 11, 2010
http://www.nytimes.com/2010/08/12/opinion/12poole.html

Too Big Not to Fail
JOHN CARNEY
NYT, August 11, 2010
http://www.nytimes.com/2010/08/12/opinion/12carney.html

Previously:
Fannie Mae Looks Like Hell (November 16th, 2007)

Blaming Greenspan (June 2007)

Subprime Mortgages: America’s Latest Boom and Bust (May 8th, 2008)

Poole: Save Fannie/Freddie, Then Dismantle Them (July 27th, 2008)

Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs (October 2nd, 2008)

Fannie Mae and the Financial Crisis (October 5th, 2008)

CRA Thought Experiment (June 26th, 2009)

Who is to Blame, 1-25 (June 29th, 2009)

$100,000 CRA Challenge (June 29th, 2009)

Get Me ReWrite ! (May 13th, 2010)

Global Housing Boom (July 20th, 2010)

Category: Bailout Nation, Credit, Federal Reserve, Real Estate, Really, really bad calls

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.

37 Responses to “Fannie Freddie NYT OpEds”

  1. b_thunder says:

    Carney, Altucher, the guy from TrendMacro who used to appear on Cudlow show, “nails” Dyksra – provocateurs, morons, shills, fraudsters (in no particular order) There are too many of them to name.

    Why do media outlets give them the printed space/airwaves/web pages after so many people lost their money after listening to their advice?

  2. obsvr-1 says:

    POOLE: The danger in having any new mortgage agency is that its guarantees would subsidize mortgage risk, eventually leading to further taxpayer losses. The only sure way to prevent that outcome is to phase out Fannie and Freddie. If the home finance market were fully private, then it would bear the losses from its own mistakes in pricing and insurance. The proper government role is regulatory oversight and not direct operation of financial firms.

    ——

    Poole articulates a credible strategy for unwinding F&F with realistic time line expectations. Underlining his point about proper government role in regulatory oversight (the new language should be regulatory ENFORCEMENT) to reduce the risk of a repeat of what BR referenced —FNM/FRE, but the short version is they were just 2 more crappy banks — as much to blame as Citi and Countrywide and Bank of America and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill and . . . well you get the idea.

  3. wally says:

    “One of them is full of insight and intelligence and rationality.

    The other is by John Carney.”

    I like your style.

  4. Invictus says:

    Lest we forget our Cheerleader-in-Chief:

    And let me talk about some of the progress which we have made to date, as an example for others to follow. First of all, government sponsored corporations that help create our mortgage system — I introduced two of the leaders here today — they call those people Fannie May and Freddie Mac, as well as the federal home loan banks, will increase their commitment to minority markets by more than $440 billion. (Applause.) I want to thank Leland and Franklin for that commitment. It’s a commitment that conforms to their charters, as well, and also conforms to their hearts.

    That’s $440 billion with a “b.”

    ~~~

    BR: I separate commitments, forecasts and hope from actual annual sales.

  5. call me ahab says:

    I read the Poole article this morning- I am surprised you didn’t take affront to this line-

    While it’s true that the private market brought on the financial crisis by creating so many subprime mortgages, Fannie and Freddie did not block that parade; they joined it — indeed, in some respects led it.

    in any event- I was impressed w/ his “leap of fatih” of a complete pass off of the mortgage market to the private sector- here, here-

    the USG has distorted the housing market for years- the least they could do is bow out and take their mortgage interest deduction with them-

    besides- don’t we have a budget deficit to tackle?

  6. call me ahab says:

    Invictus-

    pretty sad when a press release from the White House says “Fannie May”-

    I suggest they hire a proof reader or two . . .or three

  7. Cdale_dog says:

    I agree wholeheartedly with the Bill Poole statement about Freddie and Fannie being enablers and in effect the DRIVERS of all things subprime. Once again, talk to anyone doing business at the time and they didn’t care what quality the loans were because they knew Freddie/Fannie would buy them. I woudn’t put all the blame on the CRA (actually very little), but it was the loosening of standards by the whole industry that caused this thing to explosde. Mortgage brokers knew they could get way with just about anything and they did (trust me, I know some mortgage brokers and they would sell arsnic to a child if it led them to make a buck).

    With all this said Barry – do you really still believe that the GSE’s were guilt free?

