Sunday, June 28, 2009

Congress Keeps Forcing a Housing Bubble

UPDATE: below

Blogger bobn still acquits Congress of responsibility for relaxing GSE lending standards because it avoided formal legislation by resorting to informal pressure--so-called "regulation by raised eyebrow." Beyond misreading history, bobn overlooks continuing practice:
Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery.

In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up from 51%. Fannie Mae also won't purchase mortgages in buildings where 15% of owners are delinquent on condo association dues or where one owner has more than 10% of units, which the firm sees as signals that a building could run into financial trouble. Freddie Mac will implement similar policies next month.

In a letter to the chief executives of Fannie and Freddie, Reps. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, and Anthony Weiner (D., N.Y.) warned that the 70% sales threshold "may be too onerous" and could lead condo buyers to shun new developments. The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos.

The political push illustrates the balancing act facing the two government-controlled mortgage-finance giants as they struggle to keep the housing market afloat without losing more money.
I don't get why "Congress is innocent" is important to bobn. But it remains naive form-over-substance.

MORE:

Read Wolf Howling's excellent summary.

(via Doug Ross)

27 comments:

OBloodyHell said...

> I don't get why "Congress is innocent" is important to bobn. But it remains naive form-over-substance.

Because, Carl, if "Congress is guilty" then it points the finger at Dems far more than the GOP.

I hardly consider the GOP to be innocent in the creation of this mess, but there's no question it's far more the overt acts of the Dems than it is the failures of omission of the GOP.

And bobn doesn't use the same standards for Dems that he uses for the GOP, case in point Obama vs. Bush, as I noted before:

Not once, but THREE TIMES
1
2
3


Three times, he sees fit to give Bush crap for being "overly friendly" with the leader of Saudi Arabia on one single occasion.

Obama, on the other hand, bows before the Saudi King, as though he were a subject.

Does bobn see fit to SAY A SINGLE WORD?

He does not.

'Nuff said. Actions speak louder than words.

bobn's speak volumes.

bobn said...

In no particular order:

But it remains naive form-over-substance.

Indeed: Freddie and Fannie are 15% of the problem, soon to be less. The Wall Street funded loans are 51%. So you are discussing form, while I discuss substance.

Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards.

Congress can call for all they want. Until they pass a law, it does not matter.

See here, from March of 2008:

To support growth and further restore market liquidity, OFHEO announced that it would begin to permit a significant portion of the GSEs’ 30 percent OFHEO-directed capital surplus to be invested in mortgages and MBS

[Emphasis added.]

Sounds like a regulatory relationship to me, Congress nowhere in sight.


And see here from October 2008:

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Once again, regulatory. No Congress in sight. And since this was under Bush, this must be some of that "world class" regulation we were hearing about.

Carl, my mortgage disaster post really undid you an OBH, huh? You folks are just flailing about trying to grab anything to detract attention from the basic case: Wall Street did this. And the GSEs participation was not controlled by the legislative branch - which was Republican, but by the executive branch.

bobn said...

OBH rants:

Three times, he sees fit to give Bush crap for being "overly friendly" with the leader of Saudi Arabia on one single occasion.

OBH fails to mention that on those 3 occasions, Bush was KISSING the sonofabitch on the MOUTH.

Actions do indeed speak loudly.

I'll take one bow over 3 wet kisses anyday.

Although almost everything else Obama has done has sucked badly. He combines the worst of the neo-con-fascist bank-bailing with the leftwingnuttery of cap and trade.

OBloodyHell said...

> Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards.

Congress can call for all they want. Until they pass a law, it does not matter.


Uh, NO, that's not so, and it's one of the key points to the article that you Just Ain't Getting, despite repeated efforts to get through to you:

It's the soft indications that count in this matter.

Congress doesn't have to "pass a law telling OFHEO to lay off". All they have to do is IGNORE WARNINGS from OFHEO and THEN PUBLICLY EXCORIATE THE REP in a committee meeting.

If you think that doesn't send a significant message to ALL mid-level bureaucratic officials you're on crack.

> Carl, my mortgage disaster post really undid you an OBH, huh?

