It wasn't Fannie and Freddie

[Saucer]

Je sais pas où poster, donc je crée un fil. J'ai pas des connaissances époustouflantes en éco, mais je sais suivre un raisonnement éco quand il est bien expliqué (ex : objectif liberté).

Là par contre, c'est en anglais, et ji pige pas. Pourtant ça a l'air intéressant, puisqu'il s'agit d'une réfutation de "la faute à Mac & Mae" qui tient apparemment la route.

Donc je vous donne ça, et dites-moi ce que vous en pensez (sans vous commander, bien entendu ) :

It Wasn't Fannie and Freddie

It's time to run this again, and add a bit more to it:

Did Fannie and Freddie cause the mortgage crisis?, by Jim Hamilton

: Some thoughts about the role played by the GSEs in the run-up in mortgage debt and house prices. …

Fannie and Freddie had purchased $4.9 trillion of the mortgages outstanding as of the end of 2007, 70% of which the GSEs had packaged and sold to investors with a guarantee of payment, and the remainder of which Fannie and Freddie kept for their own portfolios. The fraction of outstanding home mortgage debt that was either held or guaranteed by the GSEs (known as their "total book of business") rose from 6% in 1971 to 51% in 2003. Book of business relative to annual GDP went from 1.6% to 33%.

Sum of retained mortgage portfolio and mortgage backed securities outstanding for Fannie and Freddie (from

OFHEO 2008 Report to Congress

) divided by (1) total 1- to 4-family home mortgage debt outstanding (from

Census

for 1971-2003 and

FRB

for 2004-2007) and (2) annual nominal GDP.

The fact that the volume of mortgages held outright or guaranteed by Fannie or Freddie grew so much faster than either total mortgages or GDP over this period would seem to establish a prima facie case that the enterprises contributed to the phenomenal growth of mortgage debt over this period.

Krugman nevertheless concludes

that the GSEs aren't responsible for our current mess. …

For my part, I have two questions for those who take the position that the GSEs played no significant role in causing our current mortgage problems. First, what economic justification is there for the dramatic increase in the share of loans guaranteed or held by the GSEs between 1980 and 2003 that is seen in the first graph presented above? What sense did it make to increase the ratio of such loans to GDP by a factor of 12 over this period?

Second, what forces caused the explosion of private participation in a much more reckless replication of the GSE game? A year ago,

I suggested

one possible answer-- private institutions reasoned that, because the GSEs had developed such a huge stake in real estate prices, and because they were surely too big to fail, the Federal Reserve would be forced to adopt a sufficiently inflationary policy so as to keep the GSEs solvent, which would ensure that the historical assumptions about real estate prices and default rates on which the models used to price these instruments were based would not prove to be too far off.

Is that the answer…? I'm not sure…

In the mean time, I very much agree with Krugman that the most egregious problems were not caused by anything Fannie or Freddie themselves did. But I disagree that their actions played no role in causing the underlying problem we face today.

Paul Krugman, also from the previous post:

Why Fannie and Freddie got so big, by Paul Krugman

:…

Jim Hamilton

asks why Fannie and Freddie grew so much in the years before the surge in subprime lending.

Justin Fox

had already suggested that Fannie/Freddie were taking the place of the savings and loans, after the crisis of the 1980s. Well, if I’m reading

this data

(xls) right, that’s pretty much the whole story. This graph shows the share of savings institutions and “agency and government-sponsored enterprises-backed mortgage pools” in total mortgage holdings:

The big switch

Now here’s the thing: S&Ls are private, profit-making institutions whose debt (in the form of deposits) is guaranteed by the federal government. Fannie and Freddie are private, profit-making institutions whose debt is

implicitly

guaranteed by the federal government. It’s not clear to me that the switch shown here led to any net socialization of risk. …

What did happen was an explosion of risky lending by other parties, which crowded out the GSEs; you can see that at the end of the figure (which runs up to 2006). So I stand by my view that Fannie and Freddie aren’t the big story in this crisis.

