Rep. Frank: Abolish Fannie Mae, Freddie Mac

[Destino]

I am not patting myself on the back, I am not giving myself credit, and I am referring to a GOVERNMENT agency not a for profit entity....so your point is worthless.

Common sense and fiscal responsibility dictates my point. Has nothing to do with pats on the backs or fortunes to be made.

See recent/current car sales. Interest rates move product. When interest rates rise, product prices decrease and vice versa.

What is your point.

What did you want the government agency to do? Announce that they would be regulating the banking industry more heavily in the middle of a boom? Telling homeowners that they wanted to slow the growth of their most valuable asset at the time when it was increasing in value the most? I'm sure that would have had a chance in hell in popularity contest that is American politics.

But hey yeah you're right lets just ignore human greed or at the very least good ol' reliable self interest... let's just apply hindsight ignoring all of the actual motivation and focus on what they should have done in a vacuum.

[chipwhich]

What did you want the government agency to do? Announce that they would be regulating the banking industry more heavily in the middle of a boom? Telling homeowners that they wanted to slow the growth of their most valuable asset at the time when it was increasing in value the most? I'm sure that would have had a chance in hell in popularity contest that is American politics.

But hey yeah you're right lets just ignore human greed or at the very least good ol' reliable self interest... let's just apply hindsight ignoring all of the actual motivation and focus on what they should have done in a vacuum.

YOU said repeating a LIE makes it the truth.

Somehow you are DEFENDING the LIE and pretending the TRUTH isn't real.

My only point is any person with an inkling of financial understanding would UNDERSTAND the situation and not make such a SILLY comment.

[TheLongshot]

Somehow you are DEFENDING the LIE and pretending the TRUTH isn't real.

What truth? That there isn't going to be traction to do much of anything when there is money being made? That's the truth that is real.

My only point is any person with an inkling of financial understanding would UNDERSTAND the situation and not make such a SILLY comment.

Such people also know where the money is currently. My best friend, who I generally think is a smart guy when it comes to money, was trying to get in on this with some friends of his. Now, things ended up falling through for him. Maybe it was fortunate, maybe it wasn't. But, a lot of these people are making money off of short-term trends. Such people don't care if the long-term ramifications aren't good, they are out to make their bucks when they can.

[Hubbs]

What did you want the government agency to do? Announce that they would be regulating the banking industry more heavily in the middle of a boom? Telling homeowners that they wanted to slow the growth of their most valuable asset at the time when it was increasing in value the most? I'm sure that would have had a chance in hell in popularity contest that is American politics.

But hey yeah you're right lets just ignore human greed or at the very least good ol' reliable self interest... let's just apply hindsight ignoring all of the actual motivation and focus on what they should have done in a vacuum.

Destino, in reading your posts, you seem to have morphed from "Barney Frank isn't personally responsible for the housing bubble" to "It's politically difficult to provide an effective counter-response to a massive bubble, so let's just keep this same system going."

The solution to two agencies creating a trillion-dollar black hole in the federal budget isn't, "Oh, well, that's how the cookie crumbles, better luck next time." The solution is to limit their ability to guarantee trillions of dollars in mortgages.

[twa]

Frank back in September 2008, via the New York Times:

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

[Ax]

Frank back in September 2008, via the New York Times:

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Oh, I see.

THAT'S the lie Destino keeps talking about.:thumbsup:

[Goaldeje]

Destino is correct, in that human nature dictates that once the snowball of capitalism gets rolling, it is hard to curb your enthusiasm for money.

However, I think the rest of us kind of believe what Hubbs said. If we can not count on our government to not get caught up in the craziness, we should limit their ability to continue and expand the craziness.

[Fergasun]

What did you want the government agency to do? Announce that they would be regulating the banking industry more heavily in the middle of a boom? Telling homeowners that they wanted to slow the growth of their most valuable asset at the time when it was increasing in value the most? I'm sure that would have had a chance in hell in popularity contest that is American politics.

But hey yeah you're right lets just ignore human greed or at the very least good ol' reliable self interest... let's just apply hindsight ignoring all of the actual motivation and focus on what they should have done in a vacuum.

I just want to step in and point out that I've heard a number of folks recently speak before Congress about regulating banking industry more heavily in the middle of a boom. Part of the problem is that regulation is pro-cyclical, which means when asset prices were increasing; it encouraged banks to write up asset values on their books. Instead of anticipating that there may be some bubble and requiring that banks increase loss reserves, they were encourage to leverage up.

I also wanted to mention that Freddie's CFO committed suicide in April 2009.

[Thiebear]

So if I told you that you could make a million dollars by taking advantage of the climate would you have said no no no it's all funny money and that would be wrong? You see hindsight is easy when you remove the cause of the problem in the first place.

