Be careful what you wish for- you just might get it. But I’ll get back to that…
The honest truth prior to the economic collapse is that everyone wanted everyone else to have a home, whether they could afford it or not. So most people got into situations they couldn’t handle if these went south (as they always do eventually). The main vehicles for mass destruction were Freddie Mac and Fannie Mae. These GSE’s (Government Sponsored Entities) were handling about 90% of the mortgage business in the US at a time when the mortgage business (and the repackaging of CDUs and Swaps) were the rage of profitability on Wall Street. Then obviously the economic collapse of 2008 happened, the term Too Big to Fail was created, and we started in to rebuild our economy. One of the many reassurances to come spinning out of Congress was Dodd-Frank. It is the simplified name for the financial oversight law passed by Congress. It is a huge document covering almost every aspect of the financial services industries- to protect us from this ever happening again. Wait- did I say almost?
Almost means that Freddie and Fannie were exempt- as in left out of being re-regulated. Let me say if again- the two entities with the most mortgage exposure was exempt from oversight. As of now, they have taken more than 150 Billion in bailout funds, hold 95% of the home mortgage exposure in the US, and have been taken over by the US government.
There is only one thing left to do. Deal with them. How do you make 95% of the mortgage market go away? How do you break up GSEs? How do you bailout multi-trillion dollar institutions? The current winds are blowing toward privatize. That’s what most people are hoping and wishing for?
Remember what I said? Be careful what you wish for- you just might get it. For the people wanting to privatize- what happens down the road when someone wants a mortgage? IF private, then it is in the hands of the market. But we talked about how Government hasn’t handled too big to fail, how they allow things to get out of control, and in the case of “It’s a Wonderful Life”- remember Mr. Potter, the banker, and how he controlled everything? Do we truly want the biggest banks in the country or world handling all the mortgages and holding that over our heads? And you think they were too big to fail now? Picture those very banks taking on a few trillion dollars in mortgage steroids.
I do not usually say this, but sometimes you should leave well enough alone. Just clean them up over time and then make the Congress, oversight panel, and regulators do their jobs and keep it where it should be and not overextend.
Idea- Since the Government keeps coming up with ideas to help people in almost in foreclosure, people underwater, people about to default- which rewards the bad timing/bad decisions/hard luck of their life, I have a different thought. Why not make a onetime “refinancing” available to ALL Americans? This would help those in need, and not penalize those who are still OK. It would help with liquidity at the household level and allow for higher spending (helping economy) or higher savings (helping banks capitalization requirements and loan availability). Right now, the banks get to “make money” on the increased spread between old loans and new lower lending rate from the Fed.