"Look Mr. & Mrs. taxpayer, in Fannie and Freddie we have already realized some $158 billion in losses and despite what Barney told you the other day about how good our underwriting standards have been the past few years we have are funding/guaranteeing around $6 trillion of loans half of which stink and $1 trillion of which are total crap. But do you remember what that Charlie whatshisname told you about bank capital? It's a myth: onliest thing you need is liquidity and boy, do we got that! We got us a blank check from the Treasury so where going to keep these two zombies walkin' around forever because we can and the alternative is to let the whole world know that we just pissed away another $trillion of Uncle's money and God knows what hell that will cause."
Now if there was an honest person on either side of the aisle that is what you would be hearing, but there isn't. Remarkably, some of the very same voices that two years ago were screaming to shut down the banks and who rammed through this trash heap of a Fin Reg bill using as an argument the specter of the Japanese banking system c. 1990 are about to produce the very same result. Oh to be certain, there will be talk of substituting a direct yet UNFUNDED guarantee scheme to replace the zombies in order to insure the flow of credit to the housing sector, but the zombies will walk the earth for years and years, fouling the air and in the end losing even more money.
Needless to say all will cry tears of joy led by Bill Gross as wonders of wonders, lending for the purchase of a home or an apartment or to pay the rent will have NO risk. What could be better than that? Except that now the flow of credit will be even more in the control of the politicians as with a plan like this in place no one would be foolish enough to make an unsecured loan except in those cases where the price of the home exceeds the guidelines set by the state. Those who might raise there voices to ask what is the real difference between this kind of scheme and the GSAs will be swept aside and silenced. And since the guarantee has no need of being funded, what's the problem? There will be no effect on the deficit...unless of course something goes wrong somewhere down the road but that never happens does it? Never.
Of course a scheme like this opens up a number of areas to be explored. Since the risk of financing a home has very much been assumed by the government, is there any real reason not to take a look at the interest exemption for mortgage financing. Probably not although as was pointed out even by Barney the other day, prices (values) of homes might be adversely affected by the removal of this incentive to home ownership. For most of us, a good deal of our net worth is in our homes but then again, we do want to reduce the threat of another housing bubble and in fact, the average increase in the value of a home is not that great without a bubble. The big jump comes in places like Beverly Hills or Bronxville but those people are rich anyway and they need neither the deduction nor the appreciation. For everyone else, we can throw them a bone or two. And think of the revenue stream! ALAKAZAM111
Anyway, that's where I think this is headed. Tomorrow, we,ll talk about the possible results.
Took a very quick look at the GM. filing today. You gotta be kidding me. The only reason to do this deal now is for the politics involved. I hope GM makes it but when, among other thing, one is warned that their showpiece, the Volt, doesn't really work that well, the accounts are buggered and will remain so for another 6 months, they are selling a lot of trucks but not cars and the management team knows nothing about the car business the immediate reaction is not, "Where do I sign up?" I guess I'm getting old.
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