If you were a lawmaker blocking the "slowdown" and an independent group to keep track of this climate issue then yes.. you should be put in jail.

[Veretax]

This is funny, have we forgotten that back when Bush was in office that Frank and some other suspects fought against any kind of reform of the GSEs that could have forestalled the current economic crisis?

Who am I talking about:

Rep Gregory Meeks, Rep Maxine Watters, Rep Lacy Clay, Rep Artur Davis, Rep Barney Frank (4:50),

http://www.youtube.com/watch?v=_MGT_cSi7Rs

[THEREALTOR1]

Really? I knew it was coming as well as many others.

It's really simple. Housing prices rise and fall based on interest rates. It's really not that difficult of a concept and it's not something genius I pulled out of my rear end.

With falling rates, interest only loans, 3 year arms, people can afford to pay more with less money.

It's no secret or nothing history doesn't dictate.

As rates rise (which by the way are being held down in this economy) the housing prices will fall further.

Anyone in charge should know the ABC's of this.

So your comment is really kind of silly...

Damn chip, i've just spent the last decade of my life studying supply and demand, unemployment rates, age statistics, tax structures, local and regional demographics, building material and environmental impacts, tax laws, lending conditions, secondary markets, etc, etc ... and the entire time it was interest rates that was determining the inflation and depreciation of property values? Son of a *****! :doh:

Interest rates are only a small, although somewhat integral part, of the reasoning for home value fluctuations. But to say "housing prices rise and fall based on interest rates" is actually an extremely broad statement, and quite silly. :2cents:

[twa]

Damn chip, i've just spent the last decade of my life :

So how did ya come out in the crash?

added

as I'm sure you know interest rates encompass much more than the rates themselves and the lax loaning rules that allowed low interest and refinancing in defiance of common sense rules are qualifiers and inherent to them being the problem.

[THEREALTOR1]

So how did ya come out in the crash?

For last 6 years i've worked directly for a local builder who's family has been building in the area since the late 60's. 2 weeks ago today, he sent me an email saying despite several attempts to restructure his credit lines and debt with his lender, he has no other choice then to declare the "b" word, and close his doors effective immediately.

Another one bites the dust...

By the grace of god, i'm not to burn out yet and still have some ideas about taking over the world, so i'm heading back into the open market to team back up with an old partner of mine and see if we can cause some havoc.

I do miss the days of hanging out in my parents shop working on cars all day though. Got any openings down there?

[THEREALTOR1]

added

as I'm sure you know interest rates encompass much more than the rates themselves and the lax loaning rules that allowed low interest and refinancing in defiance of common sense rules are qualifiers and inherent to them being the problem.

all to well brotha... my point was simply that if I had a gun to my head and was asked to explain in one sentence what single factor determines the fluctuation of home values, I would have picked "supply and demand" -vs- interest rates. IMO interest rates are more of a "confidence" factor for the general public more than anything. Most people over the age of 50 will laugh their ass off when I tell them that I meet people everyday that believe that 6% interest rates are way to high, and will make the decision to wait on buying a home "until rates come down some".

[twa]

I do miss the days of hanging out in my parents shop working on cars all day though. Got any openings down there?

Busy as hell if ya like working like dog.

The rates and lax rules encouraged buying/refinancing and speculation driving the market/demand up.

Good luck my man,I'm afraid we are fixing to have the other shoe drop in real estate ....but there are always opportunities to make money in crisis

I might find a bargain finally.

[chipwhich]

Interest rates are only a small, although somewhat integral part, of the reasoning for home value fluctuations. But to say "housing prices rise and fall based on interest rates" is actually an extremely broad statement, and quite silly. :2cents:

You are correct.

However if you don't understand rates going from oh 9.75% in 1995 to 5 percent in 2005 in addition to the lax lending rules created the housing bubble then you are mistaken.

And you know what would have happened if the Fed let the rates go up during this crisis....people haven't seen the damage the housing prices could have seen.

Truth is prices still are so high that without optimal interest rates and special lending habits...most americans would struggle to buy homes.

This isn't your grandfathers economics....or what your college instructor taught you.

[LD0506]

There is an element of "you can't con an honest man" in the whole real estate bubble-driven economic disaster we are wading through, even if crass real estate pros and venal bankers helped it along. I have several friends that got caught in buying up every couple years, multiple mortgages that bought new cars and paid for trips,etc., and have lost everything. There is a howl of vengeance against the banks (a lot of it deserved) but the people that willingly played the shell game are complicit as well. Many people tried to act responsibly and have gotten burned as well, I save my sympathies for them.

