Remember, the roles of Fannie Mae and Freddie Mac in the Housing Bubble were as enablers. Fannie Mae and Freddie Mac lowered the bar for entry of the great unwashed masses of middle-income Americans into the Housing Bubble casino (every Ponzi scheme requires enablers), but the real culprits in the disaster were the financial houses on Wall Street, which created and distributed the injured investment vehicles around the world.
Blaming Fannie Mae and Freddie Mac for the Housing Bubble is like blaming the Godfather's wife for troublesome Mafia policies, instead of blaming the Godfather. It misses the Wall Street target (like Goldman Sachs, which no doubt remains uncomfortably close, and tightly-intertwined, with the Federal Reserve Bank of Kansas City). If you get rid of Fannie Mae and Freddie Mac, you just get rid of the middle-class housing market, which just means people will reinvent Fannie Mae and Freddie Mac under different names in a few years, because people will need to have institutions like that.
And those damned American consumers, going around, consuming everything they earn. What locusts they seem! Grasshoppers, when winter is approaching! But they aren't bad people: they are you and I!
Listen, if you want Americans to save more of their income, nothing will help more than increasing their incomes, so they'll have more to save! What a concept! We need a pay raise, to get more of the money corporations are hoarding these days! And yet that obvious solution isn't even on the table! And why not, I ask? It worked to get us out of the Depression. Why not now?
And Simpson-Bowles is another blame-vehicle. We can afford Social Security - we've been affording it for decades - so why make old people pay the price for Wall Street's bad decisions?What did the old people ever do to anyone to make them suffer so now? The Godfathers are there, and they can accept the blame, but only if you stop blaming everyone else first:
The president of the Federal Reserve Bank of Kansas City delivered a scathing rebuke of U.S. monetary policy, Congress, and the American consumer in a sweeping speech on the economy in Des Moines on Thursday.
Thomas Hoenig, a native of Fort Madison who earned his Ph.D. in economics at Iowa State University, said the economy has been artificially inflated by low interest rates and will face further crises unless policymakers and consumers shift their focus to saving and investing instead of debt-driven growth.
"We have this leveraged economy that we have used to build our growth over the last 10 to 15 years that we cannot carry forward," he said.
Hoenig, 64, who will step down from his post in October, has long been a critic of Federal Reserve policies, including keeping interest rates near zero percent. He said the longer interest rates remain low, the more the economy will suffer when rates inevitably rise.
Before the government began providing a safety net for financial institutions, banks kept more capital on their books. In the boom before the financial crisis, banks and government-sponsored entities like Fannie Mae and Freddie Mac let their capital ratios plummet in order to lend more - and make more - money. Low interest rates allowed this, and it was a "house of cards," Hoenig said.
...He had harsh words for federal lawmakers for not pursuing the December recommendations of the National Commission on Fiscal Responsibility and Reform, a bipartisan group that issued sweeping proposals now collectively known as the Bowles-Simpson plan. The plan called for Congress to, among other measures, eliminate all tax credits and deductions, increase the Social Security age, cut 200,000 federal jobs, raise the federal gas tax, and increase co-payments for Medicaid and Medicare. Congress has disregarded the recommendations.
Asked whether the debt ceiling should be raised, he told a Des Moines Rotary lunch crowd at the downtown Marriott that raising or not raising the debt limit won't solve the nation's problems unless the country takes sweeping, comprehensive steps like the ones outlined in Bowles-Simpson.
...He called the Dodd-Frank Act, the financial reform legislation signed into law by President Barack Obama a year ago, "2,300 pages of complexity" that ends up favoring large banks over small ones, by imposing regulations that small banks may not have the wherewithal and personnel to comply with.
"It forces consolidation, and that's a tragedy for this country," he said.
He said the idea that some financial companies are too big to fail is an "abomination" that in effect subsidizes large banks and helps them grow while other sectors of the economy - for instance, manufacturing - suffer.
...Hoenig believes Fannie Mae and Freddie Mac, the beleaguered government-sponsored mortgage guarantors, should be phased out.
"It was designed to enhance our housing market and it destroyed our housing market," he said. "When you have an institution that is that destructive, you should kill it."
He also had strong words for consumers, who still carry debt that's 115 percent of their disposable personal income. Americans must begin to consume less and start saving and investing more, he said.
"We have been, as consumers, driving our economy and the world economy," he said. "But it hasn't really been driven by increasing consumer personal income or real wealth growth, but by an artificial leveraging-up of our consumers."
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