Don't flatter yourself, bobn, we realize your arguments look good on paper until you grasp the context in which they occurred, in which situation they fall apart like tissue. This is why you continually, endlessly ignore, time after time, Congress's treatment of OFHEO when they attempted to call attention to the matter.

And if OFHEO has so much power, why were they reporting the matter to Congress in the first place, instead of doing something about it, and reporting the results to the SBC??

Oh, right. Because it's Congress's job to tell them what to do in that situation.


On the other topic --

> OBH fails to mention that on those 3 occasions, Bush was KISSING the sonofabitch on the MOUTH.

One occasion, bob, three blatherings by YOU about the matter. Nice try slipping that one past onto the reader.

> I'll take one bow over 3 wet kisses anyday.

Then you are an f'ing idiot.

I'll take a leader "kissing" the king on the mouth, which is a sign of nothing but friendship in many cultures, vs. a deep bow, which is a sign of submission in just about EVERY culture.

What to think... Hmmm, our leader expressing friendship with a despot, or expressing submission and fealty to the despot.... Hmmm... Hmmmm... Which is worse, which is worse...?

And that never mattered, did it, because, after all -- Obama's a Dem, and they get lots of free passes on bobn's carnival rides.

And you've NEVER seen fit to even mention it, much less get so incensed about it that you've mentioned it three friggin' times.

Dems get free passes, GOP gets jumped on with both feet for lesser offenses.

Carl said...

bobn:

In this circumstance, I have to cite 29 years of living and working in Washington. You'll just have to believe me that legislation is far less terrifying than oversight hearings and "why aren't you doing this?" letters from committee members.

bobn said...

Carl:

You'll just have to believe me.

That's your argument? I should take it on faith? Or that when it's convenient to you, you just pretend that the executive branch is entirely at the mercy of the legislative branch - without passing legislation? Sorry - I took High School civics.

OBH:

The "3" was a brain fart - not enough caffeine.

However, I stand by the rest.

In the American culture *I* belong to, men do not swap spit to show respect. We shake hands; he high five; we might even hug. We don't kiss on the mouth.

So when Bush abandons his culture to submit to the culture of the butcher Abdullah - well that sounds like submission to me - not to mention that it's sortta gross.

I think I'm going to post that picture a few more times, just so I listen to you eat your liver.

Carl said...

Hardly, bobn. I've shown that Congress has--repeatedly and for a decade--used oversight hearings and chairman/member letters to pressure the GSE's into relaxing mortgage lending. You insist that only actual legislation counts. And I'm saying that your unfamiliarity with how Washington works in practice leads you mistakenly to discount how effective informal pressure can be. Cf. Writers Guild of America, West, Inc. v. American Broadcasting Co., Inc., 609 F.2d 355, 365 (9th Cir. 1979) ("Regulation through 'raised eyebrow' techniques or through forceful jawboning is commonplace in the administrative context, and in some instances may fairly be characterized . . . as official action . . ..") (footnotes omitted), cert. denied, 449 U.S. 824 (1980).

Carl said...

See also Part III of Justice Alito's concurrence in today's Ricci decision for a more realistic acknowledgment of how informal political pressure can influence choices despite the ultimate decision-maker's later claim of neutrality.

Carl said...

From a June 28th New York Post editorial:

"To say that Barney Frank has a bad track record here is putting it mildly.

Problem is, he's also chairman of the House Financial Services Committee, so his 'suggestions' have political muscle behind them."

suek said...

>>In the American culture *I* belong to, men do not swap spit to show respect. We shake hands; he high five; we might even hug. We don't kiss on the mouth.>>

Boy...that's a pretty "Ugly American" statement to make. What about diversity? What about the recognition of other cultural practices? You're going to stand by a statement that says only American culture is good?

Wow. I had no idea you were so culturally narrow minded - in fact, even bigoted. Isn't their culture just as good as ours? In fact, maybe even better? we're so...._American_, you know...

bobn said...

What about diversity?

I didn't say there was anything wrong with men swapping spit - just that it's not used to convey respect in a political context.

Isn't their culture just as good as ours? In fact, maybe even better?

Which culture is that - the one that promotes Islamic fanaticism? Sorry, no way.

Why are you saying this stupid stuff?

Carl said...

this is a comment by bobn which I've edited to remove the profanity:


I don't get why "Congress is innocent" is important to bobn.

