Blaming Reagan? He's been dead a few years now, hasn't he?

Fannie was created in 1938 by Franklin Delano Roosevelt as part of the New Deal, and not privatized until 1968 (by a Democrat, LBJ, in order to delever the U.S. balance sheet and free up more borrowing for the Vietnam War), while Freddie was created by the 91st U.S. Congress in 1970 (in which Democrats held a majority in both houses.

The Republicans have loathed them ever since, seeing them as unfair competition to the likes of Citibank, Wells Fargo, etc. The Wall Street Journal has editorialized against their unfair advantages as government sponsored enterprises for years, but Wall Street enjoyed the gravy train of debt and preferred stock offerings and the GSE's prospered during the 80's and 90's.

The Democrats have treated them like a "fair housing" piggy bank from the beginning: their most aggressive lending practices were necessary to satisfy congressional mandates for increased lending to first time home buyers, borrowers with small downpayments, and racial minorities. The most recent "backstop" bill included $800 million worth of new GSE mandated giveaways.

The guy who ran Fannie into the ground was Franlin "Delano" Raines, an alumni of the Carter Administration and Clinton's OMB Director.

Certainly, Fannie and Freddie have lobbied both sides of the aisle in Congress (and both parties have appointed their share of political hacks to the BoDs, like Molly Bordanaro), but it is patently unfair to lay their failure at the feet of the Republicans. This was a bipartisan train wreck if there ever was one.

Deregulation, son. It's what the Gipper was all about. And that's what brought about this debacle. FDR is rolling over in his grave.

I know that to you, all ills in this country must have started eight years ago or more, but sorry, it's not true here. This is all part of the Reagan-Bush ideology, which will only get worse if the Almost Dead Guy and Miss Congeniality take over.

Republicans may kill them off (or renationalize them), but the seeds of the GSE's destruction have been planted, fertilized and irrigated by more Democrats than Republicans. Ask Darlene Hooley if you won't believe me. She'll give you the straight story.

The mega-banks arose in the 1990s, when a Democratic President and Republican Congress repealed the Glass-Steagall Act, which prevented commercial banks from blending their business with investment banking. That combination was the source of self-dealing and fraudulent stock valuations that led directly to the Crash of 1929 and the Great Depression that followed.

That President's name was Clinton, not Reagan.

You're going to get a whole raft of reregulation if Obama gets elected. That should make us all fat and happy: he's from the government and he's here to help.

I know a vote for McCain/Palin is going to be wasted in Oregon: I can only hope Nader makes the ballot.

a whole raft of reregulation if Obama gets elected

God, I hope so.

he's from the government and he's here to help

As opposed to John McCain, who has shown us that he will activly block regulatory action so that his pals like Charles Keating could continue operating their S&L's. That one alone cost us $4B in public funds.

Jack, check out this Youtube Video, I think it's right up your alley.

Take A Load off Fannie

Jack, government bailouts are a bipartisan issue. Everbody knows that.

And this solution offers only a pathetic quarterly capital infusion. Our chinese, japanese, and russian overlords are going to be very angry at the lack of an EXPLICIT backstop. You may not care about them because you believe the exceptionalist myth that we are a GREAT AND POWERFUL NATION. Unfortunately the US economy has *NEVER* been more beholden to other nations. If they cut out purse strings we will see an economic collapse that rivals the the great depression.

ROFL!

They can't afford to tighten the purse strings: it would be like tightening a noose around their own necks (dollar crashes, their bonds losed 50 cents on the dollar, largest consumer nation quits buying their exports).

This is a marriage of convenience: they pretend to ship us high quality goods (which are mostly crap), and we pretend to pay them with high quality currency (which they use to purchase our crappy bonds). It's a win/win so long as everybody is willing to go along.

