Still Here

I haven't written for a while because I've got a bee buzzing in my bonnet. What will happen to us once the Federal Reserve stops buying mortgages from Fannie Mae and Freddie Mac at the end of March?
Not terribly sexy, I know, but my research so far shows, sadly, that it will affect all of us (negatively, it seems) and pretty darn fast.
But . . . the whole thing is complicated -- prepayment and default risks, for instance, and many competing views. I don't want to post on it until I understand it (which, frankly, might be never).
So I'm checking in to say I'm still here, researching this "stimulus withdrawal" or "reduction in quantitative easing" as the big boys put it.
In the meantime, let's give what brought us here another quick look. Because almost everywhere I look, I see reasonably intelligent people blaming George W. Bush for the subprime crisis and the ensuing meltdown. And it's utter nonsense.
Good politics don't always make good sense. Still, it seems that if the Democrats repeat something loud enough and long enough, people start to believe it is so.
Many minds much brighter than mine continue to debate the first trigger, why the crisis was so wide-spread, and who (or what) is to blame.
But many economists believe the Federal Reserve's policies, shaped by Chair Alan Greenspan, were a primary cause of the depression we find ourselves in.
Remember old Alan? Married to Andrea Mitchell of MSNBC? Alan, a pure free-market guy, served as Chairman of the Federal Reserve under Reagan, Clinton, and both of the Bushes. In the early to mid-2000s, he kept interest rates low, making money easy to borrow, and he nixed Brooksley Born's suggestion that derivatives be regulated.
After Clinton left office, Bush reappointed Greenspan. When he retired, Bush replaced him with Greenspan's protegee, "Helicopter Ben" Bernanke. Obama has kept Bernanke as chairman.
Both Greenspan and Bernanke were free market men, believing the markets would always right themselves, and ferret out fraud and misallocations of resources. Both men, many argue now, were wrong.
Greenspan did finally sound the alarm about Freddie and Fannie in 2005.
So on that bright note, I leave you with this incredible video.
It's a Congressional hearing from 2004 (back in the go-go days . . . remember them? When housing prices could only go up?). The Republicans were concerned Fannie and Freddie were loaning too loosely and that they did not have sufficient reserves to cover losses on subprime mortgages.
In response to these concerns, the CEO of Fannie, Franklin Raines, says (and sit down for this one) the loans Fannie issued were "riskless."
Yep, you read that right: riskless. Oy vey.
The video is long, I know (and I'm not endorsing the subtitles), but give it a watch as soon as you can. Bill Clinton makes a cameo appearance at the very end. And then write to tell me that this national, nay global, nightmare rests squarely with Bush and the Republicans.

Labels: Bernanke, Federal Reserve, Greenspan, Mbs, Qe, Raines