Tag Archives: Fannie Mae & Freddie Mac

Wednesday smorgasbord.

An infrequent article dump to clear the tabs on my computer. Topics include: Latin America; the end of Fannie and Freddie (I can only dream); biblical misconceptions; autism; innovation and unemployment; Leon Panetta’s strategy to cut defense spending; and things happy people do. Enjoy!


The Washington Post interrupts “the current gloom about the global economy to bring you a word about progress. In Latin America and the Caribbean, the portion of the population living in poverty fell substantially from 1990 to 2010, from 48.4 percent to 31.4 percent, according to a new United Nations report. And this occurred as the population grew from 440.7 million to 582 million.”

Meanwhile, media outlets in Mexico report that over 12,000 people were killed last year in drug-related violence. “Annual indexes of torture, beheadings and the killing of women all showed increases.”

William M. Isaac and Richard M. Kovacevich, writing for CNN Money, explain their plan for closing Fannie and Freddie.

John Shelby Spong, a former Episcopal bishop of Newark, New Jersey, explains the three biggest bible misconceptions: “First, people assume the Bible accurately reflects history. That is absolutely not so, and every biblical scholar recognizes it… The second major misconception comes from the distorting claim that the Bible is in any literal sense “the word of God.” Only someone who has never read the Bible could make such a claim… The third major misconception is that biblical truth is somehow static and thus unchanging. Instead, the Bible presents us with an evolutionary story, and in those evolving patterns, the permanent value of the Bible is ultimately revealed.”

The New York Times explains the romantic relationships of those with autism.

On a day early this month, before their planned trip to the animal shelter, Kirsten and Jack stood before a group of young adults with autism at the Kinney Center for Autism Education and Support in Philadelphia, answering their questions while Jack’s father addressed their parents in a different room. “Did you ever think you would be alone?” one teenager wanted to know.

Kirsten answered first. “I thought I was going to be alone forever,” she said. “Kids who picked on me said I was so ugly I’m going to die alone.”

Her blunt tip on dating success: “A lot of it is how you dress. I found people don’t flirt with me if I wear big man pants and a rainbow sweatshirt.”

Then it was Jack’s turn to answer, in classic Aspie style. “I think I sort of lucked out,” he said. “I have no doubt if I wasn’t dating Kirsten I would have a very hard time acquiring a girlfriend that was worthwhile.”

A mother who had slipped into the room put up her hand.

“Where do you guys see your relationship going in the future?” she asked. “No pressure.”

Kirsten looked at Jack. “You go first,” she said.

“I see it going along the way it is for the foreseeable future,” Jack said.

One of the teenagers hummed the Wedding March.

“So I guess you’re saying, there is hope in the future for longer relationships,” the mother pressed.

Kirsten gazed around the room. A few other adults had crowded in.

“Parents always ask, ‘Who would like to marry my kid? They’re so weird,’ ” she said. “But, like, another weird person, that’s who.”

Francisco Dao, writing for the Washington Post, explores whether innovation is leading to higher unemployment:

Instead of the normal evolutionary rise and fall of industries, our economy is now at something analogous to the Cretaceous-Tertiary extinction event (the end of the dinosaurs). Going forward, those who will prosper will be characterized by their ability to leverage technology, while everyone else will find themselves relegated to obsolescence by exponentially more powerful machines.

What is different now is the power and scale of technology at our disposal. One hundred years ago, “leveraging technology” meant using a better plow to plant more land than your neighbor. Eventually he would go out of business and you would take over his farm.

Today, it means a handful of people at Instagram and Flickr can bankrupt Kodak and put hundreds or thousands of people out of work.

According to the NYT, “Defense Secretary Leon E. Panetta is set this week to reveal his strategy that will guide the Pentagon in cutting hundreds of billions of dollars from its budget, and with it the Obama administration’s vision of the military that the United States needs to meet 21st-century threats, according to senior officials.”

Lastly, Mark and Angel Hack Life reports on 12 things happy people do differently.

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Filed under Economy, Health & Nutrition, Latin America, Mexico, Miscellaneous, Religion

A serious look at Jon Huntsman?

Many candidates have had their moment in the spotlight and found inadequate: Bachman, Perry, Cain. Politicos and activists are waiting for Gingrich to implode and be the next former not-Romney frontrunner. But Jon Huntsman has not yet had his moment, and he should. He has both the qualifications and demeanor to be president, is likable to the political center, and has conservative credentials that display both his reasonableness and his consistency, something Romney lacks. Will he get that look? Let us hope so.

George Will discusses Huntsman’s conservative credentials.

