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Don't let Wall Street take profits from Fannie and Freddie

By tovarichpeter follow tovarichpeter   2014 May 12, 1:31am 829 views   5 comments   watch   nsfw   quote   share    


http://www.cepr.net/index.php/blogs/beat-the-press/privatizing-fannie-and-freddie-shifts-profits-to-wall-street-not-risk-from-the-government

Johnson-Crapo bill that would privatize Fannie Mae and Freddie Mac. The article told readers that the bill: "would dismantle the companies in a bid to shift the risks of mortgage lending from the taxpayers to the private sector." Actually, the government would still be on the hook for 90 percent of the value of privately issued mortgage backed securities (MBS). As a result of the perverse incentives created by the system envisioned under the bill, this would likely mean more risk to the taxpayers rather than less. Private investment banks would stand to profit from securitizing bad mortgages. Unlike the...

#housing

1   APOCALYPSEFUCKisShostikovitch   ignore (49)   2014 May 12, 1:45am     ↓ dislike (0)   quote   flag        

INCINERATE WALL STREET ! ! !

2   corntrollio   ignore (1)   2014 May 12, 6:01am     ↓ dislike (0)   quote   flag        

The article is right -- I never understood how this Crapo structure (nice play on words there) lowers risks to the taxpayer.

It's more like how the student loan market used to be -- backed by the feds, but administered by private banks. It didn't work then, and it won't work now. Basically socializing losses and privatizing profits all over again.

3   FortWayne   ignore (4)   2014 May 12, 8:40am     ↓ dislike (0)   quote   flag        

So taxpayers pay the losses, and banks just keep the profits?

4   bubblesitter   ignore (0)   2014 May 13, 4:17am     ↓ dislike (0)   quote   flag        

FortWayne says

So taxpayers pay the losses, and banks just keep the profits?

In other words, rich becomes rich and middle class is a toast!

5   corntrollio   ignore (1)   2014 May 15, 7:09am     ↓ dislike (0)   quote   flag        

corntrollio says

It's more like how the student loan market used to be -- backed by the feds, but administered by private banks. It didn't work then, and it won't work now. Basically socializing losses and privatizing profits all over again.

Looks like I'm not the only one saying this:

http://www.cepr.net/index.php/blogs/beat-the-press/privatizing-fannie-and-freddie-shifts-profits-to-wall-street-not-risk-from-the-government

Actually, the government would still be on the hook for 90 percent of the value of privately issued mortgage backed securities (MBS). As a result of the perverse incentives created by the system envisioned under the bill, this would likely mean more risk to the taxpayers rather than less. Private investment banks would stand to profit from securitizing bad mortgages. Unlike the years of the housing bubble, when investors stood to lose 100 percent of what they paid for a MBS, investment banks could tell their customers that in a worst case scenario they would only lose 10 percent of their investment with the government picking up the rest of the tab.

For this reason it is hard to see Johnson-Crapo as a "bid to shift the risks of mortgage lending" to the private sector. The most obvious way to accomplish such a shift would be to simply get the government out of the business.

The most obvious effect of Johnson-Crapo is to shift the profits that Fannie and Freddie are now earning to the financial industry. Presumably the bill's proponents recognize this fact.

Definitely sounds like a Crapo bill to me.


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