Tyler at MR does a manful job of trying to look patient and scholarly in his review of the evidence as to the role of Fannie/Freddie in the great bustup, but I think he conflates two different issues.
One is the question whether Fannie/Freddie misbehaved in the years leading up to the pop. On that point, I don't think anybody can quarrel that Fannie (at least) has an appalling record of institutional misbehavior: rapacious and corrupt and willing to do whatever it could to pervert the lawful structure of good government--in short, they behaved like a money center bank.
But two is the question whether the meltdown was the result of an irresponsible campaign to increase low-income home ownership. I'd say there is some evidence to support the proponents of this latter view, but that on balance, there are so many other factors at work here that the press to expand low income home ownership almost gets buried in the debris (for a fuller account, go here, here. A particular reason to find this account plausible is that Fannie and Freddie didn't even want subprime all that bad; they were willing to make the right noises about serving public purpose but at the end of the day they had no more interest in the larger public good than Stan O'Neal, Dick Fuld or Jimmie Cayne. They wanted the same stuff the private sector (originally) wanted: bales and bales of good, solid, middle-class loans with big spreads and dependable payment streams. Or, they wanted that until they didn't want it, which is to say until they started pouring gasoline on a bonfire.
So I think the case that "subrime caused the meltdown" is mostly bogus. I do think that defenders of Fannie/Freddie get a bit ahead of their skis sometimes, and I suspect the reason is that they fear for the institutions per se; the defenders see their enemies as wanting to put Fannie/Freddie out of business and they don't want Fannie/Freddie to go. Me, I'm still on the fence on that issue. It's not obvious to me that we need government-sponsored mortgage market makers. I can see you don't want to terminate tonight--or there would be no lending at all. But schedule departure for five, ten years down the road, could be a good idea.
As I say, I'm on the fence. I am open to further instruction. But as a theory of the meltdown, I'd say "it's the poor people what dun it" is impudent and irresponsible and ought to go away.
Update: Comment thread at the original MR post is good. See also Yglesias, DeLong.
3 comments:
Why do you take that creep seriously? He's just another Koch lobbyist.
But he's a very visible Koch lobbyist.The arguments have to be dealt with. (That they are Zombie Lies that cannot be killed is a side issue.)
"It's not obvious to me that we need government-sponsored mortgage market makers. I can see you don't want to terminate tonight--or there would be no lending at all. But schedule departure for five, ten years down the road, could be a good idea."
I fear I'm going to have a two- or three-post reply to this, but your misstep is acutally earlier:
"[The GSEs] wanted the same stuff the private sector (originally) wanted: bales and bales of good, solid, middle-class loans with big spreads and dependable payment streams."
That was not true in the Noughts. The spreads went away as the market grew. (Once in a while, economics works.) The only profitable pieces were the Z-tranches and "toxic waste" that hedge and "money market" funds were buying. (Short version: Countrywide destroyed its own reason for existence and then kept going.)
Bear, I'm all ears. But recall I didn't say they got good spreads; only that they wanted them. And you're certainly not going to tell me that Fannie was a stable corporate citizen with honest and responsible management, now are you?
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