  8. Read all of the posts I mention above (under “Previously”), then read the Bailout Nation.

    1. I did not say they were guilt free, I said they were merely “were just 2 more crappy banks — as much to blame as [all the rest].” HowTF do you get guilt free from that ?

    2. The facts do not support your position that “FNM/FRE were the DRIVERS of all things subprime.” That is simply a false statement, a clownish political talking point. Repeating it identifies you as someone who is unfamiliar with the specific timelien and factual history of what occurred.

    I will say this much about the FNM/FRE Talking Points, it has been a huge time saver for me — I know not to take anything anyone who says this at all seriously . . .


    But please, enough of the idiot talking points

  9. Mike in Nola says:

    “Regardless of your thoughts on the GSEs, these two OpEds illuminate how — and how not to — write a persuasive editorial . . .”

    Which do you think will get the bigger coverage this afternoon/evening on Kudlow/FoxNews.

    I doubt seriously if will be the rational one since it doesn’t fit into the tea party storyline. Unfortunately, those exemplars of liberal media, the NYT and Washington Post, are just new outlets for wing nut talking points. I hear criticism of the Houston Chronicle as being too liberal, but every week I see an article by Jonah Goldberg and at least one other from the AEI or similar right wing think tank. News outlets have abandoned their duty to present facts; they think they are doing their duty by giving both sides of an argument even if one side is crazy. The path of least resistance.

  10. Bokolis says:

    Love how Carney states, “Despite their central roles in the housing bubble…” then proceeds to note that, “…the F.H.A.’s share of the mortgage market was 2 percent; today it’s around 30 percent.”

    “Central” = “2 percent.” Must have been some 2 percent. If he’d have said that the problem was that the same jokers that couldn’t even get FHA loans in 1999-2000-ish, were getting Fannie/Freddie backed loans by 2005 (without suitable improvement in life situation), he could have worked the card trick a little better.

    The guy builds roads on either side of a mountain, but doesn’t bother to dig the tunnel.

  11. “but the short version is they were just 2 more crappy banks — as much to blame as Citi and Countrywide and Bank of America and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill”

    ~BUT, they were two crappy banks created by the government and implicitly backed by the government. Those other banks were, at the time of the crisis, not presumed to have had any implicit government backing, except for depositors in the case of commercial banks. Now of course, Fannie and Freddie’s implicit backing is explicit (to the tune of many billions of dollars thus far), and the rest have been proved to at least have the government always covering their backs.

  12. nickthap says:

    I read the two articles. Poole’s seems fair, and does support BRs general theme on this topic: if anything, F&F’s big problem was that they were followers. And that is the whole point, that our financial system, WRT mortgage lending, fell prey to a massive bout of herding (and cliff-jumping–I made that up myself).

    As an ordinary person, I wonder, though (and this is slightly off topic, but the Poole article inspired this), would it be OK to assume that the credit boom is/was a primary cause of inflated housing prices, and that this can also be seen in the cost of a secondary education (student loan availability distorting the cost of university education)? If F&F were to go away (and theire implicit guarantee by the State), wouldn’t that go some way towards eliminating this kind of inflation (fed by cheap credit)?

    Is this the wrong way to look at this problem? I suppose this argument could be made against Medicare (that it distorts the cost–the real cost–of medicare).

  13. Yes, that is true. Fannie was created in 1938, and Freddie was created in 1968.

    Now explain to me why in 2008 — 70 and 40 years later respectively — they somehow caused the crash & crisis?

    Next, please explain why the housing boom and bust went global if the GSEs are the primary cause? (Can’t really grok that,can ya?) How did FNM/FRE cause a boom in Ireland Spain Korea New Zealand France England Australia, etc. ?

  14. obsvr-1 says:

    The data show that F&F definitely followed the private sector banks into the incestuous pool of greed, fraud, asset pumpers. The banksters orchestrated a world wide strategy to flow investor money into higher yielding instruments and innovated the leverage pumps CDOs, CDS …..

    In the end it was the greed from the leaders of the “just 2 more crappy banks” that sunk F&F into the abyss. Not that F&F is without fault as co-conspirators, it may be more accurate to say that the only way to perpetuate the fraud was to find huge organizations that had the implicit backing of the USG to dump the toxic crap on.

  15. Thor says:

    John Carney – that’s all that needs to be said. He’s about as reliable a Wall Street shill as Megan Mcardle.

  16. FrancoisT says:

    “Fannie and Freddie’s implicit backing is explicit (to the tune of many billions of dollars thus far), and the rest have been proved to at least have the government always covering their backs.”

