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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.
So taxpayers pay the losses, and banks just keep the profits?
In other words, rich becomes rich and middle class is a toast!
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:
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.
http://www.cepr.net/index.php/blogs/beat-the-press/privatizing-fannie-and-freddie-shifts-profits-to-wall-street-not-risk-from-the-government
#housing