Arnold Kling  

Why We Have Freddie and Fannie

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The Wall Street Journal reports,


The Securities Industry and Financial Markets Association, Wall Street's main lobbying group, said in a proposal submitted to the Obama administration on Wednesday that the government couldn't completely exit the mortgage market without sending costs sharply higher for consumers.

As a consumer, are you anxious to keep Freddie and Fannie there to hold down costs for you? Well, you should be glad that the Securities Industry and Financial Markets Association is there to speak on your behalf. After all, they have no self-interest involved in steering the mortgage financing system through Wall Street. They just care about you. And when Congress votes to structure Freddie and Fannie along the lines that these helpful folks suggest, it is because Congress cares about you, too.

Thanks to Kevin Villani, via email, for the pointer.

[UPDATE: Megan McArdle is in a similar mood.]


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COMMENTS (8 to date)
PJens writes:

As a taxpayer, I am not anxious to see Freddie and Frannie continue business as usual with ever increasing federal subsidy. I could really use Congress helping me less, especially with bailouts and subsidized programs.

aez writes:

Beautifully savage. Thank you for the catharsis.

William Barghest writes:

bravo.

DCPI writes:

I am surprised that this is not getting more attention at a time when politicians are criticising Wall Street not making loans:

From Anusha Shrivastava, Dow Jones Newswire

Asset-Backed Securities Rating agency DBRS has joined three other agencies in saying it would not allow its name to be used as an "expert" in filing documents for asset-backed securities with the Securities and Exchange Commission.

The "expert" designation would expose the rating agencies to liability from which they had been shielded until a change in the financial reform bill.

"The inclusion in the offering documents are an unacceptable risk," said Dan Curry, president of DBRS Inc., noting that the expert liability is "really the standard for an auditor" and should not be used for rating agencies since their opinions are "an attempt to predict future outcomes."

McGraw-Hill Cos.' (MHP) Standard & Poor's Ratings Services, Moody's Corp.'s (MCO) Moody's Investors Service and Fitch Ratings have all said in the last few days that they would not allow issuers to use their ratings in SEC filings because of the potential increase in costs associated with the greater liability.

Industry participants expect consumer loan and commercial mortgage-backed issuance to move to the private Rule 144a market because of this change.

This week, no public asset-backed deals have been issued. Last week, about $3 billion in such bonds were sold.

[Original link changed and properly credited--Econlib Ed.]

Joe in Morgantown writes:

Kling hits another home run. Well done, sir!

Aaron writes:

Shouldn't it read:

the government couldn't completely exit the mortgage market without sending marginal costs sharply higher for consumers
Brian Clendinen writes:

Honestly with the exception of stripping the Derivates language from the bill. I would of compromised on the Financial Reform bill and voted for it if it included total elimination of Freddie and Fannie. The cost and risk the financial bill presents is only a small fraction of what Freddie and Fannie present. Or so I think, considering the amount of critical decision making the bill leaves up to regulators I could be totally wrong. The bill is to complex and vague for anyone to have any reasonable idea what the full extent of the impact will be.

Freddie and Fannie underwrite what something 70%+ of all primary mortgages on primary homes now (not sure where to get the most recent figures)?

Guy Noir writes:

Perhaps, for the peanut gallery, you might want to put [smirk] or [sarcasm alert] into your text. I picked up the obvious sarcasm, as did many in your audience. I'm sure some think you are actually happy that "Securities Industry and Financial Markets Association is there to speak on your behalf". I think we have plenty to say, aside from what these lobbyists wish to say.

Also, having spent years actually working for the NASD, I do not think the quality of government regulators is somehow going to magically rise, and therefore allow for all the centralized decision making the new regulations envision. We do know, however, that the SEC does not have to respond to FOIA requests thus making it very difficult to figure out WHY they screwed up.

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