The new housing bubble?

posted at 2:55 pm on December 29, 2009 by Ed Morrissey

Over the weekend, I noted the late-Christmas Eve announcement that the Obama administration had lifted the bailout caps on Fannie Mae and Freddie Mac, attempting to sneak it past Americans while they focused on family, friends, and religious observance.  The obvious conclusion was that Barack Obama wants to use the collapsed GSAs for even more social engineering through the lending markets, and wants an unlimited supply of cash from Treasury to force taxpayers to subsidize the next failure.  The Washington Examiner has reached the same conclusion:

Obama’s decision is particularly disturbing for two reasons. First, taxpayers have already sunk $111 billion into the Fannie-Freddie bailout in just the last few months. The removal of the $400 billion cap suggests that things are about to worsen considerably. Second, it was precisely such government guarantees that caused the housing bubble and economic collapse in the first place.

In 1999, when Fannie Mae initially began securitizing subprime mortgages in a pilot program, American Enterprise Institute’s Peter Wallison predicted in the pages of the New York Times that a massive bailout would eventually be necessary. Wallison’s warning was ignored by President Clinton and the Republican-controlled Congress, which together allowed the pilot program to expand year after year. The process continued under President George W. Bush, with loan standards being steadily lowered by Fannie and Freddie in their effort to give 55 percent of their mortgages to families at or below the median income level. The economic carnage of politically motivated mortgages surrounds us now.

Today, Wallison points out that nearly two-thirds of the nation’s subprime and otherwise bad loans were created, securitized, backed by, and/or required by various programs within the United States government, including Fannie and Freddie, the Federal Housing Administration, Ginnie Mae, and the Community Reinvestment Act. Ten million of these 17 million dicey mortgages — or about 40 percent of the nation’s subprime and otherwise low-grade mortgages — were either owned or securitized by Fannie and Freddie when they collapsed last year.

That Obama would now give these two companies a blank check is incomprehensible. Taxpayers got another thumb in the eye when Fannie and Freddie chose the same Christmas news dump to announce $42 million in bonuses for 12 top executives — obviously for their excellent work last year as they drove the ship into the iceberg. Keep that one in mind the next time you hear Obama feign outrage over Wall Street bonuses.

The question that everyone should be asking is why the untapped $289 billion in the credit line isn’t enough.  That represents more than three times the amount spent already, when the crisis hit its peak.  At this point, we should be seeing improvement rather than an escalation of crisis in the housing market, or at least some stabilization, if this strategy was correct in the first place.

Instead, Obama now wants no cap at all, which means that he has plans to spend a lot more money on inflating a housing bubble that still needs deflating.  That will once again start the cycle of price escalation, speculation, and eventually another collapse of the bubble.  The pattern is utterly predictable, as is the damage it will inflict on the economy.

We need to demand some answers from this administration from its attempt to aggrandize its power in the dark of night.


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Comment pages: 1 2

Tha Captain is right. There is something seriously wrong here. Add essentially unlimited finance to these two corporations to the unspent stimulus money and there is the potential for some serious misuse come the 2010 and 2012 election cycles.

You need to read this in conjunction with Invasion of the Election Snatchers in the Wall Street Journal, as story about people from NY city purchsing second homs in urban areas and possibly changing the voting balance (By voting illegally in the urban location).

Conservatives need to understand the Democratic Party is now controlled by the left of left wing of the party. Those in Congress (even though they are the majority) have shown they will ride roughshod over parliamentary procedure to achieve their aims.

Considering the lax election laws in this country I doubt the party will think twice about misusing funds to further their aims.

davod on December 29, 2009 at 8:40 PM

The answer is property taxes and funding of state governments. See this Graph of the Day at American Thinker for basis of this theory.

WashJeff on December 29, 2009 at 3:09 PM

I’ve been thinking about this comment all night (and the graph) and this has to be the real reason for lifting the bailout caps on Fannie and Freddie. To keep property values artificially high so that local governments can keep raking in the cash on the property taxes. It’s all part of Obama’s “saving or creating” jobs – local government jobs.

This came up on Glenn Beck’s show tonight, guest hosted by Charles Payne. He asked his guests (including the very wise Stuart Varney) why they thought Obama was doing this. I was kind of surprised that none of them suggested this could be the reason. It makes a lot of sense to me.

You’re a smart man, WashJeff!