    Which basically mean that “the rest” benefit from the same backing as Freddie and Fannie, hence, proving Barry’s point that they were “just 2 more crappy banks.

  17. FrancoisT says:

    “Why do media outlets give them the printed space/airwaves/web pages after so many people lost their money after listening to their advice?”

    It’s an integral part of the fleecing program. I’ll always remember this money manager guy interviewed at NPR TOTN in 2008. He’d been invited because in June of that year, he wrote to all his clients informing them he was putting all the funds into cash with an explanation of his rationale.

    Needless to say that the clients who heed his advice saved a fortune, and then some.

    When the NPR droid asked him what was the rationale, he just couldn’t absorb the info presented by the manager. It was so contrary to what passes for financial advice that he had to go through the whole enchilada of talking points before conceding that, maybe, the manager was unto something.

    Amazing!

  18. IS_LM says:

    I agree that the Poole op-ed constitutes a reasonable opinion, which in-and-of itself makes it remarkable given epistemic closure on the right. What I find striking, however, is that it’s written as if William Poole were sitting on Mars, a causual but exogenous observer of the financial system and of the mortgage market in particular. He isn’t. He is William Poole, prominent conservative macroeconomist and former regional Reserve bank president, who helped to determine monetary and regulatory policy. Take this piece, for example, where Poole warns about the dangers of leverage and the importance of capital requirements. It’s all well and good (and largely correct). But as an academic, Poole helped to foster the idea that markets are self-correcting and require little oversight. As a policy-maker, he helped to implement policies based on the dominant themes in modern money macroeconomics (price stability through inflation targets, low taxation on investment returns, and a presumption that markets are complete and efficient).

    Frankly, William Poole’s experiment has been conducted, and we know the outcomes. The last 2.5 years have been the culmination of their policy prescriptions. He, along with Greenspan, Hubbard, Mankiw, Bernanke, and the politcians who implemented their ideas, should go gentle into that good night (and STFU).

  19. “Which basically mean that “the rest” benefit from the same backing as Freddie and Fannie, hence, proving Barry’s point that they were “just 2 more crappy banks.”

    No. Before the crisis no one expected that effectively any bank of a certain size would be bailed out. Only afterwards have the implicit backing that Fannie and Freddie once enjoyed as government sponsored entities been extended to private banks. F&F’s implicit backing, at the time, made them quite different than any ordinary “crappy bank”.

    But, I rather prefer not to argue the point. I’ve never claimed, nor would argue, that F&F caused the crisis. They contributed, yes, and their implied government backing made them able to contribute more than most…but the “but for” cause of the crisis was the Federal Reserve’s expansive monetary policies combined with massive trade deficits that had to be financed somehow. F&F rode the train. Greenspan was the conductor.

  20. darekkkk says:

    “but the short version is they were just 2 more crappy banks — as much to blame as Citi and Countrywide and Bank of America and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill”

    That statement seems to be not data driven.
    from wiki:
    1)The GSEs, Fannie Mae and Freddie Mac, are exempt from this capital/asset ratio requirement and can, and often do, maintain a capital/asset ratio less than 3%.
    2)Money market funds have diversification requirements, so that not more than 5% of assets may be from the same issuer. That is, a worst-case default would drop a fund not more than five cents. However, these rules do not apply to Fannie and Freddie. It would not be unusual to find a fund that had the vast majority of its assets in Fannie and Freddie debt.
    3)Agency debt was bought by central banks. Banks debt was not
    4)GSE’s share in housing market was much more bigger than “Citi and Countrywide and Bank of America and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill”
    5) Banks lend money mostly in good times -GSE’s in good and bad. That way GSE’s were giving floor for house pricies what contributed to creation a myth that “house pricies never go down”

  21. Nicholas Mycroft says:

    Ahab @12:33 that’s “should have hired.”

  22. “Yes, that is true. Fannie was created in 1938, and Freddie was created in 1968.

    Now explain to me why in 2008 — 70 and 40 years later respectively — they somehow caused the crash & crisis?

    Next, please explain why the housing boom and bust went global if the GSEs are the primary cause? (Can’t really grok that,can ya?) How did FNM/FRE cause a boom in Ireland Spain Korea New Zealand France England Australia, etc. ?”

