Bair spoke at the Wharton School today. She laid it on the line
regarding what she thinks should be done to reform the nation's
mortgage market and the role that the government plays. Everyone should
read this speech. Especially the current crop of “deciders” in Congress
and the Administration. I agree with Ms. Bair on almost all of her
points. Her speech confirms to me that she has a vision of what must be
done. She is the only one in Washington who has the guts to spell it out
for us. I have said in the past and will say again now that Sheila Bair
should be our Treasury Secretary. We need leadership. We have none.
I am convinced that what Sheila describes will happen in one form or the
other. It is not a question of “if” the government’s role in the
mortgage market will change. It is a question of by how much and how
fast it will change. We can do this over the next 10 years and suffer a
lost decade or we can accelerate the process. Ms Bair is in the sooner
versus later camp.
As you read through the speech (or the few snippets below) consider what
she is saying in the broader context of the US housing market. It is
clear to me that the changes to come will have a long-term deflationary
impact on the housing market and the related industries. Should that be
what’s in store, I am left wondering where the economic growth will come
from.
A critical task
lies before us: rebuilding U.S. mortgage finance on a sounder footing,
not only to restore the confidence of homeowners, investors and lenders,
but more fundamentally to restore balance to our broader economy.
If we are
willing to take bold steps, and return to the fundamentals we can
get back to a more rational world.
We must
recognize that the financial crisis was triggered by a reckless
departure from tried and true, common-sense loan underwriting
practices.
Traditional
mortgage lending worked so well in the past because lenders required sizeable
down payments, solid borrower credit histories, proper income
documentation, and sufficient income to make regular payments.
All told, over
$2.1 trillion in private securities backed by risky subprime and
Alt-A mortgages were issued between 2004 and 2006.
Market discipline
was tossed to the wind. It explains why trillions of dollars in
faulty mortgage paper was issued before the home price bubble finally
collapsed.
We need to have
some basic underwriting guidelines that apply to all mortgages. Basic
limits on loan-to-value and debt-to-income ratios, and consistent
documentation requirements should be set for any loans held by a
depository institution or sold to a securitization trust.
In 2009, the FHA
and the GSEs accounted for 95 percent of total U.S. mortgage
originations.
Does it make
sense for the federal government to subsidize homeownership
in an amount three times greater than the subsidy to rental housing?
In the end, these subsidies have helped to promote homeownership, but
have failed to deliver long-term prosperity.
Homeownership
was once regarded as a tool for building household wealth, in the crisis
it has instead consumed the wealth of many households.
The financial
crisis and the Great Recession it spawned threw 8 million people out of
work, reduced our GDP by about 3 percent, caused a huge increase in
federal debt, and virtually wiped out the entire net income of
FDIC-insured institutions for at least a two-year period.
We need to get back
to a world where our financial sector supports the functioning of
our economy, and not the other way around.
Unfortunately the financial cabal does not pay lip service to the views of women as the derivatives fiasco has shown us ina most painful manner.
The shmucks reponsible for that FUBAR are still running the circus and the sole female voice of reason (Brooksley Born gets to sit on the on a commission that will report its recommendations long after new laws are passed.
We shall see how far Blanche Lincoln's dog is allowed to hunt...
"Unfortunately the financial cabal does not pay lip service to the views of women as the derivatives fiasco has shown us ina most painful manner." Yup - just ask Robo :o)
If we just had more laws everything would be ok.
Agreed. lol
"The more corrupt a society, the more numerous its laws." Wisdom from the ages, but it's like casting pearls before swine.
+1
Yes but her logic runs contra that of banksters looking to leverage up to increase their profits margins. If Sheila doesn't tone it down, she will be replaced very quickly.
Very true, and I am a bit surprised that she is still there.
Maybe there was some sort of basic math section on the job application when the Obama administration took over.
No she will not be replaced. There needs to be somebody to state the obvious whether anything will be done about it or not. NOT is more likely.
btw.. Has she taken into account what will happen to banks doing business along the 1000+ mile coastline bordering the GOM & Atlantic ? I sympathize with some of those banks.
Excellent post, Bruce. She does seem to get it. But she is powerless other than managing bank failures. She cannot rein in FHA loan programs. She cannot stop the carnage. She can only speak up, as she is doing, and wake up on Friday to gain the strength to post the failures of the week.
Nobody listens. They do what they have set out to do. Does not matter what the end result will be.
Oh, I think it matters a lot....check out the end result for IndyMac......sweetness, courtesy of the FDIC!!
http://www.youtube.com/watch?v=ssl5yb7FewA&feature=player_embedded
thanks for the link. through it i found aimee allen's killer video for ron paul. what a singer! too bad edgar bronfman jr., head of warner music, is too scared (big likudnik) to release her cd "i'd start a revolution". what a putz.
Talk is cheap.
Damn straight! When that bitch starts talkin' nasty, I'll listen.