The Federal Reserve is going to unprecedented lengths to shore up the housing market, and in their latest announcement it seems that they want to spend more Taxpayer money to do so!
While the Fed has always remained politically unaffiliated, and never really endorsed one side or the other, their latest announcement via “white paper” hinting at them wanting to provide more aid to lending institutions through the purchasing of mortgage securities sounds awfully one sided!
But I digress, the issue at hand is not the political agenda of the federal reserve but rather how they are suggesting to provide this so called aid to lending institutions: though more taxpayer subsidizing. More specifically they are suggesting that Fannie Mae and Freddie Mac (which are government owned and taxpayer funded) purchase these securities. Once the securities are purchased they are then proposing that more agressive modification, refinance, and foreclosure sale actions be taken.
In essence they are saying that we, through Freddie Mac and Fannie Mae, should purchase these “bad debts” and then take the losses that the big banks are not willing to take! It amazes me how our government passes weak reform and legislation in the hopes that the banks will do what is necessary, and when these reforms inevitably fail their contingency is to have us further bail these banks out!
I understand the impetus behind this, and sure it would ease lending and increase spending in the housing sector, but at what cost? Are we not just perpetuating the problem that put us in the housing market crash in the first place: the ability for lenders to issue debt without having to assume any risk, as they can pass it off?
It is absurd to think that the only solution is for the taxpayers to take it on the chin, while lenders like Wells Fargo profit !!
I for one believe that this is a rash plan, and that further spending by our government is the furthest thing from a solution to our current housing market problems.
Let me know what you think below.
-JJM
John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals.
He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)
John, I agree with you 100%. These solutions being put forward are actually creating deeper involvement of Fannie and Freddie in the housing market, not less. These institutions failed because off graft, greed, corruption, and incompetence. Their failure caused the housing industry irreparable harm. The GSE’s could not manage a portfolio of mortgages, how in world are they going to transform themselves in property managers and a REIT (on a massive scale) – just transforming the business model will take an enormous capital investment in the business processes, systems, personnel and expertise that do not currently have. I recently blogged on the same topic at
http://moderninsights.com/blog/2012/01/08/bernankes-white-paper-the-us-housing-market/
Blaine, thank you for the feedback! Glad to see I have someone on my side.
-JJM
Blaine, thank you for the feedback! Glad to see I have someone on my side. -JJM