Sunday, December 25, 2011

Fannie May and Freddie Mac - The Zombie Lie

Fannie May and Freddie Mac - The Zombie Lie

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point.

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie — because, after all, they caused the crisis! Throw in The Wall Street Journal’s editorial page, which, on Wednesday, published one of Wallison’s many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie.

In Wallison’s article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.’s allegations show is that the Big Lie is, well, a lie.

Central to Wallison’s argument is that the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain “affordable housing mandates,” were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those “risky” mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

As Karen Petrou, a well-regarded bank analyst, puts it: “The S.E.C.’s facts paint a picture in which it wasn’t high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.” As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn.

Fannie and Freddie have been guilty of some accounting shenanigans, but that is hardly the same thing as being responsible for the financial collapse or Great Recession. There is one big problem with the rabid Right's big lie about Fannie and Freddie, they did not and do not make loans directly to borrowers. They buy loans from banks. Let's stop and think about some logic and facts. Freddie and Fannie bought laons from banks, but only if they meant Freddie and Fannie criteria - and sub-prime loans did not meet that criteria. Another logical point. If Fannie and Freddie caused the meltdown how come none of the big banks are calling for Fannie and Freddie to be punished or dome away with? Because Freddie and Fannie still provide a valuable service to banks. They buy loans that free up capital so the banks can make more loans. For some charts and other FACTS about the right-wing Zombie lie see here. This lie is important to the wacky far Right for one reason - they want to shift blame away from private enterprise-private banks. Which brings up another problem with the Big Lie - Freddie and Fannie are privately owned and private individuals can invest in them. They have corporate officers just like any corporation. Stop buying right-wing lies America. Just as conservatives lied about WMD in Iraq, they're lying about what caused the Great Recession. I know it is hard to believe that a political movement composed of your neighbors and friends who constantly talk about values and patriotism are betraying the country, but they have and they are.