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Home Publications Blogs Beat the Press Why Is Jeff Bezos' Paper Using Ageist Tripe to Push Wall Street Takeover of Fannie Mae and Freddie Mac?

Why Is Jeff Bezos' Paper Using Ageist Tripe to Push Wall Street Takeover of Fannie Mae and Freddie Mac?

Thursday, 06 February 2014 20:24

Ralph Nader is nearly 80 years old. And he is probably as sharp as anyone in Washington half of his age. So where does Linda DePillas get off implying that he is senile in his efforts to keep Fannie Mae and Freddie Mac from being eliminated? The piece begins:

"It's not often in Washington that you see wealthy, conservative investor types and their lawyers sitting down with professional affordable housing advocates. But on Wednesday morning, anti-corporate crusader Ralph Nader — now stooped and gray, nearing his 80th birthday — brought them together.

"Their cause? Saving Fannie Mae and Freddie Mac from obliteration.

"It's a herculean effort. Democrats and Republicans don't agree on much these days, but a broad consensus — from Rep. Jeb Hensarling to the White House — has coalesced around the conclusion that the now-hated housing finance agencies need to be junked, and something else built in their place. A bipartisan bill pushed by Senators Mark Warner and Bob Corker and framed around proposals put forward by center-left groups has taken on an air of inevitability, just waiting for a legislative window to move forward."

Wow, a "bipartisan bill," a "broad consensus" of Democrats and Republicans, we probably have not seen so much coming together since the bipartisan support for the deregulation of the 1990s and the celebration of the soaring rates of homeownership during the housing bubble years. That little product of Washington and Wall Street ingenuity now looks destined to cost us more than $24 trillion according to the latest projections from the Congressional Budget Office. What sort of senile old fool could question that? 

The Corker-Warner bill touted in the piece makes the financial deregulation of the 1990s looks like a model of cautious reform by comparison. Instead of having Fannie Mae and Freddie Mac, which are now essentially government-run companies, guaranteeing mortgage backed securities (MBS), it would allow private financial institutions to issue MBS with a government guarantee. The only protection is that the investors would have to eat  the first 10 percent of the losses.

Goldman Sachs, Citigroup, and the rest of the wall Street gang had no problem passing off their dreck in the housing bubble years when investors could not count on any guarantee. Now the Post is telling us that only a senile old fool would question the wisdom of setting the same crew lose again, but this time being able to tell investors that in a worst case scenario they could only lose ten percent. If questioning the wisdom of that approach is senility, we could use a lot more of it in this town.

Here's the more complete picture.

Comments (9)Add Comment
written by jim, February 06, 2014 9:02
Either way Wall Street will win. Either fannie freddie will be abolished and make people doubt capitalism exists, or the sweep agreement will be overturned (assuming hedge funds are considered wall street) and the hedge funds betting billions of dollars (Fairholme,Pershing) will make literally billions of dollars of preferred securities and junior equity.

The real question is why has the servicing business changed so much. Third party services have been purchasing MSRs' from banks at an increasing clip and just today the NY regulator shut down Owen Financial from on boarding 3 billion of loans from Wells. Why are banks withdrawing from this market at such a rapid rate? is it because as you referenced in your piece, the lack of competition from private label originations not going to GSEs?

Housing is the worst
written by Jennifer, February 06, 2014 9:18
In spite of the housing bubble being the cause of all the trouble, has any issue got more of the shaft, especially with the Obama Administration? As Jim suggests above, servicing has a lot to do with it, and that has hardly been touched. Add to that the outright crimes committed by the banks in foreclosing, the complete lack of oversight by the Fed, the half-assed programs (HAMP and the like) and now the latest, everybody is getting a huge tax bill.
Nader? So anti Fannie and Freddie in the past...
written by pete, February 06, 2014 9:53
This is bizzaro world. Nader and the WSJ were some of the few questioning Fannie and Freddies search for profitability by securitizing the predatory and liar loans in the 90s and early 2000s. Now he is defending them as if they are for the non-1%? So far from the truth. 35% of folks don't even own homes, and these either live in NYC or are poor, or both. Fannie and Freddie thus took $$ from the 35% (through reduced borrowing costs) and gave it to the 65%, and with securitized Jumbo loans, the 1%. Very bad economics. The 1% do not need Fannie and Freddie. Is he thinking of FHA? Very confusing. The housing industry does not need Fannie and Freddie, they were part of the problem, not the solution.
If housing is such a great investment, why does government have to guarantee the financing?
written by John Wright, February 06, 2014 10:49

The US government pushes home ownership as a can't lose investment, but the financial industry seems to disagree.

If home ownership is such a good investment, why is the government involved in guaranteeing any part of the financing?

The financial markets should also recognize the "can't lose" aspect of American housing and respond accordingly, with no need for a government guarantee at all.

A summary of Corker Warner states:

"Eligible mortgages would be required to have borrower equity of no less than 20 percent at closing or to purchase mortgage insurance for some portion."

"the lender, or mortgage-backed security issu-
er, would take the first 10 percent of the mortgage risk, or losses on a failed/foreclosed mortgage."

What about the counter party risk of the mortgage insurer failing? If AIG is an model, the US government might be required to rescue the insuring agency.