Here's another graph with a bit more detail from the old post Jim Hamilton references above. Note the spike in asset backed securities at the end that matches the decline in lending from GSEs:

Richard Green says the unique hybrid nature of Fannie and Freddie - which gives it the implicit guarantee - isn't the problem:

Could we please stop saying that it was the hybrid feature of Fannie/Freddie that caused them to fail? I think we have enough failures across enough different types of financial institutions (Investment Banks, Commercial Banks, Thrifts,Insurance Companies and GSEs), and sufficiently (ahem) large rescue packages for them that we can say that the US financial system has very few purely private financial institutions (sorry Lehman Brothers).

But I want to go back to Krugman's point because it has been overlooked in this debate. If, as the data suggest, "Fannie/Freddie were taking the place of the savings and loans, after the crisis of the 1980s," then there was no change in the level of socialized risk. Since S&Ls also have a guarantee from the government, all that happened is that loans moved from one guarantee under S&Ls to another guarantee under Fannie and Freddie. So this could not have substantially changed the degree to which markets were distorted.

Let me add one more piece that may not be widely recognized. Brad Setser notes that since 2000, much of the new debt guaranteed by Fannie and Freddie has been absorbed by foreign central banks, leaving private citizens in the US with a riskier pool of assets:

Were the Agencies responsible for the current crisis?, Brad Setser

: The role of the Agencies in the current crisis is something that has come up in the Presidential campaign. It is also something that can be assessed using real data — including the recent

Flow of Funds data

produced by the Fed.

I would argue that this data suggests a more complex story than is commonly told. The Agencies certainly played a role in turning US mortgages into an asset that credit risk adverse central bank were willing to hold: the availability of Agency bonds with an implicit government guarantee interacted with the acceleration of global reserve growth to help make too much credit available to American households.

At the same time, it wasn’t just a story of a market hopelessly distorted by

the Agencies’ implicit guarantee

. The Agencies implicit guarantee isn’t exactly a new development. Moreover, at the peak of the lending boom, regulatory restrictions kept the Agencies from

growing their books rapidly

. The

big surge in risky, exotic mortgages

was made possible by a surge in demand for so called “private” MBS — that is to say mortgage backed securities that did not have an Agency guarantee. … Central bank demand for Agencies freed up private funds to invest in riskier assets rather than directly financing the most risky mortgages…

Agency lending has been absolutely essential to avoiding an outright recession over the past few quarters. A surge in Agency issuance has offset a total collapse in “private” MBS issuance. Without the Agencies, US households probably wouldn’t have had any access to credit over the past year. The US government actually started to intervene heavily in the market last fall, when it reduced limits on the growth of the Agencies to keep credit flowing. It isn’t an accident that the Agencies provided $1.1 trillion in new credit to the US last year, while ABS issuance fell from $900b a year to less than zero. …

The overall result was that central banks took on dollar risk…, while private investors took on the credit risk associated with the housing boom. In hindsight, that looks to have been a bad trade on the part of private investors. Central banks have taken currency losses (though those are mitigated the more Asia sells off). But those losses are a lot smaller than the losses US banks (and European banks that borrowed in dollars to buy dollar-denominated MBS — i.e. institutions like UBS) took on their mortgage book. …

Agencies remain modest relative to the total outstanding stock of Agencies. Central bank holdings of Agencies only surpassed US commercial bank holdings of Agencies in q2 2008… So why have I emphasized central bank demand for Agencies?

To start, central bank demand absorbed a significant share of the incremental growth in Agency bonds outstanding since 2000. If you believe flows matter — and I do — central banks have been big players…

But this effect - the concentration of risk in the US as the guaranteed assets issued by Fannie and Freddie went primarily to foreign central banks - is a consequence of our need to borrow from foreigners to finance our budget and trade deficits. Without those deficits, more of the safe assets stay home and the overall pool isn't as risky. So to the extent that this concentration of risk is a factor in causing the problems (and I don't know how important it was), it was caused by trade and budget deficits, not the actions of Fannie and Freddie.

So, overall, perhaps the implicit asset guarantee did distort markets, but those distortions did not start with Fannie and Freddie, and they did not substantially worsen when Fannie and Freddie took over where the S&Ls left off. And even if there was some distortion, it's hard to find any linkage between the onset of the financial crisis and changes in the net socialization of risk through Fannie and Freddie. There was, apparently, some concentration of risk due to central banks buying the safe assets and leaving the riskier ones behind, but even so, it's not clear to me that this was a primary factor in bringing about the crisis. And even if it is the cause, or part of it, the behavior of central banks was not driven by changes in the behavior of Fannie and Freddie.

