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« Backlash | Main | Pressing on »

Nov 18, 2008


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Al Kaader

No more phony than Saddam flying one of the planes into the WTC with his WMD's and that's why W Bush had him hanged high.


Didn't Fannie and Freddie securitize much of their debt as well? Read a good article in BW about the mortgage wholesale business. Talk about rampant out and out fraud.

Beau D. Jackson

Once again, the whole Fannie/Freddie/liberal mandates story is phony.

Every economist, and people in the know, say it was Fannie & Freddie that caused the meltdown, you must be either the smartest human being in this world, or the dumbest! Beau


Ed has been trying to shift the blame to avoid this all coming back on Democrats for months. Notice how the timeline of 2003 is being conveniently being used when the fact is that the mortgage boom started in the late 90's.

Ed also doesn't mention what Fannie and Freddie did with their loans.

This is all politics. Period.

Ian McDowell

No man who can't figure out the purpose of quotation marks should ever call another man stupid.


No man who believes that Paul Krugman can write about something like this without having a partisan agenda is that smart either.

Back to the question about what Fannie and Freddie did with their loans.

Notice the relationship between the Fannie and Freddie line and the asset backed securities line.

"In 1998 Freddie owned $25 billion of other securities, according to a report by its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO); by the end of 2007 it had $267 billion. Fannie’s outside portfolio grew from $18.5 billion in 1997 to $127.8 billion at the end of 2007." The Economist

Why does the chart Krugman cites end in 2003?

To tell only a part of the picture to fit his spin.


....i dont know much, but after 7 years of surgical training, i do know shit when i smell it...and FNM and FRE are full of it...they are widely known among congressional staffers as serving the best food and drink at the cocktail parties...doesnt matter now lets just fix the damn thing

Ed Cone

The chart clearly extends well past the final year marker on the horizontal axis, which is 2003.

F&F were late to the party. They were players by 2005, as the chart indicates, and deserve some measure of blame for the mess, but they were not the instigators or the cause, which is the core mythology being promoted in some quarters.

Note the near-vertical rise in the blue line representing asset-backed securities issuers, which coincides with the great inflation of the bubble.

Blame for this mess lies with both major political parties, with the banks and the regulators, and with consumers.


This mess dont need fixin. They expanded the voter base, tax base and lobby base which created incumbents at a 90+% rate over the last 20 years. Where else can you find this type of efficiency from a Congressionally spawned idea? Do you want these guys in the surgery business instead? A conflict among the lumpen is all the potent directors and the plunge protection team want from this
imbroglio. They'll change neckties along with today's feckless strategy tomorrow. You are being boiled alive slowly. You won't feel it when your skin comes off and they make lampshades, wallets and portfolio binders from it. Isn't it fun anticipating change from a system which creates incumbents at such a high rate? Wished I woulda thunk of it.

Longtime Reader

"Why does the chart Krugman cites end in 2003?"

It doesn't.

Why can't Sammy read a simple chart?



"The chart clearly extends well past the final year marker on the horizontal axis, which is 2003."

No it doesn't.

F&F were not "late to the party". That is BS and you know it.

Ed Cone

Who ya gonna believe, Sam or your lying eyes?

You can keep saying otherwise, Sam, but the horizontal axis goes well past the 2003 marker. Judging by the space between ten-year markers, and the number of dots in the light-blue finance-company line, the chart appears to track mortgage-debt holdings to 2008.

And it shows an uptick in F&F's previously-declining market share well after the private lenders had inflated the bubble, as has been well documented.


The graph is generated from this data, but is Sam seriously saying that there is no data in that graph past 2003?


If the graphic comes from that data you linked to, why does that data start in 2004?

Why does Krugman end his analysis in 2003 and what about the inverse relationship between Fannie/Freddie and the blue line? I suggest you read the Economist article I cited for a more thorough graph and analysis of what Freddie and Fannie were doing as late as 2007.


"And it shows an uptick in F&F's previously-declining market share well after the private lenders had inflated the bubble, as has been well documented."

