Fannie Mae, Freddie Mac Should Be Eliminated, Barney Frank Says

[392cobra]

I wouldn't trust him to overhaul his own vibrator let alone the two screwed up institutions he has defended and milked for the past 20+ years.


A top House Democrat on Friday said his committee was preparing to recommend "abolishing" mortgage-finance giants Fannie Mae and Freddie Mac and rebuilding the U.S. housing-finance system from scratch.

"The remedy here is...as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," said Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee.

The Obama administration said it will weigh in on how to revamp the companies—and the entire housing-finance system—when it releases its budget next month. Republicans have increasingly criticized the administration for moving to overhaul the financial sector without spelling out plans for Fannie and Freddie.

http://online.wsj.com/article/SB1000...391608940.html

[Dan40]

I'd guess he doesn't want them just abolished, he wants all their records burned too!

[fastd]

If the Enron guys deserved to go to jail, Frank deserves to be burned at the stake; in my opinion, he is personally responsible for more pain and suffering than Katrina.

[Excaliber]

How ironic that these institutions were set up in the 1930's to deal with widespread foreclosures as a result of the Great Depression. It was a way to stablize home values at the time. They went "private" in the 1960's and like some giant banks were simply to big to let fail this time.

The replacement process should be two fold.
1. They can't be SO BIG they cannot be allowed to fail. Same principal Obama is looking at now for other corporations. Size has to be limited in some way.

2. This is the tricky part, Government run or privatized? It really wasn't clear before, it was "private" but it was also "quasi Government". I'm not sure what the best approach is on that issue.

In casting "blame" (we are SO good at that here ) you have to look at the private sector managers as well as the Government on this one.

[Excaliber]

Until the recent Government takeover these were the primary owners of Freddie Mac.

Vanguard Group, Inc.
Horizon Asset Management, Inc.
Loomis, Sayles & Company, L.P.
BlackRock Institutional Trust Company, N.A.
Capital Research Global Investors
State Street Global Advisors (US)
Geode Capital Management, L.L.C.
California Public Employees' Retirement System
Susquehanna International Group, LLP
RiverSource Investments, LLC
Charles Schwab Investment Management, Inc.
BNY Mellon Asset Management
MRM-Horizon Advisors, L.L.C.
Northern Trust Investments, N.A.
Steadfast Financial, L.L.C.

WHY did THESE institutions lower their lending standards? In a word "derivatives". It had FAR less to do with making "minority loans". It was all about "making money", they really didn't care WHO you were, toward the end, or even how much you made. Everyone was fair game because the market was driven by derivatives, not Government standards or guidelines.

[fastd]

It's not the size of the banks or Fannie/Freddie; it is the way that they are run, the way that government distorts incentives. If the focus is just on size, the problems will not get solved.

[Excaliber]

So in doing some basic research on derivaties I came across a 1,500 plus page book that cost $410, "Derivatives for Dummies", it was not. No, I did not buy the book!

Some highlights:
In 2002 the market was about a 100 trillion dollars, so these are major players in the market. Around 2008 that had increased to over 500 trillion. It wasn't just a major market anymore, it was THE market!

Incredibly complex very few people actually understood HOW they worked or the ramifications if they didn't. But they were a money maker, so party on!

The SEC used regulatory standards setup by "International Swaps and Derivatives Association", (wolf guarding the hen house right there).

I believe this was the KEY item responsible for our economic melt down. I don't have a clue how to regulate them. But more troublesome, I'm not sure the SEC or anyone in Government quite has a handle on how to regulate them either.

fastd your point about size is well taken. We can spread the load out to smaller companies, but the end result may effectively be the same. If they ALL go broke, were right back where we started! Instead of a few companies, it's now's hundreds, end result, same same.

[Dan40]

E,

While you're in the research mode. Go back and find how derivatives came to be allowed. How investment firms and banks came to be allowed to be connected. How sub standard loans came to be permitted. How banks came to be allowed to take risks with depositors money when once that was completely prohibited.

And don't worry, the fault will NOT be with Liberals and/or Democrats. Both parties changed/altered/repealed long established working regulations and Presidents of both parties signed the incipient problems into law.

BE highly suspicious of any "new' regulations proposed, imposed, on the financial world. Simple solution, reestablish the old regs that were tossed aside for political expediency. [Some large personal fortunes would be lost] See how they function in today's world, then if necessary adjust those regs. Take the known, avoid another unknown with its inherent, unintended consequences.

[Anthony]

Originally Posted by 392cobra

A top House Democrat on Friday said his committee was preparing to recommend "abolishing" mortgage-finance giants Fannie Mae and Freddie Mac and rebuilding the U.S. housing-finance system from scratch.

"The remedy here is...as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," said Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee.

The true remedy would be changing the system that allowed fannie mae/freddie mac to be what they became.

I think Fannie mae and freddie mac are the very tip of our economic problems. The real problem is deeper rooted.