In the last couple of months I’ve heard right wing commentators blame the economic woes on plans that injected huge amounts of money into the housing market. Some from libertarian European parties were amazed about this American desire for private home ownership and construction, saying basically most people should rent, and rent the houses that are already around.
But they also want to imply that once Fanny and Freddy decided to promote more home ownership, that fraud had to follow. That the only way for people with little money down could buy a house was for the Bush relaxation of rules about verifying income and getting honest valuations. That the only way to pump money into a sector beyond the free market amounts is to look the other way to fraud.
[Note to mods: I think this would fit better at Great Debates, being political and monetary, but I never got a poll option when I tried to post it there.]
The right-wing premise is false. They want to blame everything on Fannie Mae and Freddie Mac, quasi-governmental entities supported by Democrats because they have affordable housing programs. Fannie and Freddie certainly had problems, but putting the economic debacle on their shoulders is absurd. A much larger problem was the private mortgage business, which (like Fannie and Freddie) fed its loans to investment banks that piled derivatives on top of derivatives until there was virtually no equity at the bottom of the pile. Investors were buying “equities” that were 99.9 percent debt and not realizing it, in part because rating agencies were not doing their job of understanding and pricing risk.
Banks, i-banks, rating agencies and the rest of the financial sector are Republican oriented entities. So when it came time to lay blame, conservatives point at the one tiny slice of the pie that was trying to serve the bottom 60 percent of economic society.
Fannie and Freddie, and VA loans and state-sponsored programs for first-time buyers, and the federal mortgage interest tax deduction for primary residences are all ways government encourages home ownership, and they do it because home ownership helps create stability in communities and families and is the primary avenue of wealth attainment for the vast majority of Americans.
Most right-wingers are ignorant tools of millionaire pundits who get their marching orders from billionaire corporate owners who would just as soon see you and me homeless and starving. When Republicans rule, the rich get richer and everyone else gets deeper in debt and more people fall below the poverty line.
No matter what program is being talked about in private or government sectors there will be people being fraudulent.
No there will always be fraud. I think it could be successful in stimulating housing growth jobs. I don’t think people need to lie for it to be successful.
The real problem was letting banks resell the loans. That’s where it went wrong, even before the repackaging and phony investment ratings. Savings and loans used to do just that, the held the loan until it was paid back. With everything done locally, and nobody to shift the loss to, they were very intent on confirming income and housing values.
From which libertatian European parties, please? In Europe there are huge differences in home ownership between some countries and others; there’s countries where there is no involvement of the government in the housing market and others where the government is a main developer of private housing.
Now, if you’re talking about not-necessarily-libertarian parties in Europe asking “why the heck are they injecting money into companies that should be bankrupt or into companies which are having benefits of a mere 20% more than last year?” that gets asked over here when our governments do it, too.
The main problem is the financial incentives for the rating organizations to return favorable ratings to get more business. Some form of double-blind or random pool arrangement for assessors and loan raters. Plus regular audits, and real penalties for those who pad results. I think the raters who screwed everyone last year are still there with no changes whatever.