This story is already being covered on DK (see below), but I know it to be a bigger story than has yet been apprehended here. I'm one of the majority of folks on DK who wishes that Obama were a better President than he has so far demonstrated himself to be. At the same time, I'm one of the majority of folks on DK who easily appreciate the fact that Obama has been a far better President than his detractors (major detractors, certainly, but even minor detractors) claim he has been. In short, I've never before written of Pres. Obama in terms even as negative as those that follow.
But, has he left any other alternative?
Text of the recent speech by Pres. Obama
DK Diary #1, War on Error
DK Diary #2, by Phoebe Loosinhouse
The key, to me, is the inclusion in his speech of the following language - "But as home prices rise, we can’t just re-inflate a housing bubble. That’s the second thing I’m here to talk about today: laying a rock-solid foundation to make sure the kind of crisis we just went through never happens again.
That begins with winding down the companies known as Fannie Mae and Freddie Mac. For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag. It was “heads we win, tails you lose.” And it was wrong."
A couple of things. (1) It was exactly the private lenders/big banks that Pres. Obama wants to replace Fannie and Freddie with who inflated both the housing and mortgage bubbles that burst in unison in 2007-2008; (2) It was exactly the big banks that provided no societal benefits in that crisis scenario, while requiring far bigger bailouts than Fannie and Freddie did; and (3) Only the big banks, and no other part of our society/economy appear to be posed to reap windfalls from the abolition of Fannie and Freddie being proposed.
I first became aware of the major concerted effort of the big banks to eliminate Fannie and Freddie sometime in the 1998 to 2000 time frame. When I came out of prison in 1993 I had friends who made an opening in mortgages for me. I started at the bottom but was well in middle to upper management by 1998. Along the way I started to see, in industry press, the catch phrase "taxpayers holding the bag", and quickly came to understand that that meant that the big banks wanted to "abolish the implicit "Full faith and Credit" guarantee of the federal government that Fannie and Freddie function under because of having been created by Congressional Charter". In short, that means that Fannie and Freddie can always beat the posted 30 year fixed loan rate of the big banks by at least 1% because everyone believes that the feds will bailout F & F easily, whereas, everyone also believes that the big banks, by virtue of being too big to fail, can also get bailed out, but with a bit more effort, and at an end cost of enough to require a 1% higher mortage interest rate to make up for the difference in the two situations.
So the big banks started to really, really, really do some things, starting around 1998 to try to make up the difference. First, they started a major lobbying push to try to get F&F abolished, expensive but being able to finally get cut into a multi-trillion dollar lending segment that they had been virtually cut out of is no small potatoes. Next, they increased their focus on construction lending, and lending to landlords, knowing that, because F&F simply did none of that type of business they would face no F&F competition in these areas. (The down side for the rest of us, of course, was the whole housing bubble, as distinct from the mortgage bubble. All of the actual speculation on housing overconstruction occured over in this arena, and F&F don't have fingerprint one in this crime scene.) Lastly, and in spite of their myriad screams of innocense, only the big banks (and not Fannie, Freddie, FHA, or VA at all) carried the banner of "Homeownership For All" to the ridiculous extremes that resulted in "The Mortgage Bubble".
"The Mortgage Bubble" means two seperate things, in the context of current events. (1) Too many people who couldn't really pay for houses ended up being on the hook for the loans they were given to make home purchases. And the big banks caused almost 100% of this outcome, because only they did "No Income, No Down Payment, Bad Credit, and Teaser Starter Rate" "Mortgage Products". (2) And the other critical role played by the Big Banks was that only they, with their vast armies of financial wizards in the back room, conned "The Main Street Part of Wall Street" into believing that there was any substance to their version of "Collateralized Mortgage Securities" that ended up being the smoking mountain of financial turds that ultimately came only a whisker away from collapsing the entire worldwide economy.
And we all know how that worked out.
But what seems to be missing at this point is why Pres. Obama wants to go for Round Two (on steroids?) of a guaranteed replay of "The Great Recession".
Is the only answer that we can come up with really to put the fox in charge of the henhouse?