Abhi asks how “Does the credit crisis affect ‘us’” and what Desi’s could do so I thought I’d chime in. Personally, although I’m a pretty strident free trader, the more I learn, the more I believe some sort of bailout is ultimately necessary (and so I’m probably disappointed by the House’s failure to pass legislation – don’t know enough of the deets to say for sure).
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The Solution to the Credit Crunch? More Desis. |
Of course, it’s awful on almost all counts that taxpayers get stuck holding the bill. But as I often say here, most of life’s choices aren’t between good and bad (and a bailout is clearly bad) but rather, between bad and worse (an economy-wide credit crunch). It’s cheap & easy moral pontificating to iterate the umpteenth reason why the situation is Bad (or why some sort of Wall Street comeuppance is Good). What real adults have to do is accept the bad to avoid the worse.
This interview from Greenspan, circa August 2008 is quite plain & direct about the necessary outcome –
The collapse in home prices, of course, is a major threat to the stability of Fannie and Freddie. At the Fed, Mr. Greenspan warned for years that the two mortgage giants’ business model threatened the nation’s financial stability. He acknowledges that a government backstop for the shareholder-owned, government-sponsored enterprises, or GSEs, was unavoidable. Not only are they crucial to the ailing mortgage market now, but the Fed-financed takeover of investment bank Bear Stearns Cos. also made government backing of Fannie and Freddie debt “inevitable,” he said. “There’s no credible argument for bailing out Bear Stearns and not the GSEs.”
If there’s a silver lining here, perhaps it’s that taxpayers & voters will have been taught a bitter lesson about what danger lurks the next time a politician tries to promise some new class of positive, economic rights…
<
p>There’s no such thing as a free lunch and when a politician promises economic benefits to one group what it usually means is that costs will be displaced either in time or to a different, less politically favored group. Most often, that “group” is the public at large who have better things to do with their time than scrutinize the cost of individual earmarks. We’re now seeing the price of govt attemps to create a “right to home ownership“; similar days of reckoning await with “right to retirement” and “right to healthcare”. (Imagine the massive unused daytime TV commercial airtime and unemployment in the Scooter industry when/if the Medicare gravy train grinds down 
)
So what is perhaps uniquely Desi about the whole thing? Well, in that same interview, Greenspan offers one, relatively straightforward (albeit partial) remedy. Simply put, the current crisis is caused by a price collapse as too many homes chase too few folks who reliably make their mortgage payments. So, why not *import* folks who are more predisposed than average to being both credit worthy and buying new homes?
“The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants,” he said. The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.He estimates the number of new households in the U.S. currently is increasing at an annual rate of about 800,000, of whom about one third are immigrants. “Perhaps 150,000 of those are loosely classified as skilled,” he said. “A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale — and hence help stabilize prices.”
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p>And, of course, any wholesale increase in “skilled immigration” to the US has a pretty disproportionately positive impact on Desi’s. So Desi’s – do your part, go forth, multiply, and continue to maintain your credit scores assiduously.
UPDATE: Another Desi angle –
Corporate America has just lost a chunk of its value the size of the Indian economy.
wall street was using ancient data to evaluate the risk of the loans they were passing on. They were assessing risk on good loans not liar’s loans.
dumbed down article, but it explains how wall street evaded the mandatory checks it was supposed to have to avoid exactly this kind of situations.
51 · bess said
not sure, bess. they weren’t neceeasrlly passing them on either. they were holding them in their own hedge funds (as well as selling them.) it not the internet pump and dup/reserach scandel here.
umm…
50 · oops i did it again said
ah, but ltcm’s portfolio of derivatives proved to be quite valuable, just the firm was so overleveraged they couldn’t survive a deviation from their models that russia default represented. could the same be happening here?
not pump and dump, repackage and sell. gotta go – be home for dinner ; )
48 · Manju said
Economists and salespeople tend to be Pollyannas. The future is always bright when you’re trying to sell something. The whole practice of using GDP as a measure of economic health is short-sighted and needs to be relegated to history’s trashbin.
50 · oops i did it again said
well, what a charmed life i live. at the moment wall street stumbles i’ve embraced president obama’s philosophy of no personal responsibility. what luck. i’ve earned the right to make excuses.
you both r missing the true nature of the crises. these seucrites were often held in house and, when they were sold, sold to traders at hedge funds who were probably the salesmans boss a few years earlier. i think this will prove to be very important as things unfold.