To follow the previous script, a large bank could write a lot of MBS and book early profits and bonuses for the executives. A later 10% haircut on their mortgage securities could make the bank insolvent, forcing a rescue by the government again, while the executives preserve their "early profits".

The US political system seems intent on encouraging citizens to incur large debts to own homes and to finance college degrees.

One might wonder if this functions to create a more compliant indebted working class chained to government guaranteed loans.

written by Barkley Rosser, February 07, 2014 12:07
Oh, Dean, this is nothing new. It is Fred Hiatt. They have been pushing this line for ages, think Peterson Institute, plus boring old Washington Bowles-Simpson bs lines that are so deeply entrenched. All too many of the VSPs still have not figured out what ridiculously foolish they have become as long as they can bloviate among each other without contradiction by "inferiors." All the takeover at WaPo does is reinforce the existing stupidity that has been deeply entrenched. I have never met Fred H., but what a colossal asshole and worthless human being.
Dean Baker on WaPo today and on nyt's inequality Wed., illustrate capture well
written by jaaaaayceeeee, February 07, 2014 1:57

I appreciate more than just these 2 stark examples of news as cons, and it's not just Fred Hiatt, Barkley, demonstrating the capture of pols and pundits.

It's gotten to the point where Eg the Economist declaims 1/4/14 that protection for drugs patents is " ...in the interest of the world's sick." Toxic to public policy.

Not just FOX has the goal of making people less informed about the fraud-filled, stateless but fascist, who-cares-when-it-flops party, that must continue, to profit a few, at the expense of the public good.
The End of Ralph Nader - and Consumer Sovereignty
written by Last Mover, February 07, 2014 7:07

There was a time when consumer sovereignty meant something in America, the raison d'etre of Ralph Nader.

Consumer sovereignty meant consumers made the decisions in private markets - not arrogant sellers strutting around telling consumers what was good for them.

For example, as sellers built deadly effects into dangerous cars outed by Ralph Nader, they would turn over with no seat belts and windshield glass that shredded passengers on impact like a razor blade.

If sellers wanted to sell something that worked and was safe after Nader showed up, they had to compete for that right, and that included incurring the necessary cost in question to satisfy the standard of consumer sovereignty demanded by consumers before the fact.

Consumer sovereignty also applied to the government sector as well in the broader context of "voter sovereignty". For example the origins of Fannie and Freddie were about the market failure of the private sector to take the necessary risk of providing housing efficiently, even when the economics were sound.

Corporate America should get down on its knees and thank Ralph Nader for saving working free markets as long as he did, requiring them to actually work for the benefit of consumers rather than shoveling unearned gains to sellers.

In the time of Ralph Nader, corporations would kick and scream one day that his proposed regulations would put them out of business. The next day they would be falling all over themselves to adopt them, parading them around as the critical benefits they actually were, necessary to stay in business.

Specifically, legitimate sellers who chose to sell their goods and services in transparent markets, sellers who did not require sustained excess monopoly profit to enter and stay in markets, sellers who competed temporary high profits down to normal entry requirement levels and incurred corresponding losses on the downside as well, sellers who paid their workers an appropriate share of productivity gains beause such markets required it for sellers to stay in business.

The slur against Nader by Linda DePillas is now a common and insulting entrenched slur of sock puppets for the ultra rich who sponsor them, who have destroyed both consumer sovereignty and voter sovereignty in America by coming to own and control them outright with their unearned riches.

The DePillas slur represents the culmination and end of Nader's effectiveness in the 2000 presidential election, when Nader was falsely branded as a spoiler who caused Bush to win over Gore.

But Nader was banned by the sock puppets from the televised debates between Bush and Gore. The puppets knew Nader would easily take down both Bush and Gore with endless examples of embarrassment that exposed them as the tweedle dee and tweedle dum they actually were when it comes to intentional destruction of the middle class for the benefit of the rich.

Had Nader made it into the debate, he really would have been the spoiler who enabled the election of Bush over Gore. Nader still would not have been elected because too many Americans were already dumbed down and exploited by the sock puppets to actually believe when it comes to economics, there really is a competitive difference between tweedle dee Bush and tweedle dum Gore.

Well of course. Who needs Ralph Nader when there's already enough "competition" between the economic predators who are steering America as we speak, into third world status compared to its global competitors?

To the doddering, old senile fools like Ralph Nader stumbling around asking whatever happened to consumer sovereignty and free working markets in America:

Shut your mindless trap and be glad you're alive, surviving off the intergenerational subsidies extracted from young workers as you do, taking them gladly as you doom your own young to a serfdom future buried in debt.

We are the sock puppets. We will decide when and where you get to speak in a tweedle dee or tweedle dum forum that is a laughable sideshow of fake free speech "competition" carefully designed to hide who we are and what we are about.
written by dax, February 07, 2014 4:42
Government guarantees cost money. A good derivatives trader on Wall Street would be able to calculate how much this guarantee will cost (so long as he doesn't assume housing prices always go up…) Probably in the trillions.
Won't Be Fooled Again
written by Bart, February 07, 2014 5:57

Mark Warner is my senator. I voted for Mark Warner. Told him I'm staying home for the 2014 election.

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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.