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Home Publications Blogs Beat the Press Why Does Reform of Fannie and Freddie Have to Mean More Profits for the Banks?

Why Does Reform of Fannie and Freddie Have to Mean More Profits for the Banks?

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Thursday, 13 June 2013 05:21

The government gives direct student loans. This saves money by eliminating the financial intermediaries. Is there some reason that it can't do the same with mortgages, that is a reason other than banks need to rip off the public with the government's assistance?

Jesse Eisinger has a good piece pointing out that the most politically likely paths for reforming Fannie Mae and Freddie Mac are likely to mean big profits for banks and incorporate few of the lessons from the housing bubble.

Comments (8)Add Comment
Good Point
written by Jeffrey Stewart, June 13, 2013 8:59
"Is there some reason that it [the US government] can't do the same with mortgages, that is a reason other than banks need to rip off the public with the government's assistance?" -D. Baker


The same could be said for health insurance reform or even stimulus spending. The US government is so completely captured by capital that the only government programs that indirectly help the working class, e.g., health insurance reform or mortgage provision have to include a profit opportunity for capitalists or the legislation won't see the light of day.

The main issue with the US government is the working class no longer has even a semblance of influence on its policies. This is the problem to be solved.
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written by liberal, June 13, 2013 9:36
Is there some reason that it can't do the same with mortgages, that is a reason other than banks need to rip off the public with the government's assistance?


By far and away, the best thing to do in the long run is increase taxes on land (site value). If the land was taxed very heavily (e.g. at 80% of rental value), then the price of a house would be commensurately that much less.
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written by Ellis, June 13, 2013 10:22
"The government gives direct student loans. This saves money by eliminating the financial intermediaries."

Wrong! The government outsources much of the work to the private banks. For example, the government uses bank subsidiaries as collection agencies on delinquent student loans. The government then gives them "powers that would make a gangster envious" as Elizabeth Warren told 60 Minutes in 2010. The government then pays them 20 per cent of all the debt that they collect. The debt collectors go after everything they can get their hands on. They seize tax refunds. They garnishee paychecks. They even garnishee Social Security and disability payments. Overall, the government recoups about 80 cents for every dollar that goes into default – an astounding rate, considering that most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards. One indication of the lengths these companies have gone is that three companies working for the Department of Education – including one that is majority owned by JP Morgan Chase’s private-equity arm – settled federal and state allegations of abusive debt collections for a slap on the wrist.

"Is there some reason that it can't do the same with mortgages, that is a reason other than banks need to rip off the public with the government's assistance?"

The banks have been "ripping off" the public with the government's assistance since the time of Hamilton.



why stop at mortgages....
written by pete, June 13, 2013 10:36
Why not have the government also issue credit cards. Then we simply run up balances with the Feds, pay them back, save a ton of money. But heck, why not have the government take over all the farms, bakeries, grocery stores. Money to be made there. Fedmart instead of Walmart, saving all that money that Walmart rips off, and only producing whole grain orgainc foods.

Well heck, what about economic research? Get rid of the Center for Economic Policy, Heritage, etc., and simply have government economists doing all the thinking for us.

So, ok a little over the top. But with some bureaucrats picking winners and losers (you belong to Tea Party, NO MORTGAGE FOR YOU!) it could be a little dicey. Already the incentives for DC folks are clearly all bolixed up. Keeping these things incentive compatible is best. Central planning has been shown to be a pretty massive failure. Venezuel is now inflating at a fast clip. Argentina will follow it down, no doubt. North Korea is a train wreck. China saved itself by embracing private incentives.
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written by Last Mover, June 13, 2013 11:13
Pete's being cute but is closer to the mark than he thinks.

The NSA scandal was a scandal in large part because it was totally dependent on the mega-data corporations in the private sector, even replacing them in some ways. In that regard the government has already taken over the private sector and there's nothing cute about it.

When it works in reverse it can be just as bad, such as outrageous charges and fees assessed by private lenders of college loans compared to that available directly from government.

Pete wants you to think everything is broke in one direction, from a broken public sector to a functioning private sector.

It's not. It's broken in both directions. That's why an ideologue always gets it wrong at least half the time for not breaking it down case by case.
last mover...
written by pete, June 13, 2013 1:34
I absolutely never said market solutions offer paradise. The problem is that central planners haver the potential and the ability to make very large and very bad decisions, such as for example the housing crisis. This was in no ways a market problem, it was a well oiled lobbying attack on markets, crony capitalism up the yingyang.

Market outcomes are often screwed up too, but only in the rarest of circumstances can they out screw up captive or otherwise screwed up central planners.
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written by watermelonpunch, June 13, 2013 8:28
What Jeffrey Stewart said.

Enough said.
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written by Ellis, June 15, 2013 11:34
"The government gives direct student loans. This saves money by eliminating the financial intermediaries."

The Boston Review has a good answer to that:
"Government Loansharking: An Update on the Student-Debt Crisis"
Here is the link:
http://www.bostonreview.net/us/government-loansharking


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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