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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsObama says it is time to wind down Fannie and Freddie- let private investors have bigger role
Almost five years after taxpayers bailed out mortgage giants Fannie Mae and Freddie Mac, President Obama said on Tuesday that it's time for private investors to take a bigger role in the mortgage market.
Fannie and Freddie collapsed in 2008 before being bailed out with almost $200 billion in taxpayer funds.
But with the nation's real estate market on the mend, Obama said in an address in Phoenix on home ownership that it is time to wind down the two companies and make clear that the days of a guaranteed government bailout are over.
"For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag," Obama said. "It was heads we win, tails you lose. And it was wrong."
<snip>
"I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market, including community-based lenders who view their borrowers not as a number, but as a neighbor," Obama said.
<snip>
http://www.usatoday.com/story/news/politics/2013/08/06/obama-mortgage-reform-fannie-mae/2624767/
leftstreet
(36,078 posts)Guess things have really changed
expressed admiration for RR and his "transformative change," when we needed to reign in "the excesses of the 60s and 70s" way back in the '08 primaries.
What kind of Democrat doesn't recognize that "transformative change" as privatization, and "the excesses of the 60s and 70s" as progress toward social and economic justice? One that indulges in selective denial. A "centrist," DLCer, "New Democrat," "3rd Way" neo-liberal.
Of course things have changed. That's what happens when Democrats, who are supposed to oppose Republican efforts towards privatization, vote for neo-liberal Democrats who will create Ronald Reagan-style "transformational change" within the party and allow privatization to roll forward unimpeded across the nation.
SharonAnn
(13,766 posts)It was another example of the banking industry being reckless because they don't have to pay the consequences.
What Obama is saying is that if the banks are reckless, they should pay the consequences.
Fannie Mae and Freddie Mac were great ideas until the banking industry learned how to manipulate them to the banks benefits (and the taxpayers' loss).
Preventing banks from stealing our money is an ongoing challenge.
Autumn
(44,748 posts)PowerToThePeople
(9,610 posts)while the average citizen was losing their job and having their house value plummet.
Autumn
(44,748 posts)Bunnahabhain
(857 posts)and other perils. However, my thought has always been we should examine the stated purpose we have these institutions. As we're trying to move the US more to the left, more to a Euro democratic socialist model, we probably need to rethink some of the sacred cows of US "rugged individualism" and one of those would be home ownership for the masses. Home ownership rates are much lower in many (but not all: Norway is higher than the US) of the Euro democratic socialist countries. It's also not one of those national obsessions like it is in the US with industries built around the dream of home ownership.
Just a thought maybe the whole ethos needs to change. Our sprawl is disgusting and fostering detached homes just encourages it. High density, rental housing would be much better in so many ways.
GiaGiovanni
(1,247 posts)and the rest of us should live crammed in tall buildings. Sort of like Hong Kong.
No thanks.
However, I do think that getting rid of Fannie and Freddie is a signal that home ownership is about to become a "for the rich only" thing.
Bunnahabhain
(857 posts)No, of course not. Is responding with the most extreme and unwarranted example your usual MO? And you should really research what you say. Home ownership is about 50% in Hong Kong and about 66% in the US.
Also, if your choice was a conservative US with high home ownership or democratic socialism with between 50-60%, which would you pick? I know which I would pick. Maybe you're on the wrong website?
GiaGiovanni
(1,247 posts)However, I'll take your word for it.
kelliekat44
(7,759 posts)Bunnahabhain
(857 posts)this is how things are in the Nordic Socialist countries? And if so you think US society is a better model than the Scandinavian ones? I'm truly puzzled.
MotherPetrie
(3,145 posts)Bunnahabhain
(857 posts)and live according to the current US paradigm. I am suggesting we change the paradigm we all live within. Now, if you think the fact I live within the current paradigm is somehow an argument against my point, well, I cannot help you.
It's like everyone here talks about a more progressive society but gets all bent out of shape when someone talks about changing US society to more closely match current models such as the Euro democratic socialist models.