They would like a trillion, but it sounds like a really large number. $500B is clearly not enough. $700B is a compromise.
There are around 50M households with mortgages. By the end of 2007 when prices had fallen 10% from peak, 8.2M households were underwater. Using Case-Shiller projections and other bottom predictions, average prices will probably fall 35% from peak putting about 23.6M mortgages underwater. If half of them default and each default leads to 50% losses (transaction costs + fall in price), you get 216K * 23.6M * 0.5 * 0.5 = 1.3 Trillion, using median home price of 216K. If 1/3rd defaults, you get 216K * 23.6M * 0.33 * 0.5 = 840B. 700B is a conservative estimate of total mortgage losses.
Question is what’s the best way to inject this amount back into the system, and prop up the fragile house of cards, given the pooling, derivative, leverage, layering, reselling, MBS, bankruptcy, mark-to-market, firesale, counterparty risk mess.
So you are backing away from Freddie/Fannie as being “the engine” of this?
NYT Jan. 2008
From the same article ;Last month, H&R Block, the tax preparation company, announced it was closing its mortgage lending arm after the private equity firm Cerberus Capital Management walked away from a deal to buy it for $300 million.
H&R Block/ Blackstone Group/ Cerberus Capital Managment covered by the CRA? I think not.
We need to prop up the system so that we can start inflating our next bubble. Its amazing that a lot of people couldnt see that a 0% down, interest only mortgage is actually not the way to become a home owner, but a way to be a renter with huge credit risk.
Why just bash the government when the people themselves engaged in huge borrowing and living way, way beyond their means.
One research firm had data about the last 5 years GDP growth with and without Mortgage Equity Withdrawls (MEW) and it was apparent that most of the positive GDP came from the MEWs (people using their homes at ATMs).
BTW, just as a related side note, I think that McCain is toast now. I thought he did have a real shot but with this kind of financial uncertainty its lights out, I think.
61 · dilettante said
well its not either or. in fact fannie, freddie, aig, and hedge funds (including those within ibanks) are all on the some side: ie professional investors who make up the distribuion network for the sales & trading desks of wall st ibanks. hey are the secondary market, especially fannie and fredie, whose size dwarfs the hedge funds.
Something this systemic has multiple “root causes”
This 1999 NYT article is interesting.
Yes Gujudude that NYT article is interesting. In fact in 2004 someone from Harvard (see link in #37) did a study on the subprime market/ FICO scores and housing- I found it useful.
I can also agree with RC that there were less call them “niave” consumers out there who brought homes that they should not have, as well. There really is enough blame to go around…which is why I’ve bothered Manjunath on what seemed to me, his one sided assessment
Home Equity Frenzy Was a Bank Ad Come True
I would like to know what Prof. Shiller (of Case-Shiller) thinks of the Paulson plan.
66 · RC said
Like to have it handed to you, do you RC? Kidding!
Yale Daily News from yesterday
Washington Post op-ed from Sunday
Unlikely. Home prices are fundamentally driven by household formation, interest rates and income growth (or lack thereof). Demographics, deficits, historic low rates of last few years, wage deflation caused by globalization, along with recent supply glut, seem to suggest any price recovery following mean-reversion will be too long-drawn to recover anything significant from a big chunk of subprimes, Alt-As, and second loans written over the last few years.
48 · Manju said
manju, as i’ve said before, they’re so wrong that they’re right. bess, did you hear the ‘This American Life’ piece on the mortgage crisis? Your take on it sounds much like theirs. Very entertaining and solid structural account for lay people here.
Manju, you’ll be ill to know (as all the Americans I’m speaking to about the financial crisis) about how these mortgage securities guys working in random finance firms were sipping Cristal at Marquee with B-grade celebrities. Aren’t you glad that these million-bucks-a-year-fresh-outta-state-school-grads are finally getting their comeuppance? It’s time for personal responsibility, son.
59 · Manju said
Keeping it in the family sounds less creepy when they do it.
Thanks Chachaji !!!
Dipanjan, Agreed about home price deflation but what about the fact that the middle and the south of the nation never experienced the kind of home price boom that the coastal states experienced. In suburbs of Houston and Dallas during the last 5 years home prices barely kept pace with historical home price inflation.
