Last week there was some discussion about what was to have happened today in Washington. This discussion centered around whether the government would or would not take certain steps to protect the housing market through a mandated deficit funded mortgage bailout.
Today, we have some new information on what Tim Geitner and a host of invited banking executives chit chatted about.
Seems that much of the talk in a few of the posts here centered on whether we could expect the Obama administration and industry executives to continue along socialistic lines, (Wall Street still knows better than Main Street), or whether lightning would strike and we’d decide to take our lumps now.
The answer’s in.
Obama administration invited banking executives Tuesday to offer advice on changing the government’s role in the mortgage market. Their response: stay big.
While the executives disagreed on the exact level of support needed, the group overwhelmingly advocated the government should maintain a large role propping up the nearly $11 trillion market.
Bill Gross, managing director of bond giant Pimco, said the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions homes backed by mortgage giants Fannie Mae and Fannie Mac.
Refinancing those homes at the lowest mortgage rates in decades would give Americans more money each month. That would boost consumer spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent, he said.
Without such stimulus in the next six months, Gross said, the economy will move at a “snails pace.”
Treasury officials have said they have no plans to enact such a plan, which has been the subject of intense rumors on Wall Street in recent weeks.
So it was just a rumor after all????? But wait….there was more…
Geithner did not offer a specific exit strategy for Fannie and Freddie. He agreed that the government could remain involved in the mortgage system by guaranteeing investors in mortgage-backed securities get paid, even when borrowers default.
There is a “strong case to be made” for such an arrangement, Geithner said.’
This is just like a professional wrestling match, the kind where heroes and crooks throw each other around the ring for a genuine good time and lots of laughs for the audience. It’s all fake, of course, but there’s no denying that the participants are powerful men who can certainly take you to the mat if they want to. And Terrible Tim Geitner, the reigning heavy weight champion, may be funny to watch, but won’t feel so funny when he makes the American taxpayer part of his smackdown.
When Terrible Tim Geitner says there’s a “strong case to be made for a mortgage system that guarantees that investors in mortgage-backed securities get paid, even when borrowers default, that’s carny talk that the fix is in.
Watch as the match unfolds. Lucha Libre Mortgage Reform is coming to a town near you.
Don Reedy says:
The match is underway.
Here’s Barney Frank playing the part of the Tweener in the opening round.
August 18, 2010 — 7:12 am
Michael Cook says:
What about the proposed plan of turning Fannie and Freddie into a co-op, owned by the major banks, Wells, BofA, et al. Any thoughts on that idea?
August 18, 2010 — 8:35 am
Don Reedy says:
Michael,
In the co-op situation I presume there is some type of plan to put Fannie and Freddie in the hands of big mortgage lenders, and then have the government charge lenders fees to provide guarantees on that debt? This would certainly put government into backup position, supplying insurance, and attempting to monitor and regulate risk. Policy makers who wanted to shape the mortgage and home ownership market would have to do so locally, or through transparent taxation, and not through Fannie and Freddie, which acted as if they were a shill in a game of chance.
What do you think as a financial guy?
August 18, 2010 — 9:39 am
Brian Brady says:
@ Michael- Didn’t you just define “the Fed”? I don’t hate the idea but careful analysis might draw the conclusion that the existing “co-op” got us into this mess
August 18, 2010 — 9:59 am
Michael Cook says:
I think it just adds another layer of beauracracy. If the government gets out of the business completely and provides no guaranties, then I would be all for it. I think the banks could collectively make good decisions and run the business like they own it. If banks have a real stake in the entities they will watch those entities very closely.
On the other hand, I just dont see the government giving up their role. Fannie and Freddie have the power to stimulate the economy rapidly. By simply easing lending standards, they were able to give the US housing market 10 years of bliss, which led to a strong economic performance in the greater economy. Quite a weapon for a struggling president to give up. I hope he does, but I doubt he will.
August 18, 2010 — 1:29 pm
Brian Brady says:
Remove the gov’t guarantee? Oh, I love that idea but I can’t see a dozen banks colluding to spread the risk around. They’d be snipping at each other like yap dogs without the gov’t to be a backstop.
It’s an interesting idea to sell off the GSEs to the big banks though. Do you think they’d buy in?
August 18, 2010 — 2:59 pm
Sean Purcell says:
Great post Don. I haven’t been able to follow this the way I want and you’ve done me an invaluable favor.
I don’t see where the banks have any interest in buying the GSE’s without government backing. Even if they would, I’m not for it until we’ve moved away from the idea of “too big to fail” which, let’s face it, is a tacit government guarantee and explicit government backing.
This is all moot anyway: no way the administration (of either party) gives up the vote generating tool that is guaranteed home loans. Nor do I hear any clamor from the boss (which would be the American public) to stop helping people buy homes with less than 20% down. The change will come with the collapse, which we can only pray will be sudden and devastating…
August 18, 2010 — 6:03 pm
Mark Brian says:
Isn’t all of politics nothing more than a Luche Libre wrestling event?
No changes will occur unless the banks want it to happen in my opinion.
August 19, 2010 — 8:16 am
Don Reedy says:
Sean> “This is all moot anyway.” Agreed.
Mark> Politics = Lucha Libre. A well established proposition.
August 19, 2010 — 8:25 am