Wednesday, May 29, 2013

Fannie Mae: A Deforming Monster

By Davis Stockman

Fannie Mae is a classic crony capitalist progeny of the New Deal that began life in 1938, quite innocently, as still another ad hoc New Deal program to boost the depression-weakened housing market. It grew into something quite different: a monster that deeply deformed and corrupted the nation’s entire financial system seventy years later.

The policy aim of Fannie Mae was “forcing water to flow uphill” in the residential mortgage market so that low-rate thirty-year home mortgages became available to wage-earning households of modest means. Such mortgages did not then exist for a good reason: they were not economic. No prudent local bank or thrift would take the underwriting risk.

Fannie Mae would thus override the market’s veto by turning local banks and thrifts into government contractors or agents, rather than mortgage debt underwriters. Accordingly, they would be relieved of their aversion to the risk of default loss by means of a Washington-funded “secondary market.” The latter would purchase these commercially unappealing mortgage loans for cash, enabling local bankers to reloan this cash again and again in a government-supported rinse and repeat cycle.

Meanwhile, the default losses that the market refused to underwrite would be shifted to taxpayers, since Fannie Mae’s funding would implicitly depend on the public credit of the United States. The slowly recovering residential housing sector would thus receive the kind of booster shot much favored by the New Dealers.

What Fannie Mae also did, unfortunately, was to start the home mortgage market down a slippery slope.

Read the rest here.


  1. And this caused, among other things, sprawl. Thus "progressives" and Keynesians are the cause of Global Warming, such as it is.

  2. Well frankly fiat wealth is headed down a slippery path!

    The multi-generational risk-on hedging of moral hazard is finally coming to an end.

    Monday’s May 28, 2013, collapse lower in Aggregate Credit, AGG, ancoupled with the surge higher in US HomeBuilding, ITB, US Infrastructure, PKB, and Small Cap Pure Value Stocks, RZV, evidenced the grand finale stock market blow off top that has come from the termination of Global ZIRP, that is the final fiat asset inflationary monetary policies of the world central banks, which produced an epic cresting of leverged speculative investing coming from the monetization of debt, carry trade investing, and the securitization of the most toxic of debt.

    The pursuit of yield bearing investments is definitely history, it was part of the bygone era of investment choice; this being seen in the turn lower of Utilities, XLU, Global Utilities, DBU, Mortgage REITS, REM, IVR, Residential REITS, REZ, ACAS, AVB, Premium REITS, KBWD, Small Cap Real Estate, ROOF, Global Real Estate, DRW, and Dividends Excluding Financials, DTN, all trading lower on higher interest rates globally and the start of competitive currency devaluation, on the excesses of Global ZIRP.

    The daily chart of the 200% US Dollar ETF, UUP, shows the US Dollar, $USD, rising in an ascending wedge pattern, suggesting that its price objective will be reached soon; it has been rising since September 2012, and February 2013, and May 2013 as well. The rise of the US Dollar, $USD, and the trade lower in Major World Currencies, DBV, and Emerging Market Currencies, CEW, together with the trade lower in Aggregate Credit, AGG, marks the end of the Milton Friedman Free To Choose Floating Currency Banker Regime, and the beginning of the Diktat Beast Regime of Revelation 13:1-4, as Jesus Christ is in dispensation, Ephesians 1:10, pivoting Liberalism to Authoritarianism.

    This comes as bond vigilantes are now successful in calling interest rates higher, and currency traders are successful in calling currency values lower in competitive currency devaluation. World Stocks, VT, are now trading lower, as debt deflation is now underway, destroying fiat wealth. All forms of fiat money, major world currencies, DBV, emerging market currencies, CEW, credit, AGG, and stocks, VT, are trading lower on the exhaustion of the world central bank’s monetary authority.

    With Jesus Christ at the helm of the economy of God, Ephesians 1:10, the seigniorage, that is the moneyness, of fiat money system has failed; the seigniorage of its replacement, the diktat money system, is rising to rule mankind’s economic and political economic activity.