So essentially this problem is a coastal problem (also upper midwest problem, but that is due to lack of employment) and as a result we might be overestimating the size of the problem.
62 · RC said
I worked at a loan brokerage in 2005-2006. We specialized in sub-prime loans and we never went to great lengths to explain the real risk to the buyers–partly because we were genuinely pleased to help them gain the keys to their first home, partly because we didn’t see this coming, ourselves, even, and partly because the banks paid us a Yield Spread premium on the back end if we sold the buyer a higher interest rate.
Some people were smart and hung up on our cold-calls. Others trusted us because we truly believed in our product–we were not deliberately lying to them.
Fortunately, I didn’t do so well in that business and came to grad school to get my MFA instead. None of the (very few) loans I referred to my agency have defaulted…yet…[crosses fingers].
Living beyond their means, though…that’s just the American way.
70 · Nayagan said
roundtripping is truly the oldest profession in the world.
FWIW, I also don’t blame Freddie/Fannie as the sole cause of the bubble anymore than I blame Clinton/Bush for the cause of the dotcom bubble. Asset bubbles happen just like drunken parties + morning-after hangovers happen. In hindsight it was obvious that everyone should have drank less but it’s tough to imagine the regulation that would have prevented it (what law would you have passed to “force” investors to pay less for Pets.com?)
Freddie/Fannie did however make the mortgage bubble different from dotcom in a couple of important ways –
they vastly increased the size/scope of the bubble. Freddie/Fannie have nearly a trillion dollars in assets EACH… there were no trillion dollar entities in the dotcom bubble; direct and indirect policies adopted by them in the 90s and 00s vastly increased their participation in subprime loans; their pioneering work in lower downpayment & CRA loans were originally crafted for the poor but tricked “up” to middle class owners who used ’em to buy McMansions beyond their means, etc. There were attempts to tighten Freddie/Fannie’s lending standards but that would have meant fewer loans for poor / minorities / etc.
as GSE’s, they drew the government (& taxpayers) into the problem in a very direct way. For better or worse, other financial market players did behave differently (e.g. more recklessly) around them because there was always that implicit promise that Uncle Sam would ultimately pick up the tab. Entire classes of banks arose who’s primary business became finding loanable consumers and selling the loans back to Fannie/Freddie (by contrast, the dotcom bubble mostly burned some banks, companies, dotcom employees, etc. aside from tax receipts, the feds weren’t “hit” and noone got bailed out… just as it should be)
So, there’s now an entire class of assets (underperforming loans) which, while they wasn’t responsible for creating, they did vastly accelerate through direct policy as well as implicit govt assurance. Eventually, those implicit assurances have to become explicit lest the entire framework built on top of them crashes.
yes, and the government should make good on those assurances by nationalizing these underperforming firms for the duration it takes them to get their risk-return on track. otherwise, samuelson might as well rewrite his economics textbook and change his first chapter to “fuck yeah, there is such a thing as a free lunch.”
Most people are wondering and analysing what went wrong, who made which mistakes, and greed overcame whom.
Let’s consider a separate hypothesis: This mess has been caused intentionally.
Let’s say, there exists a group of people who are pissed at the direction the country has taken in the last century from an economic and social point of view. Let’s say these folks themselves were quite successful personally, but failed in trying to change the system no matter how hard they tried. So they wait for a sympathetic president in the 80’s, and they install their Trojan horse as the Fed chairman. This man patiently studied the system from within, and gave an impression that he had abandoned all his earlier principles (tight credit, gold standard). Over three Presidents, he tests the stress points of the system. First time he brings the system to its knees based on a single hedge fund’s positions and props it back up. The second time he inflates the internet bubble and pops it. And then he inflates the housing bubble and pops it again, knowing fully well that three pops within a decade will crush the system.
All the time, he is helped by the rest of his friends in key places. You think these folks (who are billionares) were greedy to make more money? You think they made mistakes with their swap/CDO models and pricing? Think again.
Now finally, what should have happened over the course of fifty years will happen within five. The mergers, collapses and takeovers that happen over the course of a decade have happened just within this one month. The landscape will be changed forever. Credit will be very difficult to get. Retirement/Pensions will be redefined as Social Security and Medicare pay one tenth of what they were intended for. Gold standard will start to make a comeback (Russia is rumoured to be considering that this week. China’s quitely piling up reserves). People will have to pay cash for most of their monthly expenses. Houses and cars will require 50% down. And women will go back to giving their body only to the man who will provide for them for the rest of their life.
