Fannie And Freddie: We’ve Fixed Nothing

foreclosures Courtesy of Karl Denninger at The Market Ticker

June 14 (Bloomberg) — The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Uh, how?

Remember, the government has funded $145 billion thus far. Where is the rest of the money going to come from?

This year, thus far, $730 billion has been borrowed by Treasury beyond tax receipts – and spent. $1.5 trillion, roughly, on an annualized basis.

Where will we find the other trillion dollars?

Neither political party ~~wants to risk damaging the mortgage market~~ wants to admit it has run a 20-year long Ponzi scheme, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and White House economic adviser under President George W. Bush.

“Republicans and Democrats ~~love putting Americans in houses~~ are both looking for ways to maintain that Ponzi for just one more day, and there’s no getting around that,” Holtz-Eakin said.

Now there’s a bit of truth. Oh wait – that was mine, not Holtz-Eakins 🙂

“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”

Really? So intentionally making loans that can’t be paid back and then bailing out not only those people but the firms themselves, after they got caught cooking their own books and unleashing a phalanx of lobbyists to ~~discuss things with~~ threaten Congressfolk is a good idea?

“Do we really want to go to the central bank of China and say, ‘Tough luck, boys’? That’s part of the problem,” said Karen Petrou, managing partner of Federal Financial Analytics Inc., a Washington-based research firm.

Yes. It’s called "market discipline." It is also called fair disclosure, which the buyers of said paper had:

What part of that – on the face page of the prospectus of every offering – is difficult to understand?

By delaying action, the Obama administration ~~keeps losses off the government’s books~~ lies about the government’s liabilities while ~~building a floor under housing prices~~ also lying about housing values during a congressional election year.

Yes, "extend and pretend" worked so well for Iceland and Greece.

Allowing the companies to go under and hoping that private financing will fill the gap isn’t realistic, analysts say. It would require at least two years of rising property values for private companies to return to the mortgage-securitization market, said Robert Van Order, Freddie’s former chief international economist and a professor of finance at George Washington University in Washington.

Absolute nonsense.

There is a price at which private financing will loan money for houses. The standards will return to reasonable risk management, meaning 20% down and a 36% "back end" ratio, but money from private sources under such lending standards would fund the market now.

What won’t (and can’t) happen is the idiotic "lend money with no security and on unsound metrics" sort of bubble-style Ponzi Finance that built and maintained the housing bubble.

But that’s a good thing, not a bad one, as it is precisely that idiocy that led to the collapse.

Do you really want to repeat that bout of stupidity?

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Picture credit: Jr. Deputy Accountant