Von Aldo

The Government's Hunt for the REAL Crooks

Reason magazine, one of my favorite magazines, has an excellent cartoon today depicting where we should really place much of the blame for the credit/housing bubble of the Naughties.

The Irresponsible Fannie Mae Hint: It wasn't just greedy Wall Street, or the greedy shadow banking system or, in particular, the greedy GODman Sachs. Frankly, the present situation (housing bubble, bust and stimulous package) reminds me of a Homer Simpson line: "Here's to alcohol. The cause of ---and solution to --- all of mankind's problems."

That's because government helped cause the problem and now supposedly is going to cure it. Heh. Funny. As Roger Lowenstein notes in his book, The End of Wall Street, the root of the credit/housing bubble go way back, way back to the establishment of Fannie Mae in the late 1930s. That's because Fannie got so huge and was running into financial trouble, that LBJ had to move it off the gub'ment's (say with a militia accent) balance sheet --- by selling shares to the public with the implicit (now explicit) caveat that the gub'ment would save it. Lowenstein notes that before the housing crash finally came, Fannie together with Freddie Mac (created in the 1970s to give Fannie competition) came to represent in 2008 about half of the $11 trillion mortgage market (either originating or buying). The government sponsored enterprises had been lowering loan standards because home ownership was thought to be "good." Well, it is for some people, people who can pay.

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