Dean Baker — Washington Post Pushes for Government Guaranteed Subprime Mortgage Backed Securities

The bulk of its lead editorialtouting the prospects for bipartisanship is focused on pushing the Johnson-Crapo bill, a measure that would replace Fannie Mae and Freddie Mac with a system whereby the government guarantees 90 percent of the value of privately issued mortgage backed securities (MBS). This means that Goldman Sachs, Citigroup and other folks who might issue MBS could now tell their customers that even in a worst case scenario they couldn't lose more than 10 percent of the value of their securities. 

Fans of the market should be asking two questions here. What problem is this intended to solve? And why do private issuers need a government guarantee?

More moral hazard and perverse incentives in FIRE.

Beat the Press
Washington Post Pushes for Government Guaranteed Subprime Mortgage Backed Securities

Dean Baker

Mike Whitney — The Economic Scam of the Century

This is such an outrageous, in-your-face ripoff, it shouldn’t even require a response. These jokers should be laughed out of the senate. All the same, the bill is moving forward, and President Twoface has thrown his weigh behind it. Is there sort of illicit, under-the-table, villainous activity this man won’t support?

Not when it comes to his big bank buddies, there isn’t.

Read the fine print. 

Incredible coming from the people that promised no more bailouts. Well, not really incredible at all considering who they are working for.

Counterpunch
The Economic Scam of the Century
Mike Whitney

Linette Lopez — Bank Of America Is Reportedly Being Investigated For One Of The Oldest Trading Tricks In The Book

Frontrunning Fannie and Freddie.

Business Insider
Bank Of America Is Reportedly Being Investigated For One Of The Oldest Trading Tricks In The Book
Linette Lopez

Bill McBride — Conforming Loan Limits and House Prices

In general the conforming loan limit has moved with house prices, however the conforming limit didn't rise as fast as house prices during the bubble.

Calculated Risk

Conforming Loan Limits and House Prices
Bill McBride

Taxpayers "make" $25 bln on a mortgage sale??????

This came across the headlines today and it shows how misunderstood the whole “bailout” was and is.

WASHINGTON (CNNMoney) -- Treasury just scored a big win -- it got rid of one of its financial-crisis era portfolios of mortgage-backed securities and made a hefty $25 billion profit, the department announced Monday. Treasury bought $225 billion worth of mortgage-backed securities during the height of the financial crisis starting from October 2008 through December 2009. Some of those securities were backing up loans thought to be worthless, financial analysts reported at the time. But Treasury's portfolio was made up mostly of 30-year fixed rate mortgage backed securities were guaranteed by Fannie Mae or Freddie Mac, making them more valuable. Last March, Treasury started the process of selling those securities. The agency reported that the total of cash from the sales, the principal and interest paid taxpayers back $250 billion. However, if the mortgages behind those securities fail, taxpayers will still be on the hook, since federal housing giants guarantee the loans and taxpayers have been propping up Fannie Mae and Freddie Mac. Treasury heralded the profit, calling it a successful winddown of a useful program that helped the nation navigate the financial crisis. "The successful sale of these securities marks another important milestone in the wind down of the government's emergency financial crisis response efforts," said Assistant Secretary for Financial Markets Mary Miller in a statement.

When the Treasury purchased $225 bln of mortgage bonds during the crisis in 2008 and 2009, it was simply an exchange of MBS for cash deposits (reserves) in the banking system, right?

Now the Treasury sells back those same mortgage backed securities to those same investors for a “profit” of $25 bln. So what has happened? Those investors (taxpayers) LOST $25 bln on that trade. (They sold for $225 bln and bought them back for $250 bln.)

Yet the news is calling this a profit for taxpayers.

Crazy!!

Frank replies to Wallison on the cause of the housing crisis

If you are following this.

Read it at The Atlantic
Who Is Really Responsible for the Housing Crisis?

by Barney Frank

Did Fannie Cause the Disaster? — Jeff Madrick and Frank Partnoy

Jeff Madrick and Frank Partnoy review Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon by Gretchen Morgenson and Joshua Rosner, Times Books, at The New York Review of Books.

Professor Frank Partnoy is the George E. Barrett Professor of Law and Finance and is the director of the Center on Corporate and Securities Law at the University of San Diego. He is one of the world’s leading experts on the complexities of modern finance and financial market regulation.

Partnoy is of the stature and calibre of Professor William K. Black, but not as prolific on the Internet. What he writes is a must-read in the field of financial forensic investigation.

Did Fannie Cause the Disaster? by Jeff Madrick and Frank Partnoy