[chipwhich]

I would have picked "supply and demand" -vs- interest rates.

Not sure where you live. Where I live in MD at one point houses on my street were literally going up in price 25-50K every three months and selling within a week.

Had nothing to do with supply and demand.

[LD0506]

"Supply and demand" or interest rates might be integral in a normal market, but that really seems to be a minor element of what occurred. There was this huge pyramid scheme of paying too much because you could sell for too much later, and the financial pros kept banging the drum because they got a cut no matter what happened.

But chipwich makes a good point, local conditions do determine a lot of it. I'm in Delaware and it has been a mess for years with developers racing to throw up houses as fast as possible while local govt. kept it's books balanced on real estate transfer fees. Now the market has collapsed and the gnashing of teeth and tearing of hair is epic.

[THEREALTOR1]

You are correct.

However if you don't understand rates going from oh 9.75% in 1995 to 5 percent in 2005 in addition to the lax lending rules created the housing bubble then you are mistaken.

And you know what would have happened if the Fed let the rates go up during this crisis....people haven't seen the damage the housing prices could have seen.

Truth is prices still are so high that without optimal interest rates and special lending habits...most americans would struggle to buy homes.

This isn't your grandfathers economics....or what your college instructor taught you.

I understand all of this quite well actually, and I do agree with you to an extent, especially the above sentence, however your statement was "housing prices rise and fall based on interest rates". Ok, lower interest rates = higher home prices, got it.

In 2005, the height of the housing market, the builder I worked for increased his base pricing by approx. $50k through the course of the year. Rates on a 30 yr. fixed were at +/- 5.75% in January and increased to +/-6.25% by December as outlined here: http://www.mortgage-x.com/general/historical_rates.asp Meaning home values increased while interest rates increased.

In the spring of 2007 I refinanced my home, and at that time it was valued at $350k, interest rates were +/- 6.5%. My neighbor, whose home is almost identical to mine, just sold her home last month for $275k, interest rates in December 09' were +/- 5%, as outlined here: http://mortgage-x.com/general/historical_rates.asp Meaning home values in my neighborhood have decreased by $75k in 2.5 years time during a span when interest rates have decreased.

I'm sure you see where i'm going with this chip. As I indicated, interest rates have a bearing on home values, sure, but I believe other factors have much more of an impact, and from a general standpoint, "supply -vs- demand" is a greater factor.

And I never went to college, I already knew how to tap a keg by the time I was 18.

Not sure where you live. Where I live in MD at one point houses on my street were literally going up in price 25-50K every three months and selling within a week.

Had nothing to do with supply and demand.

I bet you with a comprehensive market study of your area, I could prove this statement false.

"Supply and demand" or interest rates might be integral in a normal market, but that really seems to be a minor element of what occurred. There was this huge pyramid scheme of paying too much because you could sell for too much later, and the financial pros kept banging the drum because they got a cut no matter what happened.

But chipwich makes a good point, local conditions do determine a lot of it. I'm in Delaware and it has been a mess for years with developers racing to throw up houses as fast as possible while local govt. kept it's books balanced on real estate transfer fees. Now the market has collapsed and the gnashing of teeth and tearing of hair is epic.

I live in Camden, DE, and as I indicated worked for a local builder, whose name you probably are well aware of.

Chip, i'm not busting your chops here, you are right to an extent. And IMO, my simple answer of "supply -vs- demand" is equally just as broad as you saying interest rates. There are alot of factors that cause the fluctuation of home values, but as I see it, those factors can all fall under the simple rule:

Increased demand + decrease or constant of inventory = increased value

Decreased demand + increase or constant of inventory = decreased value

It's much more complicated than that obviously, but I often times get to wordy, and don't have time right now to write out a book.

[chipwhich]

In 2005, the height of the housing market, the builder I worked for increased his base pricing by approx. $50k through the course of the year. Rates on a 30 yr. fixed were at +/- 5.75% in January and increased to +/-6.25% by December as outlined here: http://mortgage-x.com/x/ratesweekly.asp Meaning home values increased while interest rates increased.

First let me say we probably agree more than we disagree. And from the perspective you are coming at, my prices rise and fall with interest rates is too simplistic.

The example you quote above was probably the height of the loan fiasco. So while interest rates rose, money/lending programs were still providing buyers with cheaper "programs" to get them in the door.

I would also argue that during this period housing values didn't rise, housing prices did..but ultimately is was tied to buyers ability to pay less per dollar borrowed. So regardless of the interest rate, the dollar cost was still on the downturn due to these "programs".

So we go round and round and we are both probably saying the same thing. Ultimately the "demand" was created by the ability to get an unlimited supply of cheap money.