Notice the use of "private lenders" by Ed. Completely ignoring Fannie and Freddie's involvement in said "bubble" as well as conveniently picking when the bubble occurred.

You play a bit of sophistry here by using the fact that Fannie and Freddie's market share may have been diluted by private lenders between 2004-2006 to confuse people into thinking they were doing less. Further, you ignore what they were doing in buying/selling these securities well before 2004 and continuing afterward.

Ed Cone

Sam, you're either unable to read the chart, or unwilling to admit that you misread it.

Either way, your inability to address the data presented makes discussing it with you an exercise in futility.

Nobody is making the reductive arguments you want them to make.

There is plenty of blame to go around, and both political parties deserve their share. Fannie and Freddie are part of the story.

But the Fannie/Freddie/CRA as primary-cause argument just does not fly.


The source is the Federal Reserve Board, that page just showed one time frame of data, including most of the most bubble related mortgage origination. Are you sticking to the idea that there's no info past 2003 on that graph?

If you want people to look at the Economist article, provide a link.

Ian McDowell

sam's Charles Durning impression is remarkable.

"Ooh I love to dance a little sidestep, now they see me now they don't . . ."


Pretty smooth for a fat guy.


Why put bubble in quotes? Is the existence of the bubble argued anymore? It's also very clear when the bubble peaked in 2006. Had the bubble started deflating in 2004, the problems would not be so bad. Ex. a home with a rental-income-producing value of $150k maybe sold for $200k in 2004, but for $300k in 2006. Moving from 2004 prices to 2006 prices moved the potential losses on that given mortgage from $50k to $150k - TRIPLING the loss. To get the same home buyer to qualify for that home would have required loosening of standards in 2006 that wouldn't have been needed in 2004. The more loans & market share firms were making around 2006, the more they had to do with the bubble, and thus the bigger losses they've seen.


I thought the primary cause of the financial meltdown was the quick and easy selling of mortgages, which allowed mortgage lenders to make home loans to not-so-qualified people but unload them quickly before they finally defaulted or started missing balloon payments. As a result, loans were made that might not have been made otherwise.

I don't think anyone can say that Fannie and Freddie were not part of the problem, but I don't think they were the entire problem either. As the investments of large banks in shaky real estate portfolios that started to crumble all at one time when sale prices started to fall were what resulted in the massive (and speedy) meltdown. Although real estate prices started to fall much earlier, only when the large banks started having problems did we see Wall Street starting to lose confidence.

Ed Cone

Somebody had to hoover up those crappy mortgages and package them into securities for the whole game to work. Look at the near-vertical blue line on the chart, and its timing, and you get a good view of that part of the story.


"There is plenty of blame to go around, and both political parties deserve their share. Fannie and Freddie are part of the story."

But that isn't the argument presented at first, is it?

The Fannie/Freddie line goes down as the blue line goes up. Still not addressed by anyone.


As one informed commenter on Krugman's page noted "Krugman’s an observant guy but unfortunately cannot seem to divorce objective expression of facts from his ideological agenda for longer than a day or 2 at a stretch."


Ed Cone

"The Fannie/Freddie line goes down as the blue line goes up. Still not addressed by anyone."

Actually, that is the very point addressed by Krugman in the text quoted in my post: "The two lines to track are the ones at the top...[Fannie and Freddie] pulled back sharply after 2003, just when housing really got crazy." He then notes (also in the quoted text) the rise of the blue line.

The opposite directions of the two lines, which you say nobody has addressed, is addressed specifically by Krugman. It is a key to his argument, and thus is quoted in my post.

BTW, what year do you think the chart ends?


"Somebody had to hoover up those crappy mortgages and package them into securities for the whole game to work."

I agree Ed, but bundling on its own isn't even the problem.

It was doing it in a way where the underlying risk was obscured. Crappy mortgages, ironically, aren't necessarily a problem -- you just balance return for risk, require mortgage insurance, etc. Likewise it isn't necessarily irresponsible to package securities. In fact for high risk issues, it is probably THE MOST responsible approach--ie, spreading risk.

However, the problem is when you can't estimate what the risk is...

