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    the maximum leader has a palpable mind..., 2008-10-11 23:16:49 | Main | cubism at the magical sausage factory..., 2008-10-13 18:10:01

    another $480 billion a year on top of that $700 billion bailout on top of pouring unlimited liquidity into the banks so they can buy more treasury bills:

    Oct. 11 (Bloomberg) -- Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

    Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

    One way of demonstrating - contra conservative bleeting - that the housing bubble wasn't entirely the fault of the GSEs was observing that their conforming loan limits and underwriting requirements, as banking entities that had regulations to follow, forced them to limit their exposure to "toxic" loans. Those regulations also forced them to lose market share as the bubble continued its exponential expansion after 2003 on the basis of said toxic loans. Further evidence can be provided from there to point out that the GSE's mortgage backed assets have much lower default and foreclosure rates (rising, nevertheless) than those in the rest of the private market. GSE entry into subprime and alt-a didn't occur until 2005, which was, by that point, dominating the market as brokers pushed even prime borrowers into toxic mortgage terms.

    During the bubble, Freddie and Fannie lobbied congress to loosen those standards (multiple times) so they could preserve their diminishing market share, now the government is using the nationalized institutions to do more of the same. It won't be long before some some small government hack - with a blood oath to Alan Greenspan to uphold - uses the future default rates from this expansion of the GSE's toxic holdings to argue that the whole thing was all their fault in the first place. Not that not having any data to support that argument is keeping these people from making it anyway.

    Restricting their growth and tightening those regulations - as some suggested after the GSE accounting scandals - would have been a good idea, but it wouldn't have done anything if the outright predatory behavior of subprime non-conforming mortgage brokerages hadn't been reigned in and the ponzi scheme shut down. Other ABS issuers presumably would have just taken more of the GSEs' market share than they already had, creating even worse loans and a bigger disaster because they were hawking the ARMs and interest only balloon mortgages that the GSEs were still lobbying to get more action on when the bubble burst.


:: posted by buermann @ 2008-10-13 11:12:22 CST | link





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