    (I think that was directed at me)

    Don’t put words in my mouth. I didn’t claim that F&F caused anything. I just pointed out that they were not just two crappy banks. They were two crappy banks with the implied backing of the federal government, that now have, as opposed to all the rest, become government money sinks.

    I have said all along that the “but for” cause of the crisis was the Fed’s monetary madness and the need to finance massive trade deficits. The GSE’s, because of their implied backing of the government, helped finance a goodly portion of the trade deficits. When they spectacularly failed, the government had no choice but to rescue them (about $150 billion and counting) if it wished to keep borrowing money from abroad.

  23. Livermore Shimervore says:

    when I look at this

    http://www.ritholtz.com/blog/wp-content/uploads/2010/07/Case-Shiller-UPDATED.png

    and then this

    http://www.ritholtz.com/blog/wp-content/uploads/2010/07/GR2010010101478.jpg

    I start thinking….holy shit. This isn’t over by a long shot.

    Well if you’re one of these yuppies who doesn’t believe that wages are the only real driver of fundamentally sound increases in home prices..you have to wonder where that leaves the GSE’s (the ones holding the bag) and the US mortgage market in general. We are STILL above the 1970′s and 1980′s boom real estate markets. STILL.

  24. IS_LM says:

    More from Bill Poole here. At least he’s honest about what happened, even if it means his experimental design is a failure.

  25. Wanna understand why the blame Fannie/Freddie folks are clueless? Read these:

    Fannie Mae Looks Like Hell (November 16th, 2007)

    Blaming Greenspan (June 2007)

    Subprime Mortgages: America’s Latest Boom and Bust (May 8th, 2008)

    Poole: Save Fannie/Freddie, Then Dismantle Them (July 27th, 2008)

    Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs (October 2nd, 2008)

    Fannie Mae and the Financial Crisis (October 5th, 2008)

    CRA Thought Experiment (June 26th, 2009)

    Who is to Blame, 1-25 (June 29th, 2009)

    $100,000 CRA Challenge (June 29th, 2009)

    Get Me ReWrite ! (May 13th, 2010)

    Global Housing Boom (July 20th, 2010)

  26. KidDynamite says:

    barry-
    i think you’re allowing your past with Carney to skew you here. You already disproved his claim that FNM/FRE/CRA “caused” the crisis. Maybe he learned from that – note that he didn’t claim that here in this op-ed. So now, maybe it’s semantics, but you’re disputing the use of “central role.”

    which semantic term would you accept as an accurate description of FNM/FRE’s role in the crisis? ‘ zero?” “insignificant,” ” de minimus,” ” slight,” “average,” ” significant? ”

    if not “central,” I think it leans toward “significant”, and certainly greater than “average,” for reasons uttered by Curmudgeon above, and because their losses have been an order of magnitude larger than most of the “crappy banks.”

  27. nickthap says:

    Curmudgeon, it seems like Wall St. had an implicit backing by the gov’t in the form of ridiculously cheap capital supplied by the fed. And a loosening of lending standards required by the gov’t. And regulatory capture/regulatory kneecapping. And we could go on…

  28. DuchessGateau says:

    BR, when are you going to start writing the Op Ed pieces in the New York Times?

    If you don’t have the time, I understand. But as far as I’m concerned, you wrote the book regarding this question, and any newspaper, business magazine, or business TV show should quote you, consult you, or at least use your research as background to the issue of GSEs. They clearly haven’t read your book.

    Perhaps you should send some sharp comments to their “Letters to the Editor.”

  29. willid3 says:

    i am wondering who is going to be the replacement for F&F. wasn’t that sort of the experiment we tried when wall street was selling ‘investors’ (aka suckers) mortgage backed securities. i am thinking we know the result of that experiment. and just what investor (sucker) is going to buy them now? i doubt there is much in the way of regulations that the government can do to over come the investor revulsion for MBS now short of it guaranteeing them. then why bother with selling them in the first place?

  30. gmherger says:

    Bloomberg – December 29, 20004: “Fannie Mae, the largest source of money for the U.S. mortgage industry, is considering selling $4 billion of preferred stock to build its capital after its regulator said it broke accounting rules.” – FNMA quickly sold $5 billion. By October 2008 that was worth $ZERO.

    SEC NEWS DIGEST
    Issue 2006-99
    May 23, 2006
    ENFORCEMENT PROCEEDINGS
    FANNIE MAE TO PAY $400 MILLION PENALTY FOR ACCOUNTING FRAUD SEC AND OFHEO SETTLE ACTION AGAINST FANNIE MAE

    FNMA, in Federal conservatorship since October 2008, is the largest money source for US mortgages.

