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The painful task of taking on the left.
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In other words, well before 2005 and 2006, Fannie and Freddie were buying subprime loans. They didn’t follow Wall Street into the subprime business, they led it. In fact, as disclosed in my dissent, Fannie and Freddie had been active in the purchase of subprime mortgages well before 2000. The affordable housing requirements were imposed in 1992 and, beginning shortly thereafter, Fannie and Freddie bought increasing numbers of subprime and other low-quality loans that enabled them to meet the affordable housing goals.
Nocera and McLean also describe the role of affordable housing goals in causing Fannie and Freddie to acquire the triple-A tranches of mortgage-backed securities (MBS) issued by Wall Street and based on subprime loans; they date this activity to early in the 2000s:
They’d [i.e., Fannie and Freddie] begun buying these securities in the earlier part of the decade because they offered decent yields. But when the housing goals became harder to fulfill, the triple-A tranches provided an easy way to meet their mission numbers. Eventually, the Street began designing a special GSE tranche that was packed with loans that satisfied the affordable housing requirements. And HUD allowed the GSEs to count these purchases toward their goals. Over time, Fannie and Freddie became two of the world’s largest purchasers of triple-A tranches. In the peak year of 2004, the GSEs bought about $175 billion in triple-A’s, or 44 percent of the market.
So, far from getting into subprime loans “with trepidation” in 2005 and 2006, or a “reality” in which Fannie and Freddie “followed the private sector off the cliff,” Fannie and Freddie were buying Wall Street’s subprime MBS in the early 2000s, and by 2004 were the principal buyers of the subprime packages the private sector was putting together. In effect, they helped build the business that Nocera now denounces as the work of the Devils on Wall Street.
If there is any further doubt about what caused the GSEs to buy these loans — loans that ultimately caused their insolvency and have cost U.S. taxpayers more than $150 billion thus far — here is a statement from Fannie’s 2006 10-K, which somehow never made it into the Nocera book or the majority report of the FCIC:
[W]e have made, and continue to make, significant adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet HUD’s increased housing goals and new subgoals. These strategies include entering into some purchase and securitization transactions with lower expected economic returns than our typical transactions. We have also relaxed some of our underwriting criteria to obtain goals-qualifying mortgage loans and increased our investments in higher-risk mortgage loan products that are more likely to serve the borrowers targeted by HUD’s goals and subgoals, which could increase our credit losses. [Emphasis added.]
Thus, according to Nocera himself, Fannie and Freddie got into subprime mortgages well before 2005 and 2006, and were the principal customers for the MBS backed by subprime loans that Wall Street was putting together in 2004. In calling my dissent “loony,” Nocera was attacking me for drawing conclusions not substantially different from those he had announced in his own book. But the point here is not that Nocera did not read his own book, although that might be true. It’s that his commitment to the left’s narrative about the financial crisis was more powerful than the facts. Since the progressives’ position was that Fannie and Freddie, seeking profit and market share, had followed Wall Street into subprime lending, it must be true. Indeed, he’d probably read it in the New York Times.
I responded to Nocera’s attack by pointing out that the SEC’s case rested on a simple and reasonable finding that the mortgages the GSEs had not disclosed were in fact subprime, because they had a substantially higher rate of delinquency and default than prime loans. This seemed to put to rest the left’s specious argument that what Pinto and I had called a subprime mortgage was not in fact a low-quality loan. Since Fannie and Freddie had become insolvent because of the poor quality of the mortgages they held or had guaranteed, one would think this would be obvious, but this assertion had been the left’s principal argument against my dissent and Pinto’s work from the outset. Indeed, the SEC’s complaint had noted that for years Freddie had been coding billions of dollars of loans as “subprime” or “subprime-like” while reporting publicly that its exposure to subprime was “less than one percent.”
This response prompted another article from Nocera that described what I had been doing as creating a “Big Lie”—in effect, making up numbers, even though they had just been corroborated by the SEC. “So this is how the Big Lie works,” he wrote. “You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an ‘expert’ [this nasty remark refers to Ed Pinto, who was once the chief credit officer of Fannie and a life-long participant in the housing finance market]; out of thin air, he devises ‘data.’ You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own.…Thus has Peter Wallison, a resident scholar at the American Enterprise Institute and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis.…Rarely has his intellectual dishonesty been on such vivid display.”
Following this attack—still without a shred of data—came a similar assault from Nocera’s New York Times colleague, Paul Krugman, writing in his blog on January 9, 2012:
In a Dec. 23 column in the New York Times, Joe once again went after the Big Lie—the claim that Fannie Mae and Freddie Mac caused the financial crisis—and drove home the point that the people advancing this story aren’t just wrong but are acting with intent, engaging in deliberate deception.…Basically, Joe is arriving where I’ve been since 2000: what’s going on in the discussion of economic affairs (and other matters, like justifications for war) isn’t just a case where different people look at the same facts but reach different conclusions. Instead, we’re looking at a situation in which one side of the debate isn’t interested in the truth, in which scholarship is actually just propaganda.
It’s important to keep in mind after reading this that these two—Nocera and Krugman—are at the top of their profession. What a commentary that is on the quality of the rest. You can imagine the trash that is written and spoken by those lower in the progressives’ pecking order.
But then, of course, after those who disagree are called liars on the level of a Nazi propagandist, come the obsequious and disingenuous statements about willingness to engage in debate. Here is Nocera again, in his December 23 column: “Three years after the financial crisis, the country would be well served by a real debate about the role of the government in housing.…To have that debate, though, we need a clear understanding of what role the government’s affordable-housing goals did—and did not—play in the crisis. And that is impossible as long as the Big Lie holds sway.” Huh?
Has there ever been a less sincere invitation? As Dana Milbank wrote recently in the Washington Post, “Nazi comparisons are the most extreme form of political speech; once one ties his political opponents to the most deplorable chapter in human history, all reasoned argument ceases.” This country will never solve its problems until the left learns the lessons of tolerance and adult decorum.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?