Because the statement "Democrats in Congress caused the GSEs to cause the crisis" contains not 1 but 2 the many turds floating around the great vat of conservative [nonsense].

Problem is, he's also chairman of the House Financial Services Committee, so his 'suggestions' have political muscle behind them."

So he could intimidate OFHEO because he can fire them, right? Um, no, wrong branch of government. OFHEO is in the executive branch - REPUBLICAN at the time in question.

So he can intimidate OFHEO because he can pass a law to make him do his bidding? Um, no, during the years in question, Congress was dominated by the REPUBLICANS.

What was he going to do - stick pins in an OFHEO doll?

So the first half of the statement stinks.

And the GSEs have 15% of the bad mortgages, whereas Wall Street has 51% of the bad mortgages, soon to be much more. So the second part of the statement stinks too.

You de-regulationist[s] . . . had your way and [it turned out bad]. Now you act like a 2 year old, standing in a puddle of its own urine and pointing at the family dog.

No, that's wrong. 2 year olds have more sense and more honor.

Carl said...

bobn:

Quit posting profanity.

I'm not sure why you reject the practical power embodied in member letters and Congressional oversight and appropriation hearings--where the Hill grills Executive Branch officials. It's the way Washington works.

I never exonerated Republicans. But--despite the fact that many of my links to tales of Congressional pressure took place when Dems were the majority--you seem oddly determined to blame only Republicans.

Carl said...

And when Barney Frank does propose legislation, it, too, would re-float the housing bubble and reward ACORN.

OBloodyHell said...

> In the American culture *I* belong to, men do not swap spit to show respect. We shake hands; he high five; we might even hug. We don't kiss on the mouth.

Gosh, amazingly enough, I'm not really pushing the PotUS of America to do something potentially offensive (reject a legitimate gesture of friendship from a foreign leader) simply because some people are knee-jerk homophobes.

> So when Bush abandons his culture to submit to the culture of the butcher Abdullah - well that sounds like submission to me - not to mention that it's sortta gross.

Again, the gesture is atypical in America (actually, in WASP culture -- it's not unknown at all in the Mediterranean elements), but it's not, umm, "gross".

Your response is really, really interesting here, bob. A psychologist would have a field day.

> I think I'm going to post that picture a few more times, just so I listen to you eat your liver.

LOL, go ahead, bob, you're just showing yourself to be an even bigger jackass than I thought.

That you can't even admit, perhaps not even grasp, that you are dead wrong to comment on one (especially repeatedly!) and never have a word to say about a far worse action is expressly telling.

Americans don't "bend the knee" to foreign leaders. We have no fealty to them. And our leader should never bend the knee under any circumstances.

OBloodyHell said...

> Sorry - I took High School civics.

... and never had a real world job of any kind?

That explains a lot.

(Suek):
> Wow. I had no idea you were so culturally narrow minded - in fact, even bigoted.

He's a lefty, suek. The racist, sexist veneer always shows up what lies beneath when you dig at it.

(bobn):
> just that it's not used to convey respect in a political context.

LOL, now THERE's a claim that doesn't pass the laugh test.

> So he could intimidate OFHEO because he can fire them, right? Um, no, wrong branch of government.

What PLANET have you spent all the years of your life on that you don't grasp the meaning of what a powerful enemy acting to obstruct your career can be? PotUSes come and go, but someone like Frank, as well as his aides and associates, will be around for decades under the current system.


> And the GSEs have 15% of the bad mortgages,

Again -- stop looking at the crash site alone, and look at the related skid marks all the way down from 2 miles up the road.

Not that I actually expect you to suddenly, after months, stop and do so, but that's the analogy which exposes the defect in your thought/reasoning processes for others to see. You do not learn the entire cause of a crash by looking only at the end result. The events leading to that final result are almost always relevant.

OBloodyHell said...

> I never exonerated Republicans.

And neither have I.

See here@ 9:56am (ca. 2/3rds down)

The fact is, this whole mess was 65% Dems, 25% GOP, 10% Greedy Businessmen, and 5% Greedy RE investors.

And that's hardly the only time I've made pretty much that exact statement.