Who needs TV for entertainment?
M. Nam
Ah, the Freudian slip which shows us what your analysis is all about! 😉
76 · MoorNam said
I’m no expert, but there have got to be easier ways to
get laidhave a slave.What? HMF orchestrated the meltdown?
76 · MoorNam said
You seem to think that infidelity will disappear in a more stratified society, ha! Just wait ’til I show up as your cabana boy, rich man!
Yes, in Krugman terminology [link] (2005 op-ed, btw), there is a “flatland/zoned zone” dichotomy in USA. But investment money from coastal bubble equity poured into Vegas, Inland Empire and Arizona. Current Case-Shiller chart of decline-from-peak shows that top two losers are Pheonix and Vegas neither of which is coastal. [link]. Also Detroit is in top 10.
Some consensus is emerging about expected peak-to-bottom decline (look at JP Morgan’s estimates made public last week when they acquired WAMU garbage) and how many mortgages that decline will put under-water, as well as loss severity of defaults. One big variable is what percentage of underwater mortgages will eventually default. 33% gives 840B. One could argue it will be 15%. On the other hand, given the dominance of more expensive coastal cities in the biggest loser list, one could also argue that the median of defaulting mortgages will be significantly higher than national median 216K, putting total loss estimates back to around 800B-1T. Using a different set of numbers, Brad Setser guessed, if assets were valued at par before the crisis, aggregate losses would be around 1.4 trillion. [link]
60 · dipanjan said
Boston_Mahesh wrote: Very interesting. I have a couple of questions: 1. What do you mean “Underwater”? I assume that you mean where the outstanding mortgage amount exceeds the value of home due to depreciation. As an example, a person borrows 90,000 to purchase a 100,000 home. 1 year later, only 1,000 of the principal is paid off. But the home is worth now 88,000. But their loss is about 1,000, and this isn’t that bad. Please clarify this “underwater” phenomenon. 2. Instead of purchasing these junk bonds at 700B – what would be the advantages/disadvantages of allowing the companies to go bankrupt, but the 700B is given to the delinquent mortgage owners? This would have the effect of making the financial institution’s share value become 0, but the homeowners would be saved. This also, in effect, “punishes” the shareholders/financial institutions but subsidizes the homeowners.
Hello Brown Friends,
I vividly have a memory back in ’02, and another one in ’04. They both are very different, and they reflect the loopholes and greed of the industry.
Back in ’02, I had a friend named Naveen who was a loan officer (not his real name). Naveen had some program/system on his computer at home which allowed him to underwrite the mortgages. As a loan officer, there are other entities which process the bulk of the loan, and who require proof of the income of the borrower. This underwriting system still required income info, but I vividly remember that there was a way to “shock” the system, and somehow ignore existing debt that the borrower has outstanding. I forget the details of this, but I remember that it was possible to get a consumer a favorable loan even when their debt-to-equity was high.
Back in ’04, I was interviewing for jobs. I remember one of the employers was a mortgage loan officer. He was a very flashy looking, preppy white kid, I remember. He told me, very calmly, that their model was to sell ARMS, which adjust. As time goes by, the interest rates would rise, and the borrower would have to refinance. The loan officers would have the consumer’s data and relationship history in their sales system (i.e. CRM system), and a few months later, would call the consumers up, and offer their “help”. I totally remember this vividly.
Here are my concerns and questions: 1. It’s possible to purchase cars with 0% down, and a car loan is “always under”, since the car’s value is most of the time worth less the principal owed. Why doesn’t this wreak havoc in the markets? These are re-packaged and securitized.
2. Is only the subprime tranche bringing down the entire sector, or is it also the people with the high credit scores that are defaulting?
From a desi point of view, they used the desis/immigrants to create the bubble, now they want the same/more desi slaves to put in their hard-earned money to buy from the cunning speculators who will otherwise go bankrupt (and pay for their specularion/greed), and save the banks as well.
No, desis are not coming in for a rescue. Desis are being brought in to be the suckers nth time over. And desis being desis will play mostly by the rules, put in 20-30% down etc etc.
America may nt like immigrants all that much, but it loves immigrant labour and certainly their hard earned money. Another round of builders and goras can now squeeze the poor desi (engineer type) once again and make even more money..