Jon Huntsman inexplicably chose to debut as the Republican for people who rather dislike Republicans, but his program is the most conservative. He endorses Paul Ryan’s budget and entitlement reforms. (Gingrich denounced Ryan’s Medicare reform as “right-wing social engineering.”) Huntsman would privatize Fannie Mae and Freddie Mac (Gingrich’s benefactor). Huntsman would end double taxation on investment by eliminating taxes on capital gains and dividends. (Romney would eliminate them only for people earning less than $200,000, who currently pay just 9.3 percent of them.) Huntsman’s thorough opposition to corporate welfare includes farm subsidies. (Romney has justified them as national security measures — food security, somehow threatened. Gingrich says opponents of ethanol subsidies are “big-city” people hostile to farmers.) Huntsman considers No Child Left Behind, the semi-nationalization of primary and secondary education, “an unmitigated disaster.” (Romney and Gingrich support it. Gingrich has endorsed a national curriculum.) Between Ron Paul’s isolationism and the faintly variant bellicosities of the other six candidates stands Huntsman’s conservative foreign policy, skeptically nuanced about America’s need or ability to control many distant developments.

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Filed under Election 2012

“How Mr. Volcker Would Fix It”

Last month Paul Volcker, former Chairman of the Federal Reserve, presented to the Group of 30, an organization devoted to international economic issues, a speech entitled “Three Years Later: Unfinished Business in Financial Reform.”

The real treasures were found in his to-do list for further reforms. That heavy lifting includes addressing capital requirements (make them tough and enforceable), derivatives(make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).

He also spoke of the perils of institutions that are too large or interconnected to be allowed to fail. Calling this the greatest structural challenge facing the financial system, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.”

He also discussed with Gretchen Morgenson, the author of the article, the unmentioned problems with money market accounts:

Money market funds held $2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits — strong bank capital requirements and federal deposit insurance, for example — do not exist for most money market funds. There is also little official surveillance of the funds’ investment practices.

I was pleased to see that Fannie Mae and Freddie Mac also received his attention.

THE other area that cries out for change, Mr. Volcker said, is the nation’s mortgage market, now controlled by Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants.

“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech. “The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”

While he acknowledges that we cannot eliminate Fannie and Freddie anytime soon, “it is important that planning proceed now on the assumption that government-sponsored enterprises will no longer be a part of the structure of the market,” he said.

TOTPS is not fan of Fannie and Freddie – they played a significant role in inflating the housing bubble with their unaccountable lending and buying practices. (And where is OWS in complaining about the bonuses paid to their CEOs?!) Fannie and Freddie will eventually go away, and the sooner the better. They were unnecessary since inception – Volcker: “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.” – and proved themselves disastrous.

But I digress. Volcker makes solid and vital recommendations that are both simple and enforceable. Of course the devil will be in the details, but he clearly does not feel that Dodd-Frank was sufficient. (Joe Klein describes Dodd-Frank as “the watered-down, overly complicated and difficult-to-enforce” reform package.)

One wonders where Obama, Geithner, et al. will attack next, but they should start with a few large-scale reforms. First, allow the Republicans to repeal Dodd-Frank. It is… well… as Klein described it. (They would never do this for political reasons, but it is a lesson in the dangers of rushing important legislation and on how not to spend political capital.)

Second, return the Glass-Steagall Act which prohibited commercial banks from engaging in the investment business,  and third, repeal the Commodity Futures Modernization Act of 2000 which prohibits the federal government from regulating financial derivatives.

Third, increase capital requirements for banks (so they are not over leveraged) and lower the lending requirements of banks (so they can more easily extend credit). Banks do business by borrowing and lending. Increased capital requirements lower their exposure; lowered lending requirements allows them to lend more. They will not easily be able to securitize those mortgages and sell them to others. The will most likely keep those mortgages and loans on their books where they belong. With the separation of commercial and investment banks and the regulation of derivatives, markets should be calmed over concerns with imprudent lending and risky investments tools. Allow commercial banks the ability to lend as they see fit, not according to a one-size-fits-all policy.

Fourth, privatize Fannie and Freddie. The government will lose money, but they have lost already, and can end the liabilities once and for all. Fifth, consider regulating money market accounts as deposit accounts – strong bank capital requirements in exchange for federal deposit insurance. I’m not convinced it is necessary, but out of deference to Mr. Volcker it should be considered.

Lastly, wait and see where things fall. The market may not respond immediately, and the last thing we need is more legislation rushed through Congress for fear of doing nothing.