I know it was, like, last week, but this article still seems relevant. And scary...

http://www.bloomberg.com/apps/news?pid=20601080&sid=aslo2E01QVFI&refer=asia

Hey, I don't have a problem with regulating, but at every level of goivt there has been incompetence as far as financial matters go.

You can start here in CoP all the way to Bush/Congress running up the deficit. So who keeps the keepers?

While unemployment rises and underemployment skyrockets and the labor market continues to flow overseas, where will the tax revenue materialize to pay for the bail out? Meanwhile the wealthy continue to receive their long-term gains at 15% and dividend income tax breaks. The status quo has gotta go. The bill is coming due. Better put the kids to work. Forget college which will soon be a luxury enjoyed only by the lucky few whose parents bank off-shore.

It's a win/win so long as everybody is willing to go along.

Exactly who are the long term winners in this game?

I second the prayer for some rational regulation around here--28 yrs of no holds barred, free market ideology has brought us to this point. That's my "whine" for today.

"I second the prayer for some rational regulation"

On second thought what type of regualtion would you want? I mean if you have re-financed or bought a house lately, the stack of paper required by regulations is already daunting.

Ultimately, it's going to have to boil down to denying financing to people who can't afford a house or the loan without financing tricks.

If you can find me the politician brave enough to take the lead on that, I'll buy you box seats at the new Lents stadium.

Ultimately, it's going to have to boil down to denying financing to people who can't afford a house or the loan without financing tricks.

uhhhh--is this a trick statement? The main reason we are in the world of crap right now is because of millions of loans that should never have been made.

If deregulation is the culprit, can you rationally explain why it took over 20 years for the wheels to come off? Had nothing to do with anything Clinton or Bush II and their financial policies? Let's not forget that this concept of cheap and easy money started in the late 90s and continued unchecked in the early Bush II years, despite the warnings of Greenspan (at least he got that right).

The housing bubble burst obviously affects more people in a tangible way, but I don't remember if there was this much bitching and complaining and finger-pointing when the dot com bubble burst and the markets lost back nearly 50% of their value. Or was that Reagan's fault too, even though Al Gore insisted that HE invented the internet (long after Reagan's time).

Unfortunately, there are indeed plenty of blue fingerprints on the repeal of Glass-Steagle. The path from there to here was 100% predictable. But, the primary authors of the program it was part of were indeed The Great Communicator and his team. They did a great job of clothing it in libertarian costume, but it was 100% con. Anybody who didn't see it coming had drunk the cool-aid.

It seems like there is plenty of blame to be shared by both sides of the aisle with this one, but mainly on the shoulders of the people who took out the loans. Yes, THAT old dead horse! Sad, certainly not politically correct, but true. And, don't get me wrong: I do feel bad for the people who are in this mess, even though it sure seems to be of their own doing. (I just bought back to school clothes for a family of friends of friends who are facing losing their home for this exact reason, so don't beat me up too hard for being honest here.)

Each and every time I have purchased a home, a bank or lender always offered me more money than we asked for, allowing us to get the most house we could 'afford'. I was savvy enough to stop and maintain my good sense: "Hmmm what if Mr. Suburbia or I got laid off, or someone got sick and could not work? That payment would be an impossible burden." "Gosh, I don't think either of our incomes are going to go up THAT much in the next 3 years in order for us to afford a bump in interest rates that could happen." "Home values have been increasing, but how do I know it's going to continue? Do I want to take that risk?"

Yes, call me rational, call me paranoid, call me Republican if you must. And now, the rest of us suckers are going to pay because other people wanted to live beyond their means, didn't think through the decision, or didn't seek guidance from friends or family who might have been more financially savvy than they are.

Now back to cleaning my modest house that I know I can can afford come what may.

Shouldn't the folks that made the bad loans get an even cut of the blame and consequences?

Yep, the banks that knowingly loaned to people without credit history, or with bad credit, or with no income that could be verified...yes, add them to the list of people who caused this mess. And there were lenders who knew the loan they just wrote would be sold to another institution in 30 - 60 days, laughing all the way.