@83,
1) Yes, under-water = outstanding mortgage > market price of the house.
2) Official version: currently because of insolvency fears, short-term credit market is entirely frozen and TED spread — difference between government and commercial lending rates — is at record high. Also there is a real danger of a series of bank runs. Immediate task is to restore confidence in the system so that banks can start lending again, without which central banks can prop up the global financial system only for a few more weeks. Buying illiquid mortgage-based assets at a “reasonable” price, and thus re-capitalizing banks through back door, does just that. Handling each situation on a case-by-case basis as they were doing till now (bridge loan to AIG, let Lehman fail, broker deals for Bear and Wamu) is not sufficient to restore systemic confidence.
They are probably not exaggarating the risk, but questions remain about pricing the assets, oversight and transparency of transactions, upside(?) sharing and ownership of the institutions selling assets.
84 · amit said
I love that game! That squeaking sound they make fills my heart with joy, though you must have to squeeze pretty hard to make a bubble. (There was, however this one guy I went to grade school with who’d make bubbles with his nose, but I wouldn’t even want to squeeze him. Chi-chi-chi-chi.)
Haha,–err, no–OK, Harbeer, now I know why we don’t agree on basic topics–of course, no reason to take this to an annoying or undignified level, but your chortling over this makes me–err–much more of a classical liberal. Rethink yourself, man.
87 · rob said
Not sure I follow. What do snot bubbles have to do with negative rights?
Eff dignity. Harbeer is the trickster. Chortle chortle.
Vinod said:
You glibly called CRA a “right to home ownership”. What “rights” were Blackstone group/H&R block/Hedge funds/ IB’s etc exercising when they used the lack of regulation on what type of institutions could be involved in which types of asset classes?
And wasn’t that pioneering work hailed as ‘innovation’ of letting the market work it out, vs strigent rules and interference from the govt. about who could underwrite mortgages for whom?
So with 20/20 hindsight,albeit of a longer view than circa August 2008, perhaps Mr. Greenspan might have urged caution,etc about the excess of Fannie/Freddie? Wasn’t that the point of his appearances before congress to advise on economic matters? During a 60min interview , he admitted he “didn’t get it“. This story isn’t over yet,and as I’ve said, there is plenty of blame to go around. However Its sickening to see the lax regulation,greed (which is of course good when the right sort are involved), blamed on Jamal and Shaniqua, lets not forget Travis & Brianna, and those soft hearted liberals who were tyring to force the market to provide homes for them. Or as you suggest- we can have the Patels over, stop the Lopez’s from coming in, and “Bob’s your uncle” 😉
Freudian? Me?
Economic climate and social behaviour are intricately linked. Was so thousands of years before Freud and will continue to be so.
M. Nam
The level of incomprehension about capitalism that true believers in “capitalism” have is truly miraculous to behold. Even THIS doesn’t shake your faith in your basic, flawed preconceptions about state, society, market, government, etc? There is a special circle in heaven reserved for true believers such as yourself, vinod. truly breathtaking.
The rest of us will be busy cleaning up the mess of Friedman, Greenspan, Clinton, Bush, et al.
I think with respect to auto loans, the amounts of loan securitized are small compared to mortgages and the loans are shorter duration.
I don’t think it is only the subprime backed securities that are devalued, the alt-a loans are also stressed.
The rest of us will be busy cleaning up the mess of Friedman, Greenspan, Clinton, Bush, et al.
Who are these “rest of us” and, how do they plan to clean the mess?
dill: i didn’t respond to your earlier blackstone comment b/c i didn’t understand it. what is your point? i don’t get the vague reference to galss-steagel either. personally, i think blackstone is poised to save the day, but i’ll leave that until after i hear your arguemnt.
Dr asks: >>Even THIS doesn’t shake your faith in your basic, flawed preconceptions about state, society, market, government, etc?
But what about that heavenly place that liberals constantly want America to emulate – the place where state, society, market and Government are working in perfect harmony to create utopia. Europe.
In that last two months, more than five major British institutions have been nationalized or bankrupted, two french banks and a bunch of State pensions in France, a dozen retirement funds and two mortgage brokers in Germany, housing companies in Spain, Iceland and Sweden…the list goes on. I mean, these are snobby countries that profess to hate Capitalism and Free markets, where Government regulation is supposed to have removed all chances of foul play. What happened to their famed model?