In the spring of 2007 I refinanced my home, and at that time it was valued at $350k, interest rates were +/- 6.5%. My neighbor, whose home is almost identical to mine, just sold her home last month for $275k, interest rates in December 09' were +/- 5%, as outlined here: http://mortgage-x.com/general/historical_rates.asp Meaning home values in my neighborhood have decreased by $75k in 2.5 years time during a span when interest rates have decreased.

See above. Home prices decreased, the value was never really there. So now interest rates are low but lendability...the ability to get "cheap" money no longer exists.

I still contend we are in for another real estate adjustment. As rates rise, current home "values" are still at a level where "demand" will be too weak. The pool of people with the ability to support the cost of borrowing for current home prices will be low.

from a general standpoint, "supply -vs- demand" is a greater factor.

As I posed above, I think the supply - demand issue has been tied to lending. It's amazing how demand flew out the window when lending tightened and supply increased when homeowners payments increased after their 3 year free ride.

I bet you with a comprehensive market study of your area, I could prove this statement false.

In conclusion, this wasn't your run of the mill economic case study and a market study wouldn't prove anything. My area hasn't changed, there is a high influx of people transferring in all the time.

The interesting thing will be to see how economists teach this period of time a decade from now.

It's much more complicated than that obviously, but I often times get to wordy, and don't have time right now to write out a book.

In any event...good luck to you. It's a tough industry. I have 4 friends who either owned their own building business or vice presidents of builders who are all now defunct.

I had my own mini financial disaster with a builder on the eastern shore whose name is a sport. So I have felt the pain.

[Destino]

YOU said repeating a LIE makes it the truth.

Somehow you are DEFENDING the LIE and pretending the TRUTH isn't real.

My only point is any person with an inkling of financial understanding would UNDERSTAND the situation and not make such a SILLY comment.

You're right I did say that, because it wasn't the governments fault. They didn't create the bubble nor did they stop it. What would have been needed to stop it would be to artificially slow down the market and add in massive regulation in the middle of a boom. Blame is reserved for causes not for things hindsight shows us COULD have been done.

Why don't we try this, you tell me what caused it and state your case that the government was to blame. So far all you've done is pat yourself on the back, show a complete failure to understand what actually happened, and failed to make a case the government was behind it.

[JohnLockesGhost]

So if I told you that you could make a million dollars by taking advantage of the climate would you have said no no no it's all funny money and that would be wrong? You see hindsight is easy when you remove the cause of the problem in the first place. We can all stand around patting ourselves on the back saying "I saw this coming" but the truth is you didn't have any motivation to simply not care. Welcome to capitalism boys and girls, the name of the game isn't protecting the economy for the rest of you. The game is to make as much as you can as fast as you can. That's the air in the bubble, it's called greed.

The air in the bubble is money and credit. That's why sound monetary policy is supposed to tighten credit as asset bubbles are forming. If that had happened during the housing bubble, interest rates would be rising as more and more assets were being purchased and the bubble would have been much smaller.

But when your monetary policy sends the wrong signals to buyers pretending credit is unlimited, there is no such countermeasure and it has a ratcheting effect, until the bubble grows so large it collapses under its our weight.

Monetary policy is root of bubble formation.

[Destino]

I just want to step in and point out that I've heard a number of folks recently speak before Congress about regulating banking industry more heavily in the middle of a boom. Part of the problem is that regulation is pro-cyclical, which means when asset prices were increasing; it encouraged banks to write up asset values on their books. Instead of anticipating that there may be some bubble and requiring that banks increase loss reserves, they were encourage to leverage up.

I also wanted to mention that Freddie's CFO committed suicide in April 2009.

Was that number large enough to form a majority in either party? I'd wager it wasn't. People this is capitalism, I find it absolutely incredible to see so many arguing in favor of the government stepping in and literally SLOWING DOWN a booming sector of the economy. I'd bet that such a move would cost a lot of politicians their jobs.

[Destino]

The air in the bubble is money and credit. That's why sound monetary policy is supposed to tighten credit as asset bubbles are forming. If that had happened during the housing bubble, interest rates would be rising as more and more assets were being purchased and the bubble would have been much smaller.

But when your monetary policy sends the wrong signals to buyers pretending credit is unlimited, there is no such countermeasure and it has a ratcheting effect, until the bubble grows so large it collapses under its our weight.

Monetary policy is root of bubble formation.

In a capitalist economy where corporations are people and are as involved in policy making as the law makers themselves... what is the mechanism for curbing profit? What exists to motivate human beings at a time of tremendous gain to reduce those gains?

I understand that idealist arguments of monetary policy but an argument removed from the human reality on the ground is academic. We may as well sit around talking about flying unicorns stepping in and saving the day.