Wednesday, August 31, 2011

The Fed Gallops to the Aid of…..Fannie and Freddie??

Scary Perry

Listening to some of the campaign rhetoric, it’s very scary that the GOP race seems to be include a stirring debate over which candidate can argue most convincingly that he or she is closest to God and therefore better qualified to lead the Republican Party in the 2012 presidential election.

Nothing wrong with a strong personal religious faith, but whatever ever happened to people demanding leaders intellect, who comprehend market forces, sound judgment, a world view compatible with the people you want to lead, and some compassion (“walk a mile…”) other than religious passion?

Texas Governor Rick Perry, the “Republican proselytizer in charge” and front running GOP presidential candidate, isn’t President, yet—nor has won his party’s nomination—but already he has convicted Fed Chairman Ben Bernanke of treasonous acts, or at least says BB is guilty of such.

“If you can’t understand it, throw rocks at it,” seems to be the new mantra as per Perry’s indictment of our central bank and its Chair. (Wait till Perry realizes that Bernanke isn’t a Christian.)

After suggesting that any new Fed stimulus would be treasonous--and Bernanke along with it--Governor Perry campaigning in Iowa said, “I don't know what you all would do to him (BB) in Iowa, but we would treat him pretty ugly down in Texas.”

I advise never uttering the name “Bilderberg” in front of Governor Perry!!

The Fed GSE Report

The Bernanke, Fed and GOP nexus is germane, since the Fed economists have just published a report debunking the GOP’s core rampart that Fannie Mae’s and Freddie Mac’s low income lending and the complementary federal affordable housing goals were responsible for the 2008 US/world financial collapse. (See American Banker story at the end of this blog.)

The Fed found quite the contrary. The GSE lending was far superior to the poorly underwritten private label subprime mortgage securities which Wall Street produced in the billions and then sold world wide infecting financial institutions in every modern country.

The Fed report supports those who have been arguing this point for some time but I doubt likely will have any major impact on the Right because the Fed shatters that which the conservatives stand on when they argue against any federal role in the nation’s mortgage finance system, i.e. “look at how bad Fannie and Freddie performed.”

Some Implications

So the Fed becomes the latest institution to take on all of the tree killing studies produced by the American Enterprise Institute and its gurus, Peter Wallison and Ed Pinto.

The central bank’s work is another in a series of assaults on Gretchen Morgenson’s poorly researched (note the number of factual errors) book, claiming Jim Johnson stewardship of Fannie Mae and the company’s affordable lending under Johnson led to the 2008 Armageddon.

And the Fed’s work also dumps a whole lot of cold water on the fiery anti-Fannie/Freddie rhetoric of many on the Right, including the Chairman of the Selection Deficit Committee and senior member of the House Financial Services Committee, Rep. Jed Hensarling (R-Tex).

But, will they care about facts?

The only personal comment I’ll add is to remind that the Federal Reserve Board never has been considered a Fannie/Freddie friend, quite the contrary when Alan Greenspan (he of the plummeting personal legacy) was Chairman.

Cheney and McCain

I won’t buy Dick Cheney’s new book or put a penny in his pocket, but I’ve enjoyed reading excerpts about what he says about well known political figures.

Thinking back to the 2008 presidential race, when a scrambling candidate John McCain tried clumsily to employ Fannie and Freddie as cudgels to beat Barack Obama politically about the head and body--ironically, using many of the arguments which the latest Fed report dismantled--McCain temporarily put on hold his (failing) campaign in the summer of 2008 to call for an emergency all hands “economic summit” in DC.

Cheney offers the following observation of the Arizona Senator at the summit meetings, which McCain hoped would make him appear statesmanlike and above the daily campaign political fray.

“Senator McCain added nothing of substance. It was entirely unclear why he'd returned to Washington and why he'd wanted the congressional leadership called together. I left the Cabinet Room when the meeting was over thinking the Republican presidential ticket was in trouble.”

Maloni, 8-31-2011

Fed Economists: CRA, Housing Goals Not to Blame for Financial Crisis
American Banker
By Joe Adler
August, 29, 2011
A new Federal Reserve Board report refutes the claim by some that the Community Reinvestment Act and affordable housing goals of Fannie Mae and Freddie Mac caused the mortgage crisis.

"We find little evidence that either the CRA or the" affordable housing "goals played a significant role in the subprime crisis," wrote senior Fed economists Robert B. Avery and Kenneth P. Brevoort in the report titled "The Subprime Crisis: Is Government Housing Policy to Blame?".

To test the claim forwarded by several conservatives that the policies are culpable, the central bank essentially compared loans backed by the two policies with those that were not. In one analysis, Fed researchers compared mortgages between CRA-covered and non-CRA-covered institutions. In another, they compared certain geographic areas known to benefit from the CRA and the housing goals set by the government-sponsored enterprises with other areas. In both tests, no link between the two initiatives and higher proportions of troubled loans could be found.

"Using a variety of indirect tests, we find little evidence to support the view that either the CRA or the GSE goals caused excessive or less prudent lending than otherwise would have taken place," Avery and Brevoort wrote.

Rather than find higher delinquencies in areas served by the CRA, the economists wrote, "In fact, the evidence suggests that loan outcomes may have been marginally better in tracts that were served by more CRA-covered lenders than in similar tracts where CRA-covered institutions had less of a footprint.

"Loan purchases by CRA-covered lenders also do not appear to have been associated with riskier lending. Additionally, this analysis found no evidence that either the CRA or the GSE goals contributed to house prices appreciation during the 2001-2006 subprime buildup," they wrote.

1 comment:

Bill Maloni said...

Here's a link to the Fed's study.