But at the end of the day, it was still the consumer who made a very poor decision that we all have to pay for. Just because somebody offered you a home loan that you knew was beyond your means or sounded too good to be true didn't mean you had to take it.

Or--just because the lenders knew they would never be pesonally held to account for the bad loan, didn't mean they had to offer it.

"uhhhh--is this a trick statement? The main reason we are in the world of crap right now is because of millions of loans that should never have been made. "

Not meant to be a trick statement. The issue is we have all politicians saying everyone deserves a house, however, they don't address those who can't truly afford a house. These are the ones snagged by the financing tricks. I guess we could do something to knock down house prices, but then what about those whose home equity is affected by an over-supply of cheaper housing?

Underwriting rules were relaxed releasing a flow of funds secured by a wing and a prayer. Knowing that qualifying only required property equity regardless of ability to repay, loan officers made hay. Hay spun into golden straw.
Fannie Mae and Freddy Mac will return to affordability standards in the qualification process and underwriting will again require proof of ability to repay.
Long term capital gain should be increased to 25% for gain on sale of real property other than one's primary residence which should retain favorable tax treatment. The additional tax revenue should be directed toward the bailout.

The people who applied for those loans should hold some fault too. Maybe even fraud. Those idiots knew they couldnt afford the loans, yet signed on the line anyway.

Those idiots knew they couldnt afford the loans, yet signed on the line anyway.

Very simplistic, Jon, and undoubtedly convenient. But the lenders had substantial economic incentives to persuade the borrowers to accept and did so in many cases by misrepresenting the probable cost.

OK, this subject is getting me cranky. So, it's the lenders who talked the buyers into going for the loan they could not afford??? PLEASE. It is the home buyer who looked at the houses they wanted to get loans on that were out of their reach. Seriously, at the end of the day, it is MY FAULT if I bought the car I could not afford, the new clothes I could not afford or the house I could not afford. Nobody forces you to buy a house. AND, it is the consumer who approaches the lender and says "I found a house and I want to borrow money."

Unless the lender drove them around to look at houses out of their price range and held a gun to their head, it remains the buyer who screwed up. The terms of a loan are explained at escrow to make sure that consumers understand their loan and payments. If I buy a $450,000 house and I only make $35,000 a year and have no down payment and I still buy it with an interest only loan or adjustable rate, then I am at fault. These folks got sucked up into the home buying frenzy, made terrible mistakes, and now we all suffer....their families and our families.

Blame who you want, but there are free books at the library about finances and lending, that everyone has access to. There are no victims here, only people who made poor decisions. And as earlier, I cleaned the house today that I could afford, after getting in the car I could afford and shopping for groceries at the store I could afford.

The people making these bad loans made made plenty of cash over the short term--they didn't care about the long term consequences of their action; the guvment would take care of them.

This could have been prevented by:

A. Some scruples on their part, or

B. serious regulation.

As an alternative to over-regulation, perhaps the solution is to remind private industry that if they choose to run high risks, there won't be a government bail-out when the sh*t hits the fan. I see that as more disappointing and frustrating - everyone looks to the government for the solution, even though before and after the fact, those same people agree that the government is the least efficient or accurate guide for private economy.

The death of Bernie Mac was an omen: Fannie and Freddie Mac were soon to follow.

Ironically, the guy who is running the new regulatory agency (FHFA)-- AND HAS BEEN APPOINTED CONSERVATOR -- is the same guy (James Lockhart) who was running the old regulatory agency (OFHEO), who was quoted less than 30 days ago saying that both GSE's are "well capitalized". Now he admits he was deceived by them, and the fraud went undetected, but his new and improved FHFA has been designated to replace the Board of Directors, Officers, and Shareholders?

If the GSE's fooled Mr. Lockhart and his staff for the last two years, what makes anybody think they are up to the task of running these companies going forward?