MotherPetrie
(3,145 posts)Bunnahabhain
(857 posts)Of course not. Further, as noted, private home ownership still exists in the Euro social democracies and any straight thinking progressive in the US should want to emulate them, no? Universal health, far superior GINI, high happiness reports, higher pay, better working conditions, state sponsored higher education...this "only the ultra-rich will own homes" I've read here is obvious bull as evidenced by empirical data.
MotherPetrie
(3,145 posts)Bunnahabhain
(857 posts)And if we all just gave binary answers without context or rationale here it would not be much of a conversation. Then again, the word "conversation" is probably mis-applied to most of the exchanges here.
MotherPetrie
(3,145 posts)Bunnahabhain
(857 posts)liberal_at_heart
(12,081 posts)Last edited Tue Aug 6, 2013, 11:23 PM - Edit history (1)
ProSense
(116,464 posts)"ah, I was wonding what would be privatized next?"
...already private entities.
FACT SHEET: A Better Bargain for the Middle Class: Housing
http://www.democraticunderground.com/10023418130
tkmorris
(11,138 posts)Obama himself is the one that suggested " it's time for private investors to take a bigger role in the mortgage market " , as an alternative to Fannie and Freddie. If Fannie and Freddie were completely private entities such a suggestion would be nonsensical.
ProSense
(116,464 posts)Again, he is moving the government-insured program to a public agency.
Fannie and Freddie are private organizations.
Fannie, Freddie execs score $100 million payday
http://money.cnn.com/2011/11/15/news/companies/fannie_freddie_executive_pay/
Here is the current CEO:
As President and CEO, Mr. Mayopoulos is focused on ensuring that the company continues to manage its legacy issues effectively, while driving the companys contributions to creating a better housing finance system for the future. Under his leadership, Fannie Mae will continue to play an essential role in funding the market, assisting troubled homeowners, strengthening communities, and repaying taxpayers investment in the company.
Mr. Mayopoulos brings more than 25 years of experience to his leadership post. He joined Fannie Mae in April 2009 as executive vice president, general counsel, and corporate secretary and was appointed chief administrative officer in 2010. Prior to joining Fannie Mae, Mr. Mayopoulos was executive vice president and general counsel of Bank of America Corporation. Previously, he served in senior management roles at Deutsche Bank AG, Credit Suisse First Boston, and Donaldson, Lufkin & Jenrette, Inc. Earlier in his career, Mr. Mayopoulos was in private practice. He is a graduate of Cornell University and the New York University School of Law.
http://www.fanniemae.com/portal/about-us/company-overview/leadership/mayopoulos.html#
FACT SHEET: A Better Bargain for the Middle Class: Housing
http://www.democraticunderground.com/10023418130
kentuck
(110,950 posts)...that other big banks sold their "bad" mortgages to Fannie and Freddie, because they were guaranteed by the taxpayers, and that is why they got into such deep trouble. That is what happened.
jberryhill
(62,444 posts)I think the point was that it would be better for private investors to have some skin in the game, and not a bottomless pit of risk absorption.
Egalitarian Thug
(12,448 posts)Tierra_y_Libertad
(50,414 posts)Rex
(65,616 posts)jobs working in D.C. right next to the POTUS on his cabinet! Then again, we don't really have a capitalist system. That would imply some kind of fairness. Businesses fail and new 'leaner and meaner' companies take their place. Nope. Not anymore. Not in this plutocracy.
The big fish really is the winner. And they STILL practice 'trickle down' economics like it was written in the Bible somewhere.
senseandsensibility
(16,712 posts)say on Martin Bashir's show that he thinks Freddy Mac should be given a bigger role to help low income borrowers. Everybody's not on the same page on this one? As far as I'm concerned, privatization is bad, and of course, I'm far from shocked if Obama is advocating it.
Trekologer
(994 posts)By backing the loans that mortgage brokers were writing, they introduced moral hazard to lending. That is, the disincentive to writing bad loans (the potential for loss due to the borrower defaulting) wasn't there anymore because someone else (Fannie/Freddie) guaranteed them.
When it comes to mortgages, the writer of the loan should have more responsibility for it should it turn out to be bad--no more declared income ("no doc" loans or "creative financing". That should help prevent the repeat of a 2008-like meltdown.
Bunnahabhain
(857 posts)The definition of moral hazard is that the decision maker is immune to downside consequences.