I believe that the GOP's failures are far more sins of omission than sins of commission -- I believe they could have acted yet failed to do so. Whereas the Dems are almost entirely commission -- they did sh** right and left which both directly interfered with the proper limiting features in the economy as well as acted to prevent opposition forces from acting to correct the errors.

But that's hardly giving the GOP a pass on things. Frankly, I want the testicles from BOTH groups removed.

bobn said...

You guys are pathetic.

I've shown how Wall Street caused the bubble by encouraging crappy loans through purchasing them and rewarding them via YSP. The timing with the 2004 raising of leverage allowances is perfect. And the results in delinuencies, GSEs 15%, Wall Street 51%, is also probative.

You guys don't refute this in any meaningful way, though you try various distractions. And you *still* want to blame the GSEs, and try to sidestep their regulation by your Republican cronies by waving your hands around and saying the Dems in Congress did it, while you continuously evade naming the mechanism by which this occurred. When I push the point home, Carl comes back with some weak crap about a SCOTUS case that was about the testing of firefighters. Meanwhile, OBH - while also failing to name the mechanism by which Dems prevented OFHEO from doing their job and regulating the GSEs - it's not visible and it's my fault I can't see it (emporor's new clothes, anybody?) - no longer even tries to argue with the fact that Wall Street did 3.5x as much damage as the GSEs, but that it is still the GSEs fault. So, by OBH's arguments, Dems in Congress are responsible for things where no relationship can be discerned and GSEs are responsible for the actions of other, unrelated entities.

OBH: give it up. Snowballs, car crashes, all your other metaphors fall against the facts.

bobn said...

caused the bubble

Should have been "caused most of the bubble".

Carl said...

bobn:

I have no idea where your 15 percent figure comes from. Even your own post cites 20 percent, or over 30 percent including Ginne Mae. Further, as I have previously observed, those figures are number of mortgages, not the more important value of mortgages. Finally, and perhaps most important, you miss the point that private label mortgages were spread over hundreds of separate institutions, most of which were small and could be allowed to fail. By contrast, the few government guaranteed GSEs--from which we could not walk away--were the key point of failure when, by 2005, they became the biggest buyers of the top tranches of subprime pools:

"Without their commitment to purchase the AAA tranches of these securitizations, it is unlikely that the pools could have been formed and marketed around the world. Accordingly, not only did the GSEs destroy their own financial condition with their excessive purchases of subprime loans in the three-year period from 2005 to 2007, but they also played a major role in weakening or destroying the solvency and stability of other financial institutions and investors in the United States and abroad."

OBloodyHell said...

> You guys are pathetic.

Ah, once more, bob takes the rhetorical mechanism of technical refutation to an art form.

Here's MY refutation, below. As you can see, I'm bolstering MY case by citing an example of the exact behavior I've already noted was applicable in the mortgage market,courtesy your favorite financial blogger, MOM:

Idiots follow money


This is just a mini-example of what happened in the mortgage market En Masse.

> You guys don't refute this in any meaningful way, though you try various distractions.

WE DON'T NEED TO REFUTE IT. Your analysis of the crash scene isn't really the DEBATE bob.

The DEBATE is over what caused the crash -- that tree at the crash site or the actions of the various drivers that were causing notable skid marks three miles back up the road.

> Meanwhile, OBH - while also failing to name the mechanism by which Dems prevented OFHEO from doing their job and regulating the GSEs - it's not visible and it's my fault I can't see it

Bob, we've BOTH listed this off to you, but apparently you have not the slightest real world experience of any kind to grasp the notion of the soft application of power.

It's VISIBLE in the C-SPAN footage I've pointed you to multiple friggin' times -- Congress openly ignores the warnings from OFHEO and instead excoriates the mid-level bureaucrat calling the irregularities to their attention -- sending a clear message to OFHEO and any others: MINE!! Hands Off!

And if it's NOT theirs to command, then why is it that Frank is on camera saying "I want to roll the dice some more with these mortgages", hmmm? If it's not Frank holding the dice, then who the hell is he talking about? The power is in his hands, and he knows it.

And, as if that weren't enough, what do you think the latest round of crap is with him pressuring the current admins of the GSE to lower their lending standards?

