Wednesday, October 22, 2008

A few late points on housing crisis

A few useful bits of information when mulling over the "housing crisis" I've not seen spelled out elsewhere over the last couple of months:

- Of the total political contributions made by Fannie Mae and Freddie Mac from 1989 to the present, 57.2% of them have gone to Democrats (57.8% if leftist independents Bernie Sanders and Joe Lieberman are included), while the remaining 42.2% have gone to Republicans. That isn't as lopsided as has been insinuated in some places.

- The Community Reinvestment Act was passed by a supermajority Democratic Senate (61-39) and House (292-143) (during Carter's Presidency, of course).

- There is a modest but statistically significant correlation of .31 (p=.03) between Kerry's share of the vote in '04 and per housing unit foreclosure filings rate by state as of this August.

The need for more regulation schtick grates me. The WSJ's William McGurn quotes the former Louisiana Congressman who was a longtime opponent of the housing GSEs:

My starting principle is this," says Mr. Baker. "The closer an enterprise is to the taxpayer's wallet, the more congressional oversight it requires. The further away you get from that wallet, the more freedom you should give people, because they are risking their own money, not the taxpayers'."

On Capitol Hill, he notes, we had just the opposite. In terms of accountability, Fannie Mae and Freddie Mac were the worst of both worlds. On the one hand, they lacked the congressional oversight that would have come had there been an explicit and acknowledged taxpayer guarantee. On the other hand, the privileged position represented by this implicit guarantee removed the discipline that market competition forces on other private enterprises.
Private banks are effected by CRA examinations. The ratings they receive (made more stringent in 1995) factor into approvals for new branches, mergers, and acquisitions. Banks are required to hold 10% of capital to back up their investments ($1 for every $10 due), but Fannie and Freddie are only required to hold 2.5% of capital to back up their own ($1 for every $40 due).
It's old hat now, but the opposition to greater regulation of the GSEs came exclusively from (mostly black) Democrats. "Unregulated capitalism" isn't the right cliche to be throwing around. "Political correctness" and "crony capitalism" are more appropriate.

Tangentially, here's a neat (and partisan) video synopsis of what took place (via Al Fin):



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