[lbo-talk] silver lining?

Mike Beggs mikejbeggs at gmail.com
Fri Apr 24 18:37:56 PDT 2009


On Sat, Apr 25, 2009 at 6:15 AM, Doug Henwood <dhenwood at panix.com> wrote:
>
>>
>> 1) Are you okay with agency securitization (Fannie Mae, Sallie Mae), or do
>> want to shut them down too?
>
> They both enable too much borrowing in a sphere where there should be less.
> Mortgage debt went from about 60% of after-tax income in 1993 to 101% at the
> peak in 2007 - at the same time the homeonwership rate went from about 64%
> to 68%. The value of owner-occupied real estate went from about 140% of
> after-tax income to 230%. So, it was almost all price inflation.

The prevalence of securitisation in the US is related to what you were talking about a little while back, the fragmented nature of banking over there. This piece is pretty interesting (though not for his policy recommendations). Personally I don't think securitisation is going to go away, whether or not regulators want it to.

Christopher Joye: "Dismantle and start again" http://www.rgemonitor.com/globalmacro-monitor/255932/dismantle_and_start_again

"In contrast to the rest of the world – where securitisation, if it exists at all, has been a small yet valuable part of the housing finance mix – the process completely dominates home loan funding in the US. The concern is not with government support for homeownership, which one can find in justifiable forms in most countries, but the deleterious consequences of a financing system that initially evolved from the designs of competing states within the highly fragmented US federation, and which was distorted further by the federal government’s policy responses to the banking failures during the Great Depression. Of course, such failures were themselves an artefact of the exceptionally decentralised financing system that was the product of state-asserted control.

"The outcome of these state and federal government decisions, and the continued missteps of US policymakers ever since (including the partial privatisation of Fannie Mae in 1968 to remove its debts from the government’s balance-sheet, and the misplaced creation of the second major GSE, Freddie Mac, in 1970 purely to compete with Fannie), has been the effective disintermediation of deposit-taking organisations as a source of housing finance in the US in favour of the GSEs and, crucially, the process of securitisation that they pioneered.

"It is my belief that the two GSEs basically became a synthetic surrogate for the nationally-integrated banking systems that serve as the foundation for housing finance in most other countries. By doing so, they also attenuated pressure on state and federal governments to facilitate the wholesale consolidation of the geographically fractured and prone-to-fail US banking system that should have organically occurred over the 20th century."

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