Very Excellent Response To Fellow Traveler Apologists: "Honest critics don’t do that"
I think Tim Howard really hits the nail on the head in his comments here:
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QUESTION FROM: Anon
JANUARY 13, 2017 AT 2:19 AM
Tim, I find it hard to believe that the anti gse narrative was concocted by evil banks for profit purposes and pushed by influential players in wall st and washington in a highly orchestrated and deliberate manner, as if by some master plan for wall street to conquer the mortgage market. Isnt it far more plausible that having the government sponsor private entities is a controversial concept and that these guys honestly believe that gses are fatally flawed? im talking about the WSJ, stevens, demarco, parrott, summers, greenspan etc. It seems to me that grouping them and labeling them as the Financial Establishment is oversimplifying the issue and underestimating the challenges to releasing f&f back into the private markets
REPLY FROM: jtimothyhoward
JANUARY 13, 2017 AT 9:13 AM
Grouping all of the opponents of Fannie and Freddie into a single category and calling them the Financial Establishment IS an oversimplification but not a distorting one, and I think one that enhances understanding of the situation rather than muddies it.
The primary objections the people I collectively group as the Financial Establishment have to Fannie and Freddie are ideological, competitive and political. The ideologues do not believe that Fannie and Freddie should have a unique charter that gives them benefits other companies do not have. The competitors share this view (while conveniently ignoring the fact that the U.S. commercial banking system would not exist as we know it without government-insured consumer deposits, and that the Federal Reserve drops market interest rates–banks’ cost of funds–whenever that industry gets into difficulty) because restricting Fannie and Freddie’s business, or eliminating them, would give those competitors more control over the terms and pricing of the $10 trillion mortgage market, and allow them to make more money. And the political opponents view Fannie (in particular) as a “Democratic” company.
Is it reasonable to believe that these three groups of opponents “honestly believe that GSEs are fatally flawed?” No, for one simple, and I think undeniable reason: to support their arguments for restricting Fannie and Freddie’s business or eliminating them, these opponents routinely distort the truth or simply make things up about them. Honest critics don’t do that.
Take the “flawed business model” claims. The real, incontrovertible, “flawed business model” leading up to the crisis was private-label securitization. Fannie and Freddie’s opponents NEVER mention private-label securities, or the fact that the complete lack of regulation of this “private market” mechanism allowed everyone who participated in it to make money from loans that had little chance of being repaid, because all the credit risks were shifted to investors who were relying on inflated AA and AAA credit ratings, bestowed by rating agencies paid by the issuers and who had no skin in the game themselves. And the critics of Fannie and Freddie who blame these companies for the financial crisis also ignore the fact–available to anyone who cares to check–that in the three years leading up to the crisis, private-label securities financed more home loans than Fannie, Freddie and Ginnie Mae securities combined, and that the subsequent credit losses on those private-label securities were nearly EIGHT times the credit loss rate of loans purchased or guaranteed by Fannie and Freddie. Critics of Fannie and Freddie simply pretend that the disastrous private-label securitization experience never happened, and counterfactually blame Fannie and Freddie for the crisis.
So, no, it’s not honest opposition. But I do agree with you that releasing Fannie and Freddie back into the markets will be a challenge. People who do not play fair also fight hard.
