How much did Fannie/Freddie contribute to housing bubble/housing market collapse?

Reply

Kenneth replied on Sun, May 9 2010 5:21 AM

rated by 0 users

Don't try to wrestle with him in citing sources and evidence. Go straight to deductive logic. There's a bailout reader here in mises.org. That should be of great help.

But the short answer to that question is that government had everything to do with the housing bubble. They were trying to create a 'homeowner's society' with the Fed lowering the interest rate.

That was the main cause. It was exacerbated by the Community Reinvestment Act which allowed poor people to access home loans they could never pay and then Fannie and Freddie, both government entities, securitizing subprime mortgages.

Reply

Sol Mr replied on Tue, May 11 2010 7:53 PM

rated by 0 users

Cool, thanks.

What was Fannie/Freddie's involvement in securitizing submprime mortgages? How much did that contribute to the housing bubble? Or the financial crisis?

Reply

Esuric replied on Tue, May 11 2010 8:16 PM

rated by 0 users

I'm in an argument with a Keynesian who says that government intervention was of little to no significance in the creation of the housing bubble or the housing market collapse and subsequent financial crisis and recession.

He's not a Keynesian; he's an idiot. But to answer your question: Fanny and Freddy had little, if anything, to do with the housing collapse. They did help inflate the bubble, but they did not cause the bubble.

What was Fannie/Freddie's involvement in securitizing submprime mortgages? How much did that contribute to the housing bubble? Or the financial crisis?

Fanny and Freddy created secondary markets for MBS's which artificially elevated their values, and made them extremely lucrative investments for other financial institutions.

Reply

Bogart replied on Tue, May 11 2010 9:45 PM

rated by 0 users

Fannie and Freddie are simply government spending programs that the bust in the mortgage marked proved to be bad business models.  They did not cause the bubble as was stated previously.  Bust and boom business cycles are the resut of artificially created money and/or credit originating at the central banks and amplified by fractional reserve banking.

Absent the central bank and government provided banking insurance, the other banks would have much more difficulty staying in business and keeping the reserves high enough to keep depositors. 

Reply

Sol Mr replied on Tue, May 11 2010 11:43 PM

rated by 0 users

Thanks for the replies. I repeated what you said about the 'homeowner's society' and low interest rates and he said this:

"Er, no.  The interest rate was kept low to stimulate the economy, and the housing bubble was an unfortunate side-effect no one wanted.  Now again, whether the interest rates were held too low for too long is a debatable point.  What isn't debatable however is that all the justification for it wasn't to stimulate home ownership, but to stimulate the economy.  I'd be curious to know where you lifted this little gem from, because I haven't heard this from even the nuttiest of nuts.

I'll give you some free ones here, incidentally.  Greenspan was in denial about the housing bubble.  That there is this much power concentrated in the hands of (roughly) one person is now appearing to be highly questionable, as it seems Greenspan's free market ideology has blinded him to some fairly obvious things, some of which he's admitted to already.

The trouble seems to be that the regulators failed to regulate."

Reply

replied on Wed, May 12 2010 3:24 AM

rated by 0 users

Would it be fair to say that low interest rates, channeled by the CRA and FHA, and abetted in its later stages by Freddie/ Fannie legitimizing the worst aspects of what I'll term the speculative distortion, blew up the bubble? Your friend sounds wedded to the Keynsian principle come hell or high water, but it seems credible (admittedly, to an entrenched Misesian) to ask why, if the low interest rates meant to "stimulate the economy" can so easily be diverted into specialized, distortion-inducing speculative booms, we should tolerate it.

Reply

jmorris84 replied on Wed, May 12 2010 8:11 AM

rated by 0 users

Sol Mr:

Thanks for the replies. I repeated what you said about the 'homeowner's society' and low interest rates and he said this:

"Er, no.  The interest rate was kept low to stimulate the economy, and the housing bubble was an unfortunate side-effect no one wanted.  Now again, whether the interest rates were held too low for too long is a debatable point.  What isn't debatable however is that all the justification for it wasn't to stimulate home ownership, but to stimulate the economy.  I'd be curious to know where you lifted this little gem from, because I haven't heard this from even the nuttiest of nuts.

I'll give you some free ones here, incidentally.  Greenspan was in denial about the housing bubble.  That there is this much power concentrated in the hands of (roughly) one person is now appearing to be highly questionable, as it seems Greenspan's free market ideology has blinded him to some fairly obvious things, some of which he's admitted to already.

The trouble seems to be that the regulators failed to regulate."

 

Ask him how that stimulus worked and what the result of it was.