M. Nam
Vinod makes a specific argument and you respond with pure ideology. now his entire argument rest on the fact that we don’t live under pure capitalism, but rather, in the specific case of the mortgage markets, under massive government-backed institutions (fannie and freddie) who along with other govt initiatives had a lot to do with the crises and therefore govt has the responsibility to clean it up. given the nature of his argument, it hard to see what your “true believer” scolding has to do with anything.
A better tact would be to say his imbalanced and focus instead on the deregulation (other than that of fannie and freddie and the loosening of credit requirements which the free marketers here have already tackled) that allegedly led to this, since that’s the gist of the liberal argument. i suspect the commodity futures modernization act or 2000, which forbade the regulation of credit default swaps may have something to do with it to help yo out but i’m unclear on the details.
i like ideology as much as the next guy, but hte whoel fun of it is to gather the evidence in order to argue which system is right. this should be a wonderful time for anti-capitalists, but instead we get vague arguments like “Big Business = Our Current Government = Big Business (and Paulson = Goldman Sachs)” and a scolding of vinod for bringing up inconvenient facts.
Vinod, it is a HUGE STRETCH to put the blame for the market tanking at Freddie and Fannie’s doorstep, let alone put the bill to the American taxpayer. Aside from the fact that these WERE NOT government banks (nice conflation of GSE, there), neither – alone or together – accounts for the majority share of this crisis, and in my opinion, they are not the most substantial contributors to the subprime debacle. Ultimately, Fannie and Freddie have been plagued by similar problems as other mainstream private banks — executives gambling with the increased freedom of deregulation through accounting shadiness, kickbacks, and irresponsible management.
To misrepresent this as a CRA failure is incredibly inappropriate and disgusting. Subprime tools have existed on the market for nearly 20 years; they’re a creative way to extend credit when used sensibly and are a method of redlining otherwise. They are NOT the same thing as predatory lending, although they tend to go hand in hand. The current iteration (with securitized subprime mortgages with insane ARMs) only began around 2001/2002. While using the rhetoric of “extended credit” to silence those who warned of the disparate negative impact this would have on low-income and minority communities, banks went after first-time, credit-worthy clients with the hopes that a rising economy would allow them to turn a quick buck on the backs of our poorest and most at-risk communities. Plenty of people who could have qualified for prime loans were instead given subprime loans with terms that no one with moderate financial counseling should accept. From having worked on this from the legal services context, I can tell you that many of the people currently facing foreclosure had no idea what their loan terms were or were actively misled by their real estate and loan brokers.
The fact of the matter is that there are plenty of smaller and international banks that are doing just fine; the massive deregulation promoted by years of Republican Congresses (and backed by Democrats). Put the blame for this where it belongs — with lax regulation from Congress and non-existent enforcement from the Executive, irresponsibility from the Fed (incidentally, != government), and terrible management practices that sought to post “imaginary” returns by transferring wealth from low-income minority families to banking outfits using dubious risk analyses, sketchy lending practices, and inappropriately utilized financial instruments. What we’re seeing is the limitation of “free market” principles, which are not free and have huge distributional impacts; we saw this same behavior before the Great Depression, and it wasn’t the fault of the American public then, either.
P.S. The CRA section was meant broadly — my whole rant was not geared towards Vinod (just the misapplication, in my opinion, of blame to Freddie/Fannie instead of deregulation/non-enforcement).
I can tell you that many of the people currently facing foreclosure had no idea what their loan terms were or were actively misled by their real estate and loan brokers.
My experience has been the opposite. Most people I know knew when their ARM reset and refi’d in another ARM after withdrawing some cash from the home on an inflated assessment. What they did not realise was that the easy money days would stop after their second refi. Also, complicating the move to a fixed term refi was the collapse of home values.
97 · Camille said
i think he focues on fannie and freddie to justify the bailout. they are govt backed institutions and, given their nature, it’s doubtful this crises could’ve happened w/o them, though i’m open to argument. F and F make the secondary mortgage market. they control trillions whereas the largest arb hedgefunds control around 30billionish. what fanne wanted when their accounting scandals hit the fan, fueled by the wsjs excellent reporting on the matter, is sub prime loans to justify their mission of providing affordable housing. i think this is one big cog in the machine.