It was simple greed that allowed the banks etc to ignore risk because the returns were flowing.

Ironically, the low interests rates set by Greenspan were a big part of the problem, but not because it allowed people to take out risky loans, it was because large investors borrowed heavily on this cheap money, and then they way overextended themselves on crap securities with high short-term return, but huge --albeit opaque--risk. When THEY started to fail, that's what couldn't be contained.

(ps. Sam made a mistake about the chart's time line. It is so obvious that sooner or later he'll understand. Although I know it is hard, how about letting him off the hook to let him save face... Sooner or later he may appreciate such grace too.)


OK, my education on subprime is as complete as it’s going to get so here’s my take on the Card article and your response to it. First, the primary subject of the article is clearly the abandonment of journalistic integrity by the ”mainstream” media, in this case, with emphasis on local newspapers. This is the same topic I tried unsuccessfully to raise with you earlier, my emphasis being on traditional and cable TV news networks. I want to be clear on definitions here. By loss of integrity he (and I) mean intentional liberal bias in reporting. By liberal bias we mean blatant favoritism of democratic or liberal principles or candidates and equally negative coverage of Republican or conservative candidates or positions with the intent of influencing the result of an election. No need for any obtuse " blacks voted overwhelmingly for obama, and tend to vote strongly for democrats in general. so...blacks are liberal, right?but: blacks were instrumental in the prop 8 anti-gay-marriage referendum in CA last week. so...blacks are conservative?" definitions of what is liberal and what is conservative, OK?
The secondary subject is the example of media coverage of the two candidates’ and parties’ stances on government regulation of GSE’s and other lenders subject to the CRA leading up to the crisis and thus their relative culpability in its outcome.
Your objections to the article are basically that GSE’s and their oversight were a significant, but not the primary factor which led to the crisis. From my limited research I completely agree. However, some of yours (and Klugman’s ) points do not seem so clearly borne out. First Klugman’s conclusion from this very busy graph, incompletely labeled and without footnotes or accompanying analysis from its source, seems a little simplistic (and as I found below, self-serving) and the graph itself raised more questions for me than it answered, some of which I submitted to you earlier. If you read the Wikipedia entry I sent earlier (see attachment), it would seem to show a much greater role for the GSE’s and a greater significance of the years 1994-2003 in general in terms of the subprime crisis than Krugman would like to admit. It also contrasts with your statement that “Fannie and Freddie were relatively late to the subprime party”. Sounds to me like they were pioneers from the mid 90’s to 2003, which is not inconsistent with the graph. Finally, even after the divergent trends he refers to which began in 2003, the GSE’s still held nearly twice the outstanding debt as the “asset-backed security issuers” although from the graph, we can have no idea how much of that was subprime. Also, consider the source. I looked up Klugman on Wiki and this is what I found.
Paul Krugman
From Wikipedia, the free encyclopedia
Paul Robin Krugman born February 28, 1953) is an American economist, columnist, author and intellectual.[2] He is a professor of economics and international affairs at Princeton University, and a columnist for The New York Times [edit] Biography
[edit] Political views
Krugman is a self-described liberal. His choice of the book title "The Conscience of a Liberal" is a play on Barry Goldwater's "Conscience of a Conservative" He is an ardent critic of the George W. Bush administration and its foreign and domestic policy.
[edit] Author and journalist
In September, 2003, Krugman published a collection of his columns under the title, The Great Unraveling. Taken as a whole, it was a scathing attack on the Bush's administration's economic and foreign policies. His main argument was that the large deficits generated by the Bush administration—generated by decreasing taxes, increasing public spending, and fighting a war in Iraq — were in the long run unsustainable, and would eventually generate a major economic crisis. The book was a best-seller.[28][29][30]
In 2007, Krugman published The Conscience of a Liberal. The book is a history of wealth and income gaps in the US in the 20th century. The book documents that the gap between rich and poor declined greatly in mid-century, then widened in the last two decades to levels higher than those in the 1920s. He rebuked the Bush administration for policies that currently widen the gap between the rich and poor. Krugman proposed a "new New Deal", which included placing more emphasis on social and medical programs and less on national defense.[31] The book was praised in outlets such as The New York Review of Books,[32]
Krugman has appeared several times as a guest on MSNBC, particularly since the onset of the economic crisis in September 2008. He has repeatedly expressed his view that Alan Greenspan and Phil Gramm are the two people most responsible for causing the crisis.[34]
. [edit] Income distribution
In the 1990s, Krugman increasingly focused on writing books for a general audience on issues he considered important for public policy. In The Age of Diminished Expectations and The Conscience of a Liberal, he especially wrote about the increasing US income inequality in the "New Economy" of the 1990s. He attributes the rise in income inequality partly to changes in technology, but also partly to the weakening of the welfare state.
[edit] Criticism
Throughout his career as a columnist, Krugman has been highly critical of what he regards as dubious economic ideas, such as: protectionism, with attacks on Pat Buchanan on the Right and Ralph Nader on the Left; a return to the gold standard as promoted by editorial writers in the Wall Street Journal; and especially supply-side economics, which he described as economic "snake oil" in Peddling Prosperity. He has frequently been criticized in turn by exponents of these ideas; the journalist James Fallows spoke of his "gratuitous spleen," and Clinton commerce secretary Jeffrey Garten complained that "He behaves like someone with a massive chip on his shoulder." administration.
A November 13, 2003 article in The Economist [46] reads: "A glance through his past columns reveals a growing tendency to attribute all the world's ills to George Bush…Even his economics is sometimes stretched…Overall, the effect is to give lay readers the illusion that Mr Krugman's perfectly respectable personal political beliefs can somehow be derived empirically from economic theory."
.Economist Daniel B. Klein published during 2008 a paper in Econ Journal Watch, of which he is the chief editor, that reviews and criticizes Krugman's columns for the New York Times. Klein contends that Krugman's "social-democratic impetus sometimes trumps people's interests, notably poor people's interests... Krugman has almost never come out against extant government interventions, even ones that expert economists seem to agree are bad, and especially so for the poor."
Good gosh, Ed. Could you have picked a more biased “expert” to weigh in on this? Aren’t you the guy who called my use of IRS tax tables to illustrate points about tax issues “cherry-picking”? What would you call your use of this source as a way of downplaying Congress’s role in the subprime debacle, then?
Back to Card’s article. In your blog, you had this exchange with Xxxx Xxxx about the article:
“Was there anything wrong or incorrect with the article?”

