Thursday, January 08, 2009

Why Fan/Fred Collapsed, Part 34,586 UPDATED

Interesting little sentence here:

Peter Wallison of the American Enterprise Institute and Charles Calomiris of the Columbia Business School suggest $1 trillion of this debt was subprime and "liar loans," almost all bought between 2005 and 2007. This bulk-up in risky paper made it possible for banks to lend imprudently on a massive scale.

That $1 trillion is about 20% of the Fan/Fred portfolio.

The pieces keep falling into place, and Angelo Mozilo of Countrywide will eventually take his (well-earned) place next to Mr. Madoff as one of the US' greatest flim-flam men.


Ritholtz provides more info, not all friendly to Rove's editorial. Since I have no particular love for ANY of the players in this mess, I'll run R's comments, too:

Fannie and Freddie were cogs in the giant mortgage machine, but they had nothing to do with the abdication of lending standards from 2002-07. That was a function of the Lend-to-Securitize business model of the sub-prime mortgage originators. THAT was the primary cause of the housing boom and bust, along with Ultra-low rates and a lack of Fed regulation of these sub-prime lenders

Rove somehow fails to note the GOP controlled Congress from 1994-2006, including the first 6 years of the Bush Presidency. If the President wanted to rein in the GSEs, he needed only make it a major priority, and not a footnote in the 2001 budget.

GSEs bought $ trillion of subprime debt and “liar loans,” [says Rove], but Facts are correct, conclusion is wrong. By 2005, the die was set. The GSEs were very late to the party, buying sub-prime at the top of the market

OMISSION: Bush thwarted attempts to make lenders behave responsibly: Gee, somehow Mr. Rove forgot this one. Bank regulators had proposed new guidelines for writing risky loans. These were internal administrative rules; had they been enacted, the worst of the housing and credit crisis might have been avoided. The Bush administration backed away from proposed crackdowns on the subprime, no-money down, interest-only mortgages that were critical contributors to the credit and housing crisis

There's a military description of the mortgage mess that begins with the adjective "cluster" and ends with an AngloSaxon crudity.

1 comment:

Shoebox said...

While Fed and Fan were certainly in the parade, it was Greenspan and Brenanke that lead the parade. The artifically low interest rates that they held to, during a time of unprecedented growth caused "money" to believe there was no risk in what turned out to be high risk investments....oh yeah, don't forget the best supporting actors, the rating agencies!