The Homa Files

Excerpted from WSJ: “The GOP Blames the Victim”, Thomas Frank, Oct. 1, 2008

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“Capitalism sure is fragile if subprime borrowers can ruin it.”

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We hear from some on the right that the disaster on Wall Street was the handiwork not of those with unbridled pecuniary motives but of Fannie Mae and Freddie Mac, which were government-sponsored enterprises and therefore partially exempt from market discipline and of theoretical necessity the sole culprits.

There is no doubt that Fannie and Freddie enabled the subprime neurosis, but for certain conservatives they are virtually the only malefactors worth noting.

The dirge goes like this: Fannie and Freddie were buying up subprime mortgages, and they were doing it for (liberal) political reasons. Mortgage originators thus had no choice but to hand out mortgages like candy. Had market forces been in charge, loans would, no doubt, have been administered with (more) rigor and sternness

Bill Black, a professor of economics and law at the University of Missouri-Kansas City and an authority on the Savings and Loan debacle of the 1980s, … points out that, for all their failings, Fannie and Freddie didn’t originate any of the bad loans — that disastrous piece of work was done by purely private, largely unregulated companies, which did it for the usual bubble-logic reason: to make a quick buck.

Most of the mistakes for which we are paying now, Mr. Black told me, were actually made “by four entities that under conservative economic theory should have exercised effective market discipline — the appraisers, the originators of the mortgages, the rating agencies, and the investment banking firms that packaged the subprime mortgage-backed securities.” Instead of “disciplining” the markets, these private actors “served as the four horsemen of the financial apocalypse, aiding the accounting fraud and inflating the housing bubble.” It is they, Mr. Black says, who “turned a crisis into a catastrophe.”

Ah, but truth is no ally to a conservative with his back to the wall. So much more helpful are the trusty narratives on which the movement was built. So when we have dispatched this first canard, we learn from other conservatives that it is the sub-prime people who are to blame; that by taking out loans they couldn’t possibly pay off, these undesirable borrowers have ruined us all.

Full article:
http://online.wsj.com/article/SB122282690823092989.html

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Ken’s POV:

Bailing out greedy Wall Streeters irks most folks– me included.  So does bailing out people who lied on their mortgage application (even if coached to do so by an unscrupulous originator), who put little or no money down, and made few if any payments (some of which may have been interest only — at low teaser rates).  These folks are culpable, too.  “Keeping them in their homes” is nonsense.  What makes them “their” homes ?

Denying government’s role in encouraging the drop in loan criteria is also nonsense.  Fannie and Freddie played a  mega-role in creating the crisis.  Period.

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This entry was posted on October 1, 2008 at 7:45 am and is filed under Government & Politics, Mortgage Crisis. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.