UltimateBob on December 29, 2009 at 9:39 PM

Just wait… Shortly before the election, “affordable housing” will become “a human right–just like health care!!!” It’s simple: Vote for Obama and the Democrats and get a free house.

Prepare for serfdom now. Can you maintain your current standard of living with 70% income tax rates?

mojojojo on December 29, 2009 at 9:48 PM

Thought I heard on Glenn Beck’s panel today that Fannie & Freddie now own the vast majority of mortgages in the US.

This means that obama has also taken over the housing market.

Let’s add that to the auto, banking and health industries. In less than a year, we HAVE ALL BUT LOST the USA.

Does anyone seriously think that we can wait until 2012, or even 2010?

It sickens me to say this, but “B+ ‘Bama” and his handlers have made us all look incompetent as they methodically and exepertly take over the nation in order to destroy it.

We need to make the case now and loud and strong for impeachment. It doesn’t matter if the House is communist, we need THE PEOPLE calling for it. We can’t keep being shoved back on our heels as we play defense and we can’t keep crying and writing articles about every filthy offense that he commits daily. We must have only one tune and millions of us must sing at the top of our lungs until the tyrant crumbles; there should be millions of us marching on the White House with ONE and ONLY ONE sign, chant and purpose: impeach, IMPEACH, IMPEACH!!!!!!

tigerlily on December 29, 2009 at 10:06 PM

Some banks got their losses fully protected by the government , they rather foreclose then.

the_nile on December 29, 2009 at 3:28 PM

Interesting if correct. Foreclose while the government is covering the banks losses. A good as theory that I have heard.

WashJeff on December 29, 2009 at 3:32 PM

I can personally vouch for this. I got laid off in April, and could no longer pay my mortgage here in FL. I was upside down in my house to the tune of 120K. I had NEVER missed a payment of any type including CC’s, Auto, etc. I acted as a good American, and wanted to pay what I could for as long as I could hoping that I would find new work and right the ship. That is when the total sham of the Home Owners Assistance Program came in to light.

I called Chase like the bank and the government had asked me to do BEFORE I defaulted on my loan, so I could try and work out an agreeable amount for my loan. I didn’t want to lose my house or be a dead beat. Then the most unbelievable thing was said to me. Chase told me that they would not speak or meet with me until I was in default of my loan for at least 30 days!!! This was the ONLY way to qualify for the HOAP. I couldn’t believe it.

It only got worse from there. When I finally met with them, they told me right of the bat that there could be NO modification to the principle of the loan. Only deferred payments that were then back-ended to the loan. So in other words, they were just creating another bubble for a maximum of 5 years. So I told them that was ridiculous and that I would be putting my house up for short sale… they said go right ahead. This got me to thinking… why would they want me to do that, and still right off the balance of the unpaid loan? It is very simple… that is because they have a government guarantee that the wright off amount would be fully covered by the tax payers (you and me). Now, to make the deal even sweeter, if you actually let the house go into foreclosure, it is a total win for the bank! They get to wright off the original loan, and get the property back to resell and make another loan… all courtesy of our tax payers money. What does the government get out of this… Well, since they have bailed the banks out, they now will own all the new loans and mortgages these banks write either directly or indirectly through Fannie and Freddie. In other words, they own the property, and now they own your ass! Can you say imminent domain? Or redistribution of wealth and assets? It is coming, and there is likely nothing to stop it. This is why they just uncapped Fannie and Freddie. They want to force everybody into serfdom, and if you don’t play along, they will raise your taxes, or take your house.

The Dead Terrorist on December 29, 2009 at 10:36 PM

Obama is a one man economic disaster.

elduende on December 30, 2009 at 1:22 AM

Socialism is not built on a strong economy, rather it needs one that has failed to bring about a situation where it will be accepted. Obama and the far left socialist/communist democrats, the future elite politicals, have been surprised and worried about the political self organizing of the majority of the American people against them. Their plans have been interupted and postponed, forcing them to work in the dark of night and hide in the shadows of weekend news. It would appear that Obama does not believe that the economy is bad enough to insure the sucesse of his dream of changing the America from a capitalist country to a socialist one. He needs a destroyed economy that will drive the people into the arms of the government for survival. Keep in mind that it was through the forcing banks to make those risky loans that got us where we are. If there is one thing that liberal socialist do, it try and use what worked before. Hence, the weekend dead of the night house vote on health care and Reids following the same decietful path in the senate.

Franklyn on December 30, 2009 at 4:32 AM

Comment pages: 1 2