The other cnbc.com report:
For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.
According to the Congressional Budget Office, the losses could balloon to $400 billion. If housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.
Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.
“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices.
Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”
At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee. The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.
One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities, whose company trades as much as $50 billion in mortgages annually.
“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”
After blasting Shiller last post for his “new vehicles” comment, I’ll turn around and agree with him that Fannie and Freddie should be more focused on the lower class rather than middle.
What nonsensical clap-trap near the end of that video. Steve Leisman is an avowed Keynesian and leftist. How is it that me getting a tax break comes at a renter’s expense? Their tax rate doesn’t change if the deduction is removed.
Also, the bottom 45% of American earners pay $0 taxes, and presumably, most of those people rent. So their taxes went from $0 to $0 and thus are subsidizing me, a homeowner, who is paying well over a third of my income to the government? If people actually thought through this, there wouldn’t be so many smoke and mirrors and class envy.
Jee, If you did not get “your” tax break, meaning you paid more in taxes, then “renters” should not have to pay as much in taxes to “makeup” for the “tax break” of the homeowners, but we all know even if “homeowners” lost their “tax break” nobody’s taxes would go down and the new revenue would be spent.
How is Fannie/Freddie helping the poor by putting them in overpriced houses with huge liabilities like property taxes, mortgage payments, insurance, and maintenance fees? Instead they could be using this money for investing in their career or small business.
If housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.
One of the easiest ways to see what’s coming is to take expert’s statements and replace any occurrence of “if” with “when”.
…and replace “as much as” with “more than.”
FDIC anyone?
wow Jeeman, I had a lot more respect for you before that comment.
That shows a real contempt for those who rent, assuming they are among those who pay no taxes.
I’d guess that the MID is responsible for non tax paying more often than the insidious disease of being poor. But, what do I know, I’m a dirty renter who also pays nearly half of my income in taxes.
Chuck
After the 30 year mortgage post, I’ve lost most respect for Schiller. I do think Fannie and Freddie serve a purpose in helping middle and lower middle buyers of homes. Everyone likes to talk about how they weren’t needed in the “old days”, but the banking industry was different then. You went to the local bank; you probably knew the banker from around town. Now, with only a handful of large banks dominating the scene, they seem uninterested in personal loans and only want to do big corporate deals. So, increasingly, people go to brokers for loans, who are just in it for the orignation fees, and couldn’t care less what happens to you once the deal closes. Without a Fannie/Freddie type entity, I’m not sure anyone except the wealthy would get loans.
Get rid of freddie and fannie? That’s funny. US agency-backed paper constitutes over 96% of the current market. There essentialy is no private market. Freddie and fannie ARE the market.
“… helping the poor get into the housing market”
huh ? Wasn’t putting poor people into the housing market one cause of the sub-prime fiasco ?
What a nutty proposition.
I agree that we should help the poor through education, and subsidize thier food and shelter in rough times.
But putting the poor into the housing market ?
Why would we place that kind of burden on one who is poor ? Owning a house requires a stable income and reserves for maintenance expenses, etc. Does it make sense to put a poor person into that circumstance ? How idiotic is that ?
If someone has the requisite income and resevres then they probably aren’t poor.
What’s next ? Giving the obese free supersize portions at McD’s.
Chuck,
I have no contempt for renters. I was one for most of my working years until this year. The point is that home ownership runs around 65% of Americans. That leaves around 35% who are renters. Since almost half of Americans don’t pay taxes, the majority of those renters are in that non-taxpaying category. (Majority, not all)
There were always exceptions, like myself and you (I was in your boat for 8-9 years), who is not in the bottom 50% and was told that I was a renting loser. I get your response, because I’ve had it before, but that isn’t what I was saying. In no way did I ever feel that because others were getting deductions, that I was paying more. It’s an easy talking point for politicians to make, and I’m all for more tax cuts, but I still think it’s just another type of class envy…and one I never fell into as either a renter or as now, finally, an owner.
Let’s say the deduction was removed in 2011. The deficit would go down, but all of the renters’ tax rates would be exactly the same as if the deduction were still in place. And face it, Obama’s identity politics are aimed at the rich, not the middle/lower classes…
Chuck, I used to read your blog a few times a week (hard to keep up with all the blogs nowadays), and you and I have almost identical beliefs. If you thought I was bashing renting, I’m not. You are probably making a smarter move than I did by waiting a year or two more. But I am willing to live with my decision.
desmo, I agree that we would still have massive deficits even as more tax revenue came in. The clowns in Washington love to spend and give out freebies. And some people want these politicians to be more involved in our lives?