    ~~~

    BR: I call “douchebaggery” on this comment also.

    The debate is “Did FNM/FRE cause the crisis, and your comment is THE SEC fined FNM thuis much.

    The penalty is strikethru, 5 hour hold, and future comment moderation.

    Remember: Only you can prevent douchebaggery!

  31. dmlopr says:

    The farmer (greenspan) fills the trough as fast as the pigs (large and small banks etc) can eat. Pigs will be pigs and the farmer should already know they’ll eat until they can’t walk anywmore. Time for a diet or the slaughterhouse. It can’t go on forever.

  32. Rescission says:

    @BR:

    “He seems to prefer talking points to data; he started putting the crisis blame on the CRA, before he moved on to blaming the GSEs. His arguments tend towards the blissfully data-free.”

    “my views on FNM/FRE, but the short version is they were just 2 more crappy banks — as much to blame as Citi and Countrywide and Bank of America and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill and . . . well you get the idea. ”

    So let’s talk data. How much money has the taxpayer been hit to bailout Freddie/Fannie? Answer $148 BILLION and counting. How much was lent to the other banks listed? How much have they since repaid, with interest? How much has F/F repaid? Does this data support your thesis that Fannie and Freddie are just 2 more crappy banks?

    ~~~

    BR: I call “douchebaggery” on this comment.

    The debate is “Did FNM/FRE cause the crisis, and your comment is THE GSE BAILOUTS COST THIS MUCH.” The douchebaggery penalty is strikethru, 5 hour hold, and future comment moderation.

    Remember: Only you can prevent douchebaggery!

  33. JSchmid says:

    Barry,

    You Said “Far too many electrons have been sacrificed in detailing my views on FNM/FRE, but the short version is they were just 2 more crappy banks — as much to blame as Citi and Countrywide and Bank of America and Lehman Brothers and Washington Mutual and Bear Stearns and Merrill and . . .” and I would agree with you if they were equal.

    You earlier said that FNM/FRE had a 95% share of the mortgage market which if you assume all mortgage lenders were equally at fault, and weight that fault by their percentage of the market, FNM/FRE are responsible for 95% of the PROBLEM!

    ~~~

    BR: The 95% figure is POST-receivership, POST-collapse since the collapse.
    That was not their share pre collapse (it was about 45%), the GSE share of sub-prime securitized paper was significantly smaller. Since October 2008, FNM/FRE are the only game in town when it comes to mortgage securitizers.

    Question: Did you really not know this? I assume everyone is familiar with the factual details (Facts! Coming soon to a store near you!) — perhaps I should not make that assumption.

  34. Plain Jane says:

    Its getting so you cannot tell the difference between the merely misinformed, the outright ignorant, and the trolls.

    You know, you can set up any Word Press site so your hardcore commenters (the ones who aren’t idiot) can post any time, all the rest of the ‘tards are moderated. Might be worth looking in to.

  35. Oh Plain Jane, why bother. Barry’s having fun!

  36. gleeker says:

    How utterly obtuse can one or any be? This compilation of articles along with the resultant commentary exemplifies the problem in its entirety. Where is the Big Picture at the Big Picture? The problem is that everyone was in on it from the government to politicians to Wall Street to developers to builders to banks and real estate and mortgage brokers all the way on down to the local level of politics and corruption. Everyone who bought a home for a quick flip or for the first time and thought wow I thought we would never get a home at our income level! There is only one way the Bernie Madoffs of this world can do what they do. A shared fantasy or herd mentality. We all wanted to believe to the extent that this thing went GLOBAL. All this has proven is that globally the financial system has no impulse control what so ever and denial, as far as the human condition goes” is KING. So while the herd is trying to point the finger or figure out where things went wrong the pain typically associated with this big of a miscalculation is coming whether the herd likes it or not. Not to get bogged down in the minutia of details associated with the aforementioned obtuse article and commentary but point of interest. F or F @ the height of the boom had the largest single charitable foundation on the planet. Combined they were unmatched up until Gates/Buffet of current fame. Who do you think F&F were making contributions to? You guested it: the very same politicians we were paying to regulate them.

  37. Lord says:

    What difference does it make? Any GSE replacement will be too big to fail and carry the same implicit guarantee they did.