Too Stupid To Succeed

I've spent the last two and a half years learning about the financial crisis that the United States created to make life interesting and I think I know a fair bit about it. That being the case, I always chuckle about the Republican meme in the blogosphere and the media that it was caused by things like Fannie and Freddie and the Community Reinvestment Act because it's ignorant horseshit.

I'll grant you that those things didn't help any, but they certainly weren't the cause of the Great Collapse of Aught-Eight. The housing market itself fell apart sometime in the late spring or the early summer of 2007, yet the banking sector didn't take it in the nuts until nearly a year afterward. More importantly, housing is traditionally a lagging indicator of financial trouble. I'm not aware of it ever directly leading to doomsday before.

In fact, there are few modern bubbles that have wrought the kind of destruction that the housing bubble did when it burst. The stock and tech bubbles burst, were a pain in the ass for about a year, and everything went back to normal. So you can't even argue that the housing bubble or the bad loans therein caused this disaster.

That's because the banks did it, specifically through over-leveraging themselves and playing with credit default swaps, even though they didn't know what they were, what they did, or how they worked. History teaches us that greed and stupid is a disastrous combination, but MBAs were never particularly celebrated historians. Most bankers can't tell you what happened six weeks ago, let alone eighty years ago.

But Republicans, who have made ignorance to something to be congratulated, continue to blame Fannie, Freddie and and the CRA because they were created by liberals. Oh, and they would very much like it if the banks would contribute to their campaigns. Sure, most of those jerk-offs - even the ones who voted for it - continue to rail against the bailouts, but they really don't mean it. And the ones who voted against them are too dangerously dumb to believe about anything.

It therefore stands to reason that the banks now want to become Fannie and Freddie. Be afraid. Be very afraid.

As the Obama administration prepares a report on the future of Fannie Mae and Freddie Mac, some of the nation’s largest banks are offering a few suggestions.

Wells Fargo and some other large banks would like private companies, perhaps even themselves, to become the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.

The banks have presented their ideas publicly through trade groups. Housing industry consultants and people familiar with recent meetings at the Treasury Department say these banks view the government’s overhaul of the mortgage market as a potential profit opportunity. Treasury officials have met with executives from several institutions, including Wells Fargo, Morgan Stanley, Goldman Sachs and Credit Suisse, according to a public listing of the meetings.

The administration’s report, to be released later this month, is expected to be sweeping and could address basic questions like whether a government guarantee is needed at all for middle-class homeowners. While other arms of the government are dedicated to making loans available to lower-income borrowers, Fannie and Freddie have helped lower rates for the bulk of homeowners. Some Republicans are trying to narrow this broad role, and on Thursday, several conservative researchers released a proposal on how to do so. But banks, for their part, have told the administration that removing the guarantee would wipe out the widespread availability of the 30-year mortgage, fundamentally reshaping the American housing market. Though some other countries do not promote long mortgages, some analysts warn that such a change would be devastating to the market here. At firms like Goldman, analysts are predicting that a government guarantee on a broad swath of mortgage securities will survive in some form.

Great!

I don't want to belabor the history here, but it's important to remember that the banks fucked around with the housing market and nearly destroyed the global economy, necessitating what will turn out to be trillions of dollars in direct bailouts, loans and guarantees from the American taxpayer. In the wake of that disaster, they gave themselves jaw-dropping bonuses and spent hundreds of millions of dollars lobbying against even minimal government regulation of how they do business.

And all of that was absent any direct federal guarantee. Can you imagine what they'll do with one? It's notable that these incompetent ghouls still don't know if they own the mortgages that they continue to foreclose on.

On the other hand, this should prove to be an interesting test to see how serious the Tea Party is about practically everything. It's a virtual certainty that the banks will be even more wrongheaded and reckless with a government guarantee that they were without one. But they sure do seem to be fans of big business, which is why their political masters so rarely cross them.

Are these people going to stand for the creation of several entirely private Fannie and Freddies that all carry the explicit risk of moral hazard? I'm betting that they will.