That's the thing though, Ted, like so many of things government attempts to do ... power was consolidated to control the free market ... and it was then deliberately abused.
Government power over such things needs to be limited. The market goes up and down naturally without government involvement ... but with massive government control the swings become both radical and unnatural.
Hi NH,
I hear your complaint and I agree to a point that government involvement can be troublesome in some situations. However, I'm just clarifying your position in which you blame Fannie and Freddie for the collapse. I think when you get to the very bottom of the reason for the collapse you'll find a lot of greedy financiers. Investors who wanted more and more money from mortgage backed investments and lobbied to loosen the controls that regulated who could obtain one. As my last post seems to make clear, it wasn't the government backed mortgages that failed as much as the private bank underwritten mortgages.
Here's another article that points out that one of the largest parts of the collapse was private institutions trying to take market share away from Fannie and Freddie. That it is was actually congress, as I briefly mentioned before, that continued to push Fannie and Freddie into a greater risk position. I'm certainly not trying to say that Fannie and Freddie didn't have a large part in the collapse, but I don't believe that they were the biggest piece of the puzzle. As is also mentioned in the article, the U.S. treasury, through dividend payments, have recouped much more from both Fannie and Freddie than they ever put in to bring them back to reasonable solvency. Now congress is trying to make things tougher for Fannie and Freddie by severely limiting their ability to hold assets and capital that would protect them from short term default.
Also as the article mentions, Fannie and Freddie were first conceived in an effort to put more money into the mortgage market so that more and more Americans could achieve the American dream of home ownership. They have consistently done that by freeing up the money that private banks lend for mortgages. So, we can get rid of Fannie and Freddie, but then you're going to leave banks holding all their own mortgages and there won't be as much money to lend out for mortgages.
This will, as simple supply and demand economics shows, raise mortgage interest rates. Banks will want to get the most bang for their buck since they would now have to hold their mortgage securities for the full 10-15-30 years of the life of a mortgage. What a bank would lend you today, since it will be their money out there for the life of the mortgage, won't be available for the next guy. So, as with most everything, there are pros and cons to the system. One of the pros is that more people can own homes with affordable mortgage rates. One of the cons is that all that mortgage debt that is out there is going to be held by one centralized company. As long as everyone pays their bills, the con isn't particularly troublesome. But, even as we saw in this latest downturn, because Fannie and Freddie do make money on their mortgage securities, when things turn around they can pay back their loan from the federal government.
It might be well worth considering that if individual banks had held all of their own mortgages, which is what will happen if Freddie and Fannie disappear, then the crash likely would have caused a lot more banks to close their doors. Guess who foots the bill if banks go under? Under the FDIC program...you would. When a large bank closes up shop due to insolvency, all their deposits that are guaranteed under the FDIC program, are paid by the federal treasury which supports the FDIC.
So, even if Fannie and Freddie hadn't existed in 2008, you'd still have had to foot the bill for failed banks. The federal treasury would still have had to make massive loans to keep banks afloat. With Fannie and Freddie, at least the government is able to make the rules as to how they will get paid back. If the government had to loan out those same boatloads of cash to 500 different banks, there's no guarantee that they would have recouped the money and surely not as quickly.
While so many people decry that the federal government bailed out a bunch of banks and large corporations in this latest crash, the facts after the event was over show that the federal government got pretty much all of the money it had spent and then some in the dividend and stocks that were issued for the loans. However, the real reason our debt remains so high is that instead of using the repayment money to retire the debt, the federal government just absorbed it back into liquid funds of the treasury and went on a big spending spree. So, instead of the government, when they got the money back, going out and repurchasing a lot of the bond debt that the crisis created, they just left the bonds out there as continued debt while they took the repayment money and spent it elsewhere.
All I'm asking is that we be fair and somewhat knowledgeable about the cause and effect of the mortgage crisis and the continued national debt that we have. While Fannie and Freddie are certainly not without blame in all of this, their's isn't the lion's share of the problem.
Now, I'm no financial wizard and I welcome anyone to correct anything I've written here. But in the smattering of research that I've done, this is what I've gleaned, now that the crisis is over, with why the crisis came about and why our debt is still so high despite the governments claim that they've recouped more than they paid out. So far as I know, there has been no debt retirement from the monies received from any of the repayment.
Source:
Fannie Mae, Freddie Mac And The Credit Crisis Of 2008
The Real Plan to Pay Off the Debt (this is an old article and so the numbers don't reflect what we see today, but the plan is the same)
If we really want American independence from foreign nations, I'd vote for forgetting about oil and try to stop selling them our debt.
God bless,
In Christ, ted