From a purely political point of view, it’s a simple story. Existing homeowners are a far more powerful force at the voting booth than potential owners, homebuyers, are. It’s therefore very much in the interest of the incumbent government to keep home prices as high as it can. Let them slide too much and you will pay for that at the next election. For potential buyers you can devise plans that lower interest rates and down payments, but that's all. More affordability simply through power prices is not on the political table.
Still, in the "listening conference" on US housing policies - and Fannie Mae and Freddie Mac in particular- that started this week, it's not voters that have the biggest say. That is reserved, and how could it not be, for the financial industry. Not that the Obama administration has to hear the truth from the bankers anymore: Washington has long since realized that truth. Which is that without Fannie and Freddie, and the 80% stake the US took in them in 2008, as well as the unlimited financial guarantee issued by Tim Geithner at the end of 2009, it's not just the housing industry that would instantly collapse. The banking industry would, like a shadow, rapidly follow in its footsteps.
Which is why the conference is largely an elaborate piece of public spectacle, bereft of any true substance. It’s the government going through the motions of an exercise of which it knows the outcome beforehand, perhaps silently praying for a miracle to come forward, but at the same time not even remotely considering the one and only solution to the problem. Which is to get rid and Fannie and Freddie, let the share- and bondholders take the haircuts the deserve for investing in overtly bankrupt walking dead, take the losses that remain on the federal balance sheet, and let the housing and mortgage industries sort it out for themselves for a while. Say, 5 years.
And so what I’ve often labeled the biggest crime in US history continues unabated. There is, on a regular basis, lots to do about the various bail-out schemes for too big to fail institutions that have been initiated in the past two years, but the largest bail-out, consisting of Fannie, Freddie and increasingly also Ginnie Mae and the Federal Housing Administration, is hardly ever mentioned in the same vein.
Undoubtedly, this has a lot to do with the way the money is made available, as well as with the permission to hide the true value of all the paper involved in the industry, but it is still remarkable that the press hasn't been on top of it to a much greater extent. If it had been, we wouldn't perhaps have had to listen to Tim Geithner opening the conference trying to rationalize ongoing government -financial- support of the housing industry like this, reported by Ronald Orol at Marketwatch:
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