Give me the button that applies the current to that son of a bitch's testicles. I will happily push it until that bastard f*** is D-E-A-D dead.

OBloodyHell said...

Here's another related bit from over on Carpe Diem:


[The Real Solution? Not More Regulation but...] Stronger Underwriting, Bigger Down Payments

Carl said...

From The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008 (minority report) at 14, 17, 21 (footnotes omitted):


"Private-label securitization of subprime mortgages grew from $60 billion-a-year in 1997 to nearly $500 billion-a-year by 2006. These firms could not compete in any segment of the market Fannie and Freddie chose to close off to them because the GSEs could always undercut Wall Street’s costs by virtue of their government-granted competitive advantages. However, as with the GSEs’ relationship to non-bank lenders such as Countrywide, Wall Street formed its own symbiotic relationship with Fannie and Freddie. Wall Street firms profited from buying and selling GSE mortgage-backed securities, which because of the government backing were deemed to be as safe as Treasury bonds -- but with a higher yield. For their part, the GSEs became the largest purchasers of the "AAA"-rated tranches of Wall Street’s private-label securities, while Wall Street invested in the lower-quality portions. However, without the GSEs’ participation, it is unlikely that Wall Street could have formed these pools of toxic mortgages, making Fannie and Freddie the indispensable actors in the subprime market. This resulted in consistent downward pressure on down payments and on the credit quality of borrowers, fueling the housing bubble. . .

In 2003, Fannie Mae and Freddie Mac were at the height of their power. They dominated the secondary mortgage market, including a combined exposure of $372 billion to subprime mortgages made to borrowers with FICO scores below 660, 81 percent of the total market. Wall Street firms were responsible for a mere 19 percent of this market. . .

In return for political protection from oversight and reform, however, Fannie Mae and Freddie Mac were forced to placate their congressional protectors with an ever-increasing commitment to high-risk lending. That Fannie and Freddie felt such political pressure is made clear in an email exchange at Freddie Mac regarding the company’s decision to not place an upper limit on the number of defaulting affordable loans the company was underwriting. Freddie Mac’s senior vice president in charge of its affordable housing mission admitted that the higher default rates typical of lower-quality affordable mortgages could do serious "[h]arm to households and neighborhoods." This grim reality notwithstanding, "[t]ipping the scale in favor of no cap [on defaults] at this time was the pragmatic consideration that [it] would be interpreted by external critics as additional proof that we are not really committed to affordable lending." Clearly the GSEs feared a backlash from powerful advocates of looser mortgage standards so much that they could not even agree to place limits on how many defaults they would tolerate for one of their more risky loan products, irrespective of the obvious damage this lending was doing to families and neighborhoods."

OBloodyHell said...

Ohhhh, bobn...... you got some eesssplainin' to doooooo....


The Government Sponsored Enterprises led the way into the housing crisis: Fannie Mae and Freddie Mac were leaders in risky mortgage lending. According to an analysis presented to the Committee, between 2002 and 2007, Fannie and Freddie purchased $1.9 trillion of mortgages made to borrowers with credit scores below 660, one of the definitions of "subprime" used by federal banking regulators. This represents over 54% of all such mortgages purchased during those years. (p.24)

But bobn reports much lower numbers, somehow.

OBloodyHell said...

Turns out Rich Lowry, in April of 2008, wrote much the same points...

Quick cut (read it for context, of course -- emphasis mine)

A [then] new study by the Federal Reserve Bank of Boston finds that housing prices are the key determinant of foreclosures in Massachusetts. An estimated 18 percent of people with subprime loans will experience foreclosure. Of households that bought homes with subprime mortgages in 1998, however, “less than 6 percent will ever experience foreclosure, because they benefited from the state’s historic run-up in house prices between 1993 and 2005.”

For a glorious few years, all the rules had been suspended. Wall Street gobbled up subprime loans on the secondary market because the old underwriting standards seemed to be for fuddy-duddies. It was a typical mania. Washington can now make it into a morality play, but it partook of the delusion: Both political parties celebrated the increase in homeownership; the Federal Reserve expanded the bubble with historically low interest rates; and the CRA positively demanded improvident lending.

Carl said...

Another summary here.

Carl said...

Proper cite for Republican report on Fannie/Freddie--see page 25.