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Filed under Domestic Politics, Economics

Fannie and Freddie to End Philanthropy

After requiring hundreds of billions of dollars in 2008 – 2010, why do Fannie Mae and Freddie Mac have philanthropy programs at all? The WaPo reports that those program may come to an end in the next few years. It’s about time. The problem is not with charity or the laudable aims of the programs Fannie and Freddie have been generously funding. The problem is with the continued reckless spending of the two GSEs whose daily activities – philanthropy, lobbying, political activism – have so far strayed from their original charters. Leave aside their faulty accounting and their conflicts of interest. Leave aside their negligent practices and irresponsible executive compensation. Just look at their current bottom lines. If the federal government were the least bit committed to preventing another housing bubble and to truly reining in both needless government spending and the prevailing Washington attitude that seeks to do everything for everyone, then they could start by liquidating Fannie and Freddie and starting to clear the housing market. Instead, we debate on whether or not a GSE with no money should continue to give away money that they don’t have. It is unfortunate for the laudable charities that they have supported, but those charities have been fed far too many free lunches over the years. It needs to end.

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Filed under Domestic Politics, Role of Government

Becker on Government Failure

Gary Becker writes:

When an industry in the private sector is not performing efficiently or effectively, there is said to be “market failure”. The recommendation by economists and others typically is then for government actions to combat such failure, such as taxes to help reduce pollution. The diagnosis of market failure may be accurate, but the call for government involvement may be naïve and inappropriate.

The reason is that actual governments do not necessarily do what economists and others want them to do because there is “government failure” as well as market failure. Before recommending government actions to correct market failures, one should consider whether actual government policies would worsen rather than improve private sector outcomes. Since many factors often make for considerable government failure, considering such failure is crucial and not just a theoretical fine point.

Those on the Left often call for government intervention in the private sector at the first sign of imperfections. Such imperfections are not limited to the more highly visible examples of millions of people without health insurance or severe environmental damage. I have friends who want the government to most actively regulate the cell phone industry because they think the services are better in Europe. That our phones have improved tremendously over the years – compare your Droid or iPhone to your first cell phone from 10 or 12 years ago, for instance – as have the coverage and plans, is insufficient. It is imperfect, thus can improve. The default measure is regulation. It will sometimes – no, often – make the situation worse, but that only means the regulation needs to be adjusted or the regulators replaced with more competent professionals. Imperfections in the regulation are worth tolerating because they done are in pursuit of improvements, not profits.

Government actions sometimes not only fail to overcome market failure but rather worsen the failure. Fannie Mae and Freddie Mac were formed as quasi-governmental institutions to help encourage mortgages in the residential housing market because of a belief that the private sector was not providing enough mortgages, especially to lower income families. Yet, as documented in detail in Reckless Endangerment by Gretchen Morgenson and Joshua Rosner, these two companies used their privileged positions to take excessive risks, and to insure large numbers of mortgage loans that should never have been made.

More damage was done by Fannie and Freddie, of whom the government has more control and information than it does of any private sector company – than all the reported private sector monopolies (Microsoft, Google, General Electric, Intel, etc.) combined. The problem wasn’t the regulation itself, of course, but rather the lack of it.

Hardly. The problem is often in the regulation itself. Regulators distort markets and create costs to be paid by others. They also create unintended consequences for which they are not responsible. The market is like a mobile, where movement on one side creates unpredictable and uncontrollable movement in the others. Market distortions are not easily contained, and we are foolish to think we can manipulate an industry as easily as we do computer code. The market, in its nature the cumulative result of millions of individual decisions, will almost always respond to a problem with more efficiency and information than the government can. Such understanding is what led economist Thomas Sowell from Marxism to capitalism.

Becker also offers his thoughts on how to decide if and when the government should intervene and regulate.

How does one approach policy once it is recognized that government failure is substantial, and often much worse than market failure? As a general rule I believe the presumption should be in favor of government actions only when market failures are quite large and persistent. So clearly governments should have the dominant role in the military and police areas, in the judiciary, in protecting against massive pollution, and in providing a safety net for its least fortunate members (private charities are important but do not do enough). On the other hand, when market failures are relatively small and likely to be temporary, as in monopoly situations or in exploiting consumer ignorance, government involvement should be minimal, as in minimalist anti-trust policies, and in allowing consumers generally to make their own decisions.

The intermediate cases are the most difficult: when market failures may be significant, and yet government alternatives are not attractive. This may be decided on a case-by-case basis, but I believe the usual rule should then be to let the market operate. This belief is based on the conclusion that, on the whole, government failure is far more pervasive, damaging, and less self-correcting, than is market failure. Others may reach different conclusions, but these are the problems that a relevant welfare analysis should focus on. Simply concluding that in particular instances markets are not working perfectly is a misleading and incorrect basis for supporting active and sizable government involvement.


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Filed under Economics, Role of Government