Source : http://economistsview.typepad.com/economis…snt-fannie.html

et aussi

Supply Curves Slope Up. Demand Curves Slope Down :

There is one huge argument against the claim that the crash in the mortgage market was in some sense the fault of excessively risky lending by the GSEs Fannie Mae and Freddie Mac which pulled the private sector along behind them: it is that Fannie Mae and Freddie Mac lost market share as all the loans that have now gone bad were made.

As Milton Friedman always used to say: supply curves slope up, and demand curves slope down. If something is due to a change in supply that causes movement along the demand curve, price will go down and quantity will go up. If something is due to a change in demand that causes movement along a supply curve, price will go down and quantity will go down.

Between 2001 and 2006 the "price" at which Fannie Mae and Freddie Mac sold mortgages--the terms they set--certainly went down. But did the quantity go up? No: Fannie Mae and Freddie Mac together had made a much smaller share of mortgages in 2006 than in 2001: 37% as opposed to 48%. Price went down, and quantity went down.

This means that the dominant feature of the mortgage market in the 2000s was not an expansion of supply by Fannie Mae and Freddie Mac pushing their implicit government guarantee past the limits of prudence, but was a reduction in demand for Fannie Mae and Freddie Mac's products as private-sector mortgage lenders aggressively pursued and took away their markets.

At least, this is the dominant feature if you follow Milton Friedman and believe that typically supply curves slope up and demand curves slope down.

Source : http://delong.typepad.com/sdj/2009/01/supp…slope-down.html

[Saucer]

Anyone ?

[h16]

Je n'ai pas tout lu, mais personne n'a dit que FM et FM étaient les seuls responsables du pataquès; c'est bien plus lié à la règlementation qu'à ces deux organismes seulement.

Et puis j'ai vu qu'il y a du "Paul Krugman a dit que". Alors je renifle le pipeau.

[Saucer]

Je n'ai pas tout lu, mais personne n'a dit que FM et FM étaient les seuls responsables du pataquès; c'est bien plus lié à la règlementation qu'à ces deux organismes seulement.

Et puis j'ai vu qu'il y a du "Paul Krugman a dit que". Alors je renifle le pipeau.

Bien sûr, mais ça ne te tente pas de réfuter l'argumentaire de Krugman ?

[john_ross]

Bien sûr, mais ça ne te tente pas de réfuter l'argumentaire de Krugman ?

Faut demander à Mr Bénard si il a le temps.

[h16]

Bien sûr, mais ça ne te tente pas de réfuter l'argumentaire de Krugman ?

Mais ce qu'il dit n'est pas faux, c'est simplement sans intérêt. Dire "Crise != FM&FM" c'est assez peu compliqué. Une crise mondiale de cette ampleur ne peut pas être mise sur le dos de quelques institutions.

Il y a d'une part la règlementation qui pousse à prêter à risques.

Il y a d'autre part les mécanismes de leviers qui permettent à des institutions de regrouper ces paquets risqués avec des moins risqués pour la revente.

Il y a enfin les mécanismes de surexposition au risque (ex : réserve fractionnaire) dans la banque, la finance boursière.

Ajoute une bulle ou tout le monde imagine sortir avant d'être le dernier, et poum.

FM&FM sont deux éléments au début de chaîne parmi d'autres. Rien de nouveau sous le soleil.

[Saucer]

Ok, en fait j'ai pas compris grand chose à ce papier et ça m'intéressait d'avoir vos avis d'économiste éclairé (en tout cas plus que moi), pour une fois qu'il s'agissait d'un argument un peu plus intéressant que "c'est la faute aux spéculateurs ultra-libéraux".

[Saxval]

Ok, en fait j'ai pas compris grand chose à ce papier et ça m'intéressait d'avoir vos avis d'économiste éclairé (en tout cas plus que moi), pour une fois qu'il s'agissait d'un argument un peu plus intéressant que "c'est la faute aux spéculateurs ultra-libéraux".

J'ai fait le même genre d'analyse ici:

http://www.liberaux.org/index.php?s=&s…st&p=491687

Mais le débat n'a pas été très loin: forcément, en 2 3 post et on arrive aux "points Godwin" habituel: - va lire Bastiat, t'est HS, l'Etat c'est mal…

[h16]

Mais le débat n'a pas été très loin: forcément, en 2 3 post et on arrive aux "points Godwin" habituel: - va lire Bastiat, t'est HS, l'Etat c'est mal…

Pov'chou.

Il est exact de dire que ce rapport suscite cette impression mais pourtant il ne fournit aucun élément probant permettant de proférer une accusation en la matière. Notamment pour cela, en introduisant ce document j'avais évoqué la possibilité d'une langue de bois, invitant ainsi à une saine vigilance.

Ce rapport ne fournit pas d'information sur les taux de défaillance des différentes catégories de refinanceurs, ni sur les quotas de refinancements et/ou crédits liés aux obligations légales: tutelle du HUD, législations CRA de quotas de discriminiation positive (zones pauvres, critères raciaux, etc.). Or:

1- Les GSE Fannie Mae et Freddie Mac étaient des strucures "privées" sous étroite tutelle publique. Elles étaient conçues comme un moyen de masquer la dette étatique en externalisant les refinancements de l'accès social à la propriété immobilière tout en laissant la puissance publique dicter leur politique "commerciale" en la matière.

2- Du point de vue micro économique, le problème n'est pas qu'il y ait une croissance des refinancements, mais que les créanciers non solvables soient filtrés ou pas.

3- Pendant que les refinancements privés montaient en puissance, l'administration sociale HUD imposait des quotas de plus en plus importants aux GSE Fannie Mae et Freddie Mac pour les obliger à absorber les crédits hypothécaires des foyers à revenus faibles et modestes (plus de 50% des refinancements des GSE ces derniers trimestres).

4- Les législations CRA ont vraisemblablement suscité une culture délétère des dossiers pipés-pour-remplir-les-quotas.

Donc ce rapport montre effecivement la montée en puissance provisoire des refinancements privés, ce qui est un élément important, mais cette observation mérite d'être croisée avec d'autres indiciateurs (taux de défaillance, taux d'obligations légales CRA etc.) avant de tirer la moindre conclusion sur le fait que le secteur privé du refinancement ait ou non dérappé lui aussi.

Quant à Ginnie Mae, ses volumes sont faibles au regard des GSE fannie Mae et Freddie Mac. Ginnie Mae est dédié à des missions de service public plus ciblées, notamment le refinancement des prêts aux vétérans.

Tu fais une analyse bancale, on te renvoie dans les cordes, tu pleurniches. Classique.

[p.a]

Krugman : "You could say that the Fannie-Freddie experience shows that regulation works" ha ha ha ha!

comment croire Krugman quand il affirme que Fannie et Freddie ont été strictement régulés et ont pris des risques limités?

selon lui ces institutions sont touchées car même en assurant des prêts avec un apport de 20% les pertes sont inévitables dans des marchés comme Miami ou Los Angeles!

"they didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income. So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works."

[Nick de Cusa]

J'ai fait le même genre d'analyse ici:

http://www.liberaux.org/index.php?s=&s…st&p=491687

Mais le débat n'a pas été très loin: forcément, en 2 3 post et on arrive aux "points Godwin" habituel: - va lire Bastiat, t'est HS, l'Etat c'est mal…

C'est le contrat social d'ici.

[L'affreux]

Là par contre, c'est en anglais, et ji pige pas. Pourtant ça a l'air intéressant, puisqu'il s'agit d'une réfutation de "la faute à Mac & Mae" qui tient apparemment la route.

Essaye avec Google traduction.

[Saucer]

J'ai fait le même genre d'analyse ici:

http://www.liberaux.org/index.php?s=&s…st&p=491687

Mais le débat n'a pas été très loin: forcément, en 2 3 post et on arrive aux "points Godwin" habituel: - va lire Bastiat, t'est HS, l'Etat c'est mal…

Merci je comprends mieux. Même si l'Etat, ça reste mal .

[Invité]

J'ai compris que ce type dit : oui Fannie et Freddie sont responsables mais ne sont pas les seuls responsables de la crise.

On le savait déjà quoi.

[Randian shithead]

J'ai compris que ce type dit : oui Fannie et Freddie sont responsables mais ne sont pas les seuls responsables de la crise.

On le savait déjà quoi.

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