Nothing wrong with Sci-Fi writers or even tech writers. Just because they make their living in one world doesn't disqualify them for observing the real world.”
Posted by: Xxxx Xxxx | Oct 23, 2008 at 03:20 PM
“I love sci-fi, and have fond memories of reading Ender's Game with my son long ago. Scott's a nice guy, and I look forward to being on a panel with him next week at Beth David synagogue.
But saying that Fannie and Freddie were the root cause of the housing crisis is simplistic to the point of being incorrect, and ignoring the role of heavily-lobbied GOP members of Congress in heading off reform of F&F is a serious oversight. Certainly the Dems bear plenty of blame for F&F, but they were not the singular cause of the housing mess Card claims them to be -- and meanwhile, the entire housing market could have gone belly up without wrecking the global financial industry -- it was the huge pile of opaque and unregulated securities stacked on top of the mortgages that fueled that disaster.
So, yeah, there was something wrong or incorrect in the article -- hence my pleasantry about it reading like science fiction.”
Ed, I completely agree with you that Fannie and Freddie were not the sole cause for the subprime mess, maybe not even the biggest. However, if Card would concede that point and substitute “largely fueled by” for “a direct result of” in the third paragraph, I can find nothing but truth in the remainder of the article. In narrowly focusing on the “ A cause vs THE cause” argument , you are missing the big picture and the point that has resonated with so many people about this article. His point and mine, which I feel is indisputable, is that the media deliberately ignores covering whatever role the failure to support tighter regulation of the GSE by democrats DID play in the debacle and if it was the republicans who had resisted tighter regulation they would have been crucified. If you deny this you are living in a dream world. Even Saturday Night Live knew the democrats were on the wrong side of the subprime crisis. I saw this last night on a rerun. It was hilarious. Oddly, shortly after it originally aired the video was pulled by NBC from the internet. Hmmmmmm. http://www.youtube.com/watch?v=epE9lk0xj68
People are pissed off that they don’t know where to find neutral reporting about what goes on in their world, Ed. People are pissed off that the media tries to influence rather than cover elections. Ordinary working people have no desire or time to find their favorite blog or find which network’s ideology most matches theirs. Most people don’t have a choice when it comes to local newspaper. You can accuse me of shouting slogans, platitudes and nonsequiturs all you want, but as a journalist who by my observations seems incapable of conceding any point a conservative makes, you are being complicit in the disintegration of your own profession. Conservatives cannot all be dead wrong all of the time. I say this with all due respect to you and the principles for which journalism once stood. I will leave you with my specific response to Card’s article.( attachment #2) I emplore you to at least watch the the imbedded congressional hearing video. It is powerful and worth all my words combined http://www.youtube.com/watch?v=_MGT_cSi7Rs


