NEW YORK TIMES EDITORIAL MISSES THE MARK

Today's (September 9) editorial in The New York Times, titled "The Bailout's Big Lessons" claims that one of the reasons the government had to act to take control of Fannie and Freddie was that "investors deemed the government's commitment to Fannie and Freddie as either insufficient or not credible." The Times' editorial team then goes on to point to the Administration's "fiscal mismanagement" as the cause of this lack of trust.

While, I understand that the purpose of the editorial page is to present opinions, it is my view that in critical stories like the nationalizing of these two huge government-sponsored entities, facts and unbiased information should come first.

It is true that foreign investors are skittish about U.S. mortgage-related investments. Why wouldn't they be? Although we have no exact figures as to the losses incurred by foreign investors in U.S. mortgage-related products, we know that U.S. entities have in the last year or so indicated losses or mark-downs of $500 billion. We can presume that foreign investors have paper losses of a similar magnitude.

These losses are not the direct result of government policies (although I certainly wish the Fed had been a more active overseer of the housing and mortgage worlds). For the most part these losses are the result of a system of greed, negligence and fraud gone wild:

1. Borrowers who reached for houses much higher than they could reasonably afford, and/or fabricated income and assets to obtain loans.
2. Real estate agents who encouraged the "just do it" mentality when it came to buying or borrowing too much.
3. Mortgage brokers who were conflicted and had an incentive to give poor advice to home buyers.
4. Lenders who created nutty loan products so that they could bulk up mortgages and sell them for a profit.
5. Investment bankers who syndicated mortgages and mortgage-related products without a good understanding of the fundamentals of what they were buying or selling or, who in fact knew, but turned a blind eye.
6. Ratings agencies who certified mortgage securities with AA or AAA ratings that were then shortly thereafter downgraded, in some cases to junk status ... oh yes, and by the way the ratings agencies' clients were the same lenders or investment bankers issuing the mortgage securities.
7. Government sponsored-entities, Fannie and Freddie, caught between competing agendas - politicians who wanted to use these GSE's to encourage homeownership with affordable mortgages, and investors and executives who wanted to maximize profit to themselves.

And so on.

In the meantime, lots of foreign investors - who were told that U.S. homeowners never walk from their mortgages and U.S. housing prices always go up - lost a lot of money.

Any wonder they are skittish on any investment that has to do with U.S. mortgages?

Jim Randel is the author of the just-published, The Skinny on the Housing Crisis.

visit www.jimrandel.com for more information

Follow Jim Randel on Twitter: www.twitter.com/jimrandel

Comments

[Lt]

The most obvious reason for this mess was hinted at in the first NYT opinion,

government mismanagement,

This downfall started `with Reagan and the immoral greed driven conservative agenda,

in a word, 'deregulation',

No one has been minding the store for at least eight years,

you might even say that 'no one is home' on the conservative

"Bridge to Nowhere"

[AngryAmish]

Sweet. You put "overreaching" homeowners at the top of the list. Those homeowners could not have overreached, buddy, if lenders hadn't peddled exotic products that created the illusion of affordability and incentivized brokers to sell! sell! sell! with every regard for their own fees and no regard to ability to repay. What distinguishes homeowners from lenders and brokers? The lenders and brokers got filthy rich; the homeowners got booted to the curb. Oh--that and the fact that lenders and brokers hold themselves out as well paid experts in an area that has come to increasingly resemble sophisticated securities transactions. But caveat emptor, right?! Thanks for retailing the lending industry's myths about this crisis!

[Henry]

Jim,
You expose yourself. The Fannie and Freddie mess have nothing to do with the subprime mortgage loan securitization mess. Fannie and Freddie are unwitting victims of the plague to mortgage backed securities and the downfall in value of home loans and also the willingness of perfectly solvent buyers to "walk" from a bad investment (even if it were their principle residence).
If there had been no subprime fiasco Fannie and Freddie would be pumping out "conforming" loans into GNMA just like widgets with no heightened risk. Boring would be the descriptio­n.. Greedy management and directors.­..you bet. But you should not miss where the "weapons of mass destruction" are in this particular slice of the Bushwa years of fiasco.