Interesting article going over the economics of Fannie Mae and Freddie Mac. The article starts with the housing crisis and how those two did not create the crisis. This states that the housing crisis was started because of the mortgages that were given out and "When you bring in 5 million marginal buyers who under normal circumstances would not qualify for a mortgage, that's what ends up driving home prices," said Barry Ritholtz, CEO of Fusion IQ. Do you think that Freddie and Fannie could have done anything differently to change the crisis we are in now?
I think that Fannie Mae and Freddie Mac should not have guaranteed mortgages extended to individuals that had no chance of carry them to maturity. However, I think we should evaluate the investment process that surrounded the market for mortgage securities. As investors were making quite a bit of money by investing in mortgage securities, they began to pressure the banks to extend more mortgages. Banks began extending mortgages to high risk individuals(low probability of being able to pay off mortgage). When the short term interest rate ran out, homeowners were unable to pay and home foreclosed. I think the bigger problem is that investors became obsessed with mortgage securities.
ReplyDeleteI am sure they could have done somethings differently to help prevent such a devastating crisis, but it is more than just them. The banks issuing the mortgages could have helped as well in trying to prevent the crisis. They could have been a little bit more wary of issuing mortgages.
ReplyDeleteThis article pretty much defends Fannie and Freddie. No matter what kind of situation they were in, it wa immoral for them to lend money to people who they knew were not capable of paying, which allowed the lenders to take advantage of them. It's true that we tend to leave out other creditors when blaming for the crisis
ReplyDeleteIt was not right for them to lend money to individuals who could not afford to pay. But we can not leave all the blame on one thing. It was a combination of bad decisions and poor judgement that led to the crisis. Knowing what we know now I think a lot of things would be changed to prevent the crisis.
ReplyDeleteI agree that they probably could have done something different but it was definitely more than just Fannie Mae and Freddie Mac that caused the crises.
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