Trekologer
(994 posts)Thanks for pointing that out.
Fanny/Freddie introduced moral hazard to mortgage lending.
Bunnahabhain
(857 posts)Been preaching this and so few people either a) want to understand what "moral hazard" is or b) admit it was the NGOs that brought this on.
kentuck
(110,950 posts)Thanks!
millennialmax
(331 posts)Under Mr. Obamas principles, which he said were reflected in the Senate bill taking shape, Fannie Mae and Freddie Mac would further shrink their portfolios and lose the implicit guarantee of a federal government bailout. Instead, private investors would be most at risk, with the government a secondary guarantor.
First, private capital should take a bigger role in the mortgage markets. I know that sounds confusing to folks who call me a socialist, Mr. Obama said, drawing laughs and applause. I believe that our housing system should operate where theres a limited government role, he added, and private lending should be the backbone of the housing market.
The president said that any measure he signed into law should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage.
http://www.nytimes.com/2013/08/07/us/politics/obama-fannie-mae-freddie-mac.html?_r=0
rhett o rick
(55,981 posts)Safetykitten
(5,162 posts)PoliticAverse
(26,366 posts)DiverDave
(4,874 posts)Thanks just privatize everything, thats what your masters want.
Yeah, go ahead and alert, I care not
Trekologer
(994 posts)They're private companies: Federal National Mortgage Association (Fannie May) and Federal Home Loan Mortgage Corporation (Freddie Mac). Both are publicly traded companies so you could buy shares in either of them, if you so desired.
Both have important roles in the economy. They buy mortgages from banks and other mortgage lenders then sell them as investment instruments. The funds that go back to the original lenders allow them to write more mortgages. This cycle of funds is a good thing; it means that funds are available to qualified borrowers.
HoneychildMooseMoss
(251 posts)From Fannie Mae's website:
"We have been under conservatorship, with the Federal Housing Finance Agency acting as conservator, since Sept. 6, 2008. We also have entered into a senior preferred stock purchase agreement with the U.S. Department of the Treasury pursuant to which Treasury has committed to provide funding to us under specified circumstances. "
http://www.fanniemae.com/portal/about-us/investor-relations/index.html
Trekologer
(994 posts)Prior to then, they were both mostly private. I say mostly because they always had the federal government backing them.
The larger point is that restructuring the way Fannie and Freddie operate (which I think is a good thing which should have been done long before) isn't privatization.
LondonReign2
(5,213 posts)Master Negotiator again stakes his initial position far to the right, looks for additional opportunities to compromise from there.
Harmony Blue
(3,978 posts)Safetykitten
(5,162 posts)woo me with science
(32,139 posts)ProSense
(116,464 posts)darkangel218
(13,985 posts)Nye Bevan
(25,406 posts)they benefit from an implicit taxpayer subsidy, but they are private entities so all of their profits go to private investors. Countries like the UK manage perfectly well without Fannies or Freddies.
cali
(114,904 posts)ProSense
(116,464 posts)cali
(114,904 posts)GSEs are not the same thing as private corporations. It's a public/private hybrid. No matter how you try and twist things, that's just a fact.
http://www.cbo.gov/publication/21992
http://en.wikipedia.org/wiki/Freddie_Mac
http://home.howstuffworks.com/real-estate/mortgage16.htm
ProSense
(116,464 posts)The entity is private and was taken into receivership, which is exactly what happened with AIG.
From the link:
The government involvement was regulatory. They are privately-owned.
From the article posted here (http://www.democraticunderground.com/10023422421)
The two companies have paid nearly $132 billion in dividend payments. Freddie expects to pay the Treasury the $4.4 billion dividend payment by September, bringing Freddie's total to roughly $41 billion as the amount of dividends it will have paid to the Treasury. The company has drawn $71 billion in federal aid, which leaves taxpayers on the hook for about $30 billion.
Prior to receivership status, these companies were failing just like the banks that they were linked to.
Nye Bevan
(25,406 posts)http://www.bloomberg.com/news/2013-04-30/u-s-home-vacancies-fell-in-first-quarter-from-prior-year.html
And "private-public hybrid" essentially means that the private shareholders reap the rewards while the taxpayers bear the risks and stand ready to bail them out.