When the history books are written and the causes of the problems that we face are discussed and debated one conclusion will be inescapable. The mortgage Agencies, Fannie Mae (FNM) and Freddie Mac (FRE) were central to the economic collapse of 2008. It would be unfair to blame all our ills on F/F. There were many bad actors in this show. But I don’t think the explosion that occurred in 2008 and the crisis in the economy that ensued would have been anywhere near as severe as it has been had it not been for the terrible decisions that were made at every level regarding the D.C. mortgage lenders.
I bring this up because quite frankly I am mad right now. Two important things took place Friday regarding the Agencies. Both of them upset me. In the fray of a three-day, 5% drop in the market; I think the implications were lost.
The first came from our gutless Treasury Secretary, Tim Geithner who said of the Agencies' future:
I don't think we're going to be able to legislate that until that process can start, until next year, because it's just a complicated thing to get right.
That is not true. The Treasury Secretary has been telling people in the press for months now that the problems with the Agencies were going to be addressed in the first half of 2010. As of Friday that time frame has been pushed back a year. The reason is politics. The Agencies need the mother of all bailouts. They have already cost us $100 billion. They need another $400-500 to write their portfolios to a level that would make them viable. After this past week’s election there is no support for another big bailout. Geithner knows he can’t go to Congress and say we have a permanent loss of a half trillion dollars.
Washington has been pounding the table of late saying, “We are going to get the people’s money back!” They have been beating up all the TBTF’s with one plan after another to show that they are getting tough. But when it comes to a problem in their own back yard they conveniently push it off another year with the excuse that it is, “Just a complicated thing”. That is a shameful statement. Geither has lost any credibility that he may have had left after this move.
The other oracle that spoke Friday was Congressman Barney Frank. He also said something brilliant. His words:
His committee will be recommending abolishing Fannie Mae and Freddie Mac in its current form and coming up with a whole new system of housing finance.
I have been studying the Agencies for nearly a decade. I started in the days of Franklin Raines. I knew he was lying about the books. I wrote everyone that I could that he was playing fast and lose. I was proven right. I saw their demise two years before it happened. I know the history of these two and how they became as powerful as they did and how they have played a critical role in the housing imbalances that have brought us to where we are. From my perspective there is no single person who has been as influential and central to the colossal blunders at the GSEs as Congressman Frank.
For Mr. Frank to now suggest that his Committee has concluded that what has been done for the past twenty years was a mistake and that his Committee would be “Coming up with a whole new system” is galling.
Mr. Frank is right; our system of housing finance is critically broken. An entirely new one is needed. But Congressman Frank should have nothing to do with the future of America’s mortgage finance system. His hands are dirty from the past. He has to accept his share of responsibility for the blunders that were made.
We need new leadership. It is not clear to me that we can recover from the mistakes of the past, but what is very clear is that we can’t repeat the mistakes of the past and have a chance of surviving.
The people of Massachusetts have done the country a favor with the recent election. They woke us up. They shook the tree. Now those same citizens have more work to do for the rest of us. They have to vote Barney Frank out of office.