Saturday, August 09, 2008

A Canadian Opinion

Of the housing mess:
IT WAS the extreme greediness of privileged Americans that caused hundreds of thousands of their fellow citizens to lose their homes, undermined the economies of not only the U.S., but of nations around the world, and sabotaged the stock-market investments of heaven only knows how many million grey-haired pensioners like me.

...In the case for the prosecution, let us present, as Exhibit A, two government-chartered, U.S. companies: Fannie Mae and Freddie Mac.

They own or guarantee nearly half of America’s $12 trillion worth of home mortgages, and fears that the devastation in the mortgage industry had rendered them unstable and undercapitalized recently sent their stock market prices into a dive that horrified their shareholders.

Moreover, the bad news sharply eroded the value of bank shares, including the Canadian ones in my modest retirement fund. Since not only American banks but the central banks of many nations held billions of dollars of mortgage-backed securities that Fannie or Freddie had issued or guaranteed, a collapse in the value of these securities may yet have disastrous consequences for the entire world economy.

It’s now clear that federal politicians in the U.S. have long been insanely permissive about the way Fannie and Freddie went about their business.

Why? The politicians joined the club of greed.

"In Washington," the New York Times reports, "Fannie and Freddie’s sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices."

The lobby made sure that Fannie and Freddie would not have to meet the same financial standards or endure the same tax burdens as their competitors, and that government guarantees would stick the taxpayers for any losses they incurred. The companies did not offer home loans. Instead, they bought mortgages from banks, and accepted the risk of defaults. This allowed the banks to issue more and more mortgages.

With the assistance of campaign contributions and muscular lobbying, Fannie Mae and Freddy Mac got together with lawmakers in Washington, brokerages and investment banks on Wall Street, and real estate agents all over the U.S. to build what the New York Times called "an unusual and mutually beneficial co-dependency."

...Jonathan Kopell of the Yale School of Management explained that the two mortgage titans gave money to nonprofit activist groups, and thereby made it hard for such groups to criticize them.

"Likewise, there was another set of entities, essentially a huge industry, that profits from every additional loan that Fannie or Freddie can buy," he continued. "The more loans they purchase, the more business there is for them, and so they’re willing to work with the enterprises."

As a tsunami of foreclosures swept across America, home prices declined, and so did the mortgage assets of Fannie and Freddie.

A lot of Americans, however, had grown rich while busily involving themselves in the racket of issuing mortgages to a whole lot of other Americans who could not afford them.

..."It seems to me we’ve seen enough evidence over the years that the capitalist system is not going to be destroyed by an outside challenger like communism," the late Molly Ivins wrote on the AlterNet website. "It will be destroyed by its own internal greed. Greed is the greatest danger as we develop an increasingly winner-take-all system."

"It’s dispiriting indeed to watch the U.S. financial system, supposedly the envy of the world, being taken to its knees," Gretchen Morgenson recently wrote in the International Herald Tribune.

"But that’s the show we’re watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors. This wasn’t the way the ‘ownership society’ was supposed to work."

When greed’s in charge, no society works.

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