"His point and mine, which I feel is indisputable, is that the media deliberately ignores covering whatever role the failure to support tighter regulation of the GSE by democrats DID play in the debacle and if it was the republicans who had resisted tighter regulation they would have been crucified."

Have you read the legislation you're referring to? I have, from front to back. Especially the piece of crap that Liddy Dole cosponsored. Let me summarize for you:

Republican efforts to regulate Fannie and Freddie amounted to getting rid of two regulating entities and replacing them with one, and giving a Bush-appointed Director the power and ability to do something Republicans have drooled over for decades: the piecemeal removal of "entitlement"-type programs that focus on poor(er) citizens and communities, and even the actual "shutting down" of the GSE's themselves. For future reference, most of the time you see the word "reform" in a Republican effort, you can translate that to, "Do away with".

And even more than Conservative ideology pushing this effort was/is the desire by totally private banks to get their grubby fingers on the trillions of loans that F&F control. Which is one reason why Liddy Dole's two biggest contributors were:


Wachovia Corp $65,950
Bank of America $42,900


Wachovia Corp $72,450
Bank of America $59,850

Here's the text, and note sections 301 and 311:



congressional hearing video

This is the first google return from your youtube link:
California Condors

Al Kaader

Neither side offering hard evidence concerning the failure of their model is enough for most reasonable people to assume that they were complicit or conspired in the swindle. When the guys with ties draw lines, use averages, projections and trends, this is not evidence. It is opinion, or guesswork extracted from evidence. If one fails to construct a mutable model of how the world works, then one runs a chance of always being a victim of cheriism, Coneism, Cardism or, worst of all, Kaaderism. The media constructs its programming for the disciples of the dysfunctional models. You can not test the flaws in a suspect model unless the model you test with is more flawless. This will enable a nonexpert in a field to examine the claims of guys with ties and their minions at the Department of Dysinformation. The DoD is the master of tautology. You can tell when they say things such as, "sugar is bad for you," "the survivors are alive," "country first", "liberals", "conservative" and "change". The overwhelming evidence appears when humans holding signs stand up behind them and bobble their heads when something is said which only they understand. This division on the opinions of the dysinformation is needed for the DoD to work. Mass-marketing of distrust by both parties in the DoD is needed also. When we demand that the same guys with ties resolve the issues which caused the crisis we are dysinformed of, we increase the flow of resources and power to the creators of the DoD. Before anyone considers the guys with ties as credible, compare the "evidence" with the data in your own model. See if their results are repeatable. If the only thing which repeats is inflation, boom and bust cycles, poverty and more social stress, then their model may be critically flawed. If their model results in the prudent and innocent being punished or penalized, then the flaw may not be in your model. The guys in ties may be wearing clip-ons.


For those more knowledgable about proposals for increased regulation of the GSE's and the two parties' stances on it, what is the take home message from this video, the partisan editing aside?



The two parties' stance is this...."Together we can fix this, but you must trust us completely and let us hold all your stuff."

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