[lbo-talk] [Pen-l] Community Reinvestment Act at fault -- NOT

[Mark Bennett]

>
> My problem is that I can't get my head around what Freddie and Fannie
> are.  The public/private split here is murky and it seems like there
> is something to the fact that they insured mortgages they didn't
> actually hold and that they bought a bundle of the securitized ones.
> On the other hand, they don't issue any, right?  And they are separate
> from CRA.  There is a game of three card monty here where CRA is
> impugned; Freddie and Fannie, which were both more and less than CRA
> in terms of actual government involvement had much more investor
> oriented pressure, like most of the rest of the finance industry.  In
> this, I don't see any real difference between the market effect of
> these institutions and any other private credit rating agency except
> for the fact that there was some government involvement--and the
> Chinese and Russians were heavily invested as well.  But on the latter
> count, the loans owned through GSEs are supposed to be government
> guaranteed. But what does that mean?  Is it the same thing as FDIC?
> or is it more like a Federal version of Mortgage insurance?
>
> And how much heft do they really have.  I've seen figures that say
> they own only a fraction of the loans, but they back up to 50% of the
> mortgages in the country. How is this related to all these other
> private mortgage brokers?  To private mortgage insurers?  In any case,
> this doesn't explain why companies were leveraged 30:1 or why
> securities became so popular or why the credit-default swaps were so
> widespread. except if they simply thought, once again, that banking on
> the fed would make them too big to fail.  Maybe I'm devoting too much
> attention to the agenda set by someone else, but these seem like very
> mysterious institutions the more I look at them.  And it seems
> endlessly possible to project all sorts of scenarios onto their role
> in the crisis since their agency can be inflected in all sorts of
> directions.  But I'm hoping there is one that is more correct than
> others.
>
> s
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Henry Liu has a pretty good piece on Asia Times about the history of Fannie,
Ginnie, and Freddy.  It helped me to get a better understanding their roles
a bit.

It is fascinating to watch this notion of deadbeats = economic inferno take
hold among the deranged right.   Someone needs to write this up, a la "Death
By A Thousand Cuts."