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Posts Tagged ‘Big Picture Blog’

The Bi-Partisan Fannie and Freddie Solution That Isn’t A Fix

March 16, 2014 | 11:35 am | wsjlogo |

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[Source: WSJ, click to expand]

Roughly 90% of the residential market has passed through Fannie and Freddie since the onset of the financial crisis. Reliance on these institutions was only around 50% before the crisis – and are they making a lot of money for the federal government right now. I’ll leave out the part where FHA stepped in to pick up the high risk slack. The private secondary mortgage market was obliterated by the credit crunch/housing crash and in the half decade that has passed, investors are just now dipping their toes in the water.

There is a great summary piece by Nick Timiraos at WSJ: “What Can Take the Place of Fannie and Freddie” on the proposed Fannie and Freddie “overhaul.”

Big Dumb Banks
As my friend Barry Ritholtz over at Big Picture once told me that the former GSEs are merely “Big Dumb Banks.” In other words, they do as they were told.

Swapping them with another alphabet soup named agency doesn’t solve the problem. In fact, I contend that replacing Fannie and Freddie completely would likely create more problems since little if anything has been done to reduce the systemic risks that nearly brought down the financial system – and whose impact are still being felt by most Americans today.

If we can agree that Fannie and Freddie created a stable mortgage market environment for decades (Fannie since the Depression and Freddie since the 1960s) and then blew up in the recent decade or more (problems began back in late 1990s), there are clearly other issues in play. I’ve always seen Fannie and Freddie as the symptom not the cause of our current economic problems.

Fixing the symptom may make some feel better, but it does nothing to reduce the probability of a systemic credit collapse. The bailout of the GSEs was a result of policy from Washington – the congress, the executive branch and both political parties who in various ways encouraged proactive neutering of regulatory powers, allowed the revolving doors of regulators with Wall Street, allowing Wall Street to compete directly with commercial banks with mind boggling leverage, limited separation of competing interests (ie rating agencies and investment banks) and incentivizing a shifting culture to serve the shareholders over the taxpayers.

I suspect that last point is the impetus for this bi-partisan proposal – reduce the risk exposure to the taxpayer by getting the private market to take over. Congress clearly has an image problem that it is trying to fix as of late (until mid-terms).

Setting Standards to Follow
One of the under appreciated functions of Fannie Mae and to a lesser degree Freddie Mac, was to serve as the leader to the private mortgage market. When Fannie Mae adopted a standard or policy, the private market (ie jumbo mortgage investors), followed their lead. With Fannie and Freddie floating in limbo with a potential looming overhaul, it’s hard to imagine a robust private market developing anytime soon. This would be a completely new institution that would replace and reinvent the former GSEs, you simply invite anywhere from chaos to uncertainty into the financial system and instability to the housing market, a key economic engine for the economy.

The whole plumbing of the mortgage market runs through these companies. You can’t just take these things away without having a very clear and specific view about what’s going to replace them,” said Daniel Mudd, Fannie’s former chief executive, in an interview last year.

No real alternative to the system has been proposed that I’m aware of and this is really window dressing to show bi-partisanship in Washington. There is no time frame proposed and very little details to reinvent the secondary mortgage market have been brought forward.

Here’s a great podcast from WNYC called “Money Talking” featuring Heidi Moore and Joe Nocera covering the proposal.

Key Issues to Fix
The WSJ piece summarizes the key issues that need to be address quite succinctly:

  • Make the “implied” guarantee explicit and require any successors to Fannie and Freddie to pay a fee for that guarantee.
  • Get rid of those investment portfolios, or shrink them to the point where they don’t create systemic risks.
  • Require more capital and tighter regulation, since too little of both is what got Fannie and Freddie into trouble.

The trouble is, the solution to over-reliance on Fannie and Freddie is too complex for Congress to solve in this era of gridlock. Record revenue being generated by the former GSEs make long term solutions unobtainable for now. I don’t see how any major changes can be inserted into the financial systems for a long time.

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[Interview PART II] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

October 6, 2011 | 8:21 am | Podcasts |

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[Interview PART I] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

October 5, 2011 | 12:15 pm | Podcasts |

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[Interview] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

January 21, 2011 | 11:23 am | nytlogo | Podcasts |

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[The Housing Helix Podcast] Barry Ritholtz, Bailout Nation, Fusion IQ, The Big Picture Blog

January 25, 2010 | 9:50 pm | Podcasts |


Barry Ritholtz of Fusion IQ, the The Big Picture blog and author of the must-read Bailout Nation had previously sat down with me last June so I was long overdue in inviting him back.

He is a terrific speaker and is always guilty of providing nothing less than clear cut commentary on the economic world around us. Plus he likes it when I call him irreverent.

This time we talk strategic non-foreclosure, existing home sales, interest rates, going to zero and the dumbest smart people in the room.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[Interview] Barry Ritholtz, Bailout Nation, Fusion IQ, The Big Picture Blog

January 25, 2010 | 8:14 pm | Podcasts |

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[Over Coffee] Quote: Our man Jonathan Miller drops the truth bomb

November 15, 2009 | 11:25 pm | nytlogo |

In reference to my New York Times quote this weekend by Vivian Toy – Bidding Wars Resume:

Jonathan J. Miller, the president of the appraisal firm Miller Samuel, estimated that two-thirds of the roughly 4,000 [8,389] apartments for sale in Manhattan are priced too high for the current market.

“So,” Mr. Miller said, “you have this weird situation right now where you have above-average inventory, but people are fighting over the ones that are priced correctly.”

(I’m not sure where the 4,000 number came from because Manhattan 3Q 09 showed 8,389 but the specific amount is irrelevant.)

The difference between a bidding war of two years ago and the current market is the irrational nature of bidding wars back then – it was all about “winning.” The market today is about obtaining value – with prices having fallen an average of 25% since pre-Lehman.

Also, there is a larger disconnect between buyers and sellers than a few years ago as measured by the lower pace of sales. There was a reprieve this summer when sales surged, but listing inventory is still above average levels and a higher level of listings are priced above market level leaving purchasers fighting over a smaller selection.

Although this is anecdotal, I do believe that there are fewer bidding wars that occur above list price than we saw a few years ago.

When my friend and bigger than macro Big Picture blogger Barry Ritholtz refers to me as “Our man Jonathan Miller drops the truth bomb” I am confident I nailed the current state of bidding wars.



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[The Housing Helix Podcast] Barry Ritholtz, Bailout Nation, Fusion IQ & The Big Picture Blog

June 12, 2009 | 10:34 am | Podcasts |


I had the pleasure of speaking with Barry Ritholtz of Fusion IQ and The Big Picture weblog. He’s a wealth of information and never pulls any punches in his characterizations of the current economic mess we find ourselves in. Listening to Barry speak about this whole situation and reading his book is much pretty much required.

The Big Picture is the leading financial weblog with must-read content and it boasts a huge following (self-included).

Barry recently released a terrific book: Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. I highly recommend it.

Check out this week’s podcast.

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[Interview] Barry Ritholtz, Bailout Nation, Fusion IQ & The Big Picture Blog

June 11, 2009 | 10:17 am | Podcasts |

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Conflicting Housing Statistics: Which Way Are We Going?

December 1, 2005 | 12:02 am |

Here’s a good summary article by columnist Andrew Cassel about the conflicting statistics that have been released this week called The Economy | Volatility telling us something? [Philadelphia Enquirer] It lays out all the arguments pro and con. He says:

I tell you, some weeks you risk whiplash just reading the economic news.

“Such discordance isn’t uncommon in economic statistics-gathering. Data can appear out of whack for a month or two because of reporting problems, or because something – a holiday, say, or bad weather – disrupts the normal flow of sales for a few weeks.

That’s why economists like to focus on longer-term trends, averaging changes over three months, six months or a year.”

The increased volatility, he suggests, could either mean that buyers are rushing to lock in on low mortgage rates so this could be a short term improvement or this is the sign of something far more severe since housing is connected to a large portion of the economy.

For a detailed analysis on why the New Home Sales data is statistically flawed, then a must read is Barry Ritholtz’s Big Picture blog post: New Home Sales Data: Don’t rely On It Either

It seems to me that everyone is so honed in on anything that has to do with housing, that every month we go through this scenario, trying to recognize the inner meaning between the existing home sales stats and the new-home sales stats that we don’t know which end is up. I for one have been very leery of these stats for a while, especially when reviewing them on a month by month basis. New home sales are a small sample size and existing home sales are about 60 days